Early Retirement Checklist: 15 Essentials
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If you’re an avid saver and budgeter, and you don’t want to wait several decades to live it up, early retirement might be on your radar.
With some careful planning — and a willingness to slash your expenses — you just might be sipping a White Claw on your boat before you know it.
Early Retirement Checklist
An early retirement checklist is essential if you plan to divorce your workplace a few decades early. Being prepared and knowing your numbers will make or break your goal to retire early. Our checklist will help.
Early retirement readiness list:
- Know your numbers
- Plan what to do with your time
- Talk to a financial advisor
- Budget for early retirement
- Consider possible side income
- Prepare your emergency fund
- Pay off your debt
- Max out retirement investments
- Save until it hurts
- Evaluate your housing needs
- Prepare for healthcare costs
- Create a retirement withdrawal plan
- Learn about social security
- Have a life insurance policy in place
- Do some estate planning
Crunch the Numbers
The first step is to crunch the numbers. Determine how much money you’ll need to live on each month and lower that number, if you can.
Take an honest look at how much you’ve saved for retirement thus far and if you can ramp up saving and investing strategies. If you’re not saving at least 20% of your income (50% or more is a much safer bet), you likely won’t be ready to retire early.
You’ll want to consider healthcare and yearly tax costs as well.
And if you’re not following a budget to keep debt in check and expenses low, that’s a priority to implement right away.
Crucial numbers to consider for early retirement:
- How much money you can save/invest each month — the higher the better.
- Do you have a minimum of six months of living expenses in an emergency fund?
- Estimate your tax payments in retirement; a good bit of investment and passive income counts as income and is taxed — don’t forget to budget that in.
- How much money do you currently have invested or saved for retirement?
- Have you planned for healthcare costs for when you’re no longer employed?
- Do you have any passive income streams or plan to take on a flexible side hustle to cover monthly expenses if needed?
Create an Early Retirement Plan
What do you plan to do with your free time? It may sound like a dream come true to walk away from work at age 37, but have you thought about what to do with the hours in your day?
Whether it’s traveling for a while, relocating, or becoming a nomad — your new life can be extremely rewarding if you plan ahead and manage your expectations.
Consider every angle of the life you desire. Write out some possible pitfalls as well as solutions to the unexpected.
Better yet, if you have a way to test-drive your early retirement life, you won’t be planning in the dark. Can you do a trial run to implement your plan for several months?
Of course, there’s financial planning to do as well. We’ll cover that in more detail below.
Talk to a Financial Advisor
The ambitious task of planning for an early retirement is not for the faint of heart. I highly recommend partnering with a qualified financial advisor.
They can help you reach your financial goals as well as prepare you for money challenges you might not have thought of. Some advisors specialize in investing and can guide you to a balanced portfolio to maximize earnings.
Professional retirement planning and tax advice is likely to be a solid investment that supports your goals of retiring early.
Set Your Retirement Budget
First things first. If you don’t have a current budget to follow now, it’s best to implement one ASAP. You’ll need training and discipline now in order to make a retirement budget stick (and be successful at it).
Unless you anticipate a side job for extra cash flow, your income will likely be fixed no matter what age you retire. Plan very carefully for what monthly expenses will be. Pad that a bit for travel and fun.
One of the best ways to prepare yourself for your retirement budget is to start living it out for a year or two ahead of time. Give it a trial run and see how you do.
Consider Retirement Income Streams
Some early retirees choose not to forego all active income. In fact, it can be quite nerve-racking to have nothing new coming in at all.
Drawing on retirement savings or investment earnings will likely be your most steady monthly income. But there are many alternative retirement income streams to choose from.
Real estate investments are a very popular stream of income for retirees.
Owning rental properties — especially when inflation hits — can often result in premium monthly rental income. Others choose to buy houses or duplexes in expensive areas, fix them up, and sell for a profit.
Side hustles are also a dependable income stream. They can be quite flexible and keep you from being bored or feeling like you have no purpose. Consider them a way to dive into something you’re passionate about!
Do You Need an Emergency Fund in Retirement?
It’s essential to have some backup funds in case of large unexpected expenses. No matter what age you retire, an emergency fund is always a smart idea.
Ideally, this savings account should contain six months’ worth of liquid cash to cover your expenses. If you’re not sure how much you’ll personally need, an emergency fund calculator can get you started.
Pay Off Debt Before Retirement
We’ve talked about savings, and now it’s time to face your debt head on. What do you owe on your mortgage? And do you have enormous credit card debt or out-of-control spending habits?
Student loan debt will put you in the red as well. When considering early retirement, these can be the toughest expenses to gain control of. Ideally, you don’t want these as expenses at all.
It’s wise to pay off all student loans, car loans, and credit card debt before even thinking of retiring early. Your quality of life will be much better and less stressful if you can use your early retirement cash flow for enjoyable things, rather than debt.
How to Invest to Retire Early
Investing in retirement accounts such as IRAs, Roth IRAs, 401(k)s, and the like are the smartest ways to ensure steady income after 60. Start them early and pay into them monthly, decade after decade.
But what about income before you’re 60?
Having a taxable brokerage account (non-retirement investment account) is one way to fund your monthly expenses in early retirement. These accounts allow you to invest in a variety of things such as stocks, bonds, mutual funds, and more.
They differ from retirement accounts in two important ways:
- You can invest as much as you’d like each year.
- You’re allowed to take money out at any time without penalty.
Many people live comfortably off of dividends that pay out regularly or by withdrawing profitable gains from their investments.
Real estate investing can also give you a serious leg up in your quest for early retirement. Rental property — or buying to fix and sell — can also provide very steady income in some areas.
How to Maximize Your Savings for Retirement
As we discussed earlier, the more of your paycheck you can possibly save, the better your chances for early retirement. “Save until it hurts” is a common early retirement mantra.
And the folks who practice FIRE (financial independence/retire early) are experts. They’re often able to save an incredible portion of their income and lower living expenses to a bare minimum.
If you max out your retirement savings in funds like IRAs and employer-matched 401(k)s, you’re doing well.
But the real quest is saving all you can to build a fairly liquid nest egg you can access regularly to cover expenses (and for a splurge every now and then).
Ways to save extra money for early retirement:
- Don’t buy new cars — buy older ones with cash and you’ll save thousands.
- Same with technology — make it a quest to use that iPhone until it dies.
- Live below your means — in food, entertainment, and housing costs.
- Consider a side job — with the sole purpose of saving every penny it brings in.
- Carefully evaluate your purchases — is it a true need? If you waited a week, would you still want/need it?
- And there’s always the typical advice — spend less on utilities, cellphone and internet service, and other things you have control over.
Evaluate your Housing Needs
Do you really need that 2,000-square-foot house? Are you set on living in an expensive area, or is there some flexibility to move to a cheaper county, state, or country?
As you plan for early retirement, consider thinking outside the box with your home. Alternative housing like tiny homes, yurts, and RVs have become extremely popular.
Unconventional dwellings can slash housing costs in this exorbitant market, where the average age of a first-time home buyer is now mid-30s.
Whether you decide to try unique living temporarily while you prepare for early retirement or permanently once you get there — the savings can be substantial.
Early Retirement Health Insurance
An early retirement affects health insurance in a huge way. When you’re ready to walk away from that 9 to 5, the biggest loss is often your employer-sponsored health insurance coverage.
The good news is, if you live simply on a modest income (from savings, passive income, etc.), you may qualify for your state’s healthcare marketplace.
This isn’t free health insurance, but rather a sliding-scale marketplace where you can shop around for something that fits your budget and needs.
Another alternative is a shared healthcare plan. It’s not actual insurance, and most plans have religious affiliations, but I’ve heard they can be quite affordable. Do your research first; most of these plans don’t cover pre-existing conditions.
No matter what you decide, health insurance is likely to be a big chunk of your monthly expenses when you’re retired. Plan carefully so there are no surprises!
Early Retirement Withdrawal Strategies
Before taking that final plunge into early retirement, you’ll want a strategy for investment and retirement fund withdrawals. These add to your monthly cash flow to cover expenses.
Know your accounts and the various rules they impose.
Most retirement accounts require a minimum age of 59 ½ to withdraw funds without paying a penalty. This includes IRAs, Roth IRAs, 401(k)s, and the like.
Traditional IRAs and 401(k)s also require that you begin withdrawing money by age 72, or you’ll face a hefty tax penalty. Roth IRAs don’t have a required withdrawal age.
Thankfully, taxable brokerage accounts give you the flexibility to withdraw dividends and earnings at any age. So you’ll likely rely heavily on these investments as a regular source of income until you hit the traditional retirement age.
Social Security Early Retirement Age
Unfortunately, no one can touch their Social Security benefits before age 62. And even then, you won’t get the full amount you’d receive if you waited until the full retirement age of 67 (for anyone born after 1960).
For the purposes of early retirement, I’m assuming most of you are aiming for well before age 62. If so, you’ll be able to revisit what Social Security adds to your retirement income at a later date.
Many employers provide some amount of life insurance as part of your benefits package. Once you’re retired, you could lose that insurance. Check the guidelines for these policies carefully.
If you’re no longer covered when you part ways with your employer, you’d be wise to purchase a policy of your own.
Planning for the unexpected — whether death, disability, or eventual long-term care — will provide you peace of mind, as you’ll know your loved ones will be cared for if something were to happen.
Some policies such as cash-value life insurance can even be incorporated into a retirement funding strategy. Although it’s not right for everyone, it may be worth looking into.
Take Care of Estate Planning
As part of your early retirement gameplan, it could be wise to meet with an estate attorney to create a will or living trust.
Just like the life insurance topic, it’s never fun to think about planning for when we’re no longer here, but having a will is the kindest thing to do for loved ones.
While you’re preparing those finances for early retirement, it makes sense to put this in place as well. If you have kids, it’s especially important to assign competent guardians for them.
Be sure you’ve named beneficiaries for your various investment and retirement accounts as well. You can easily do this online with most brokerages.
The Bottom Line
Now that you have an idea of what’s involved in early retirement planning, you can get cracking. Stick to a budget, pay off those debts, and save, save, save!
Planning for early retirement can seem daunting, but with careful execution it can be a smooth transition into a new and exciting chapter in your life.
The early retirement checklist and partnering with a professional advisor can maximize your success.