Should I retire early?
Yes please! Why wouldn’t I want to retire early? More time on my hands, no alarm clock, deadlines or commuting. Sounds great.
This is the simple answer. Unfortunately, the more complicated answer is, it depends. There are a number of factors to consider before pulling the pin on work.
What is early?
The answer to this question may vary from person to person. But thinking about when Australians become eligible for the age pension (67) could be one way of thinking about it.
Age 65 traditionally has been a common line in the sand for people to finish working as our super becomes completely accessible at this age.
Age 60 may be early and is an age at which you may start to access super tax-free if you cease working or access up to 10% per year of our super savings if you keep working. Before age 60 presents some challenging planning problems to bridge the gap between employment income disappearing and super savings becoming available.
For those of us seeking FIRE (Financial Independence, Retire Early), retiring early could be as young as 40.
How do I plan for it?
More complex planning is generally required for people who want to retire before age 60. This may necessitate strategies to build wealth outside super that can be used to replace employment income and bridge the gap from early retirement until super savings become accessible.
This may mean implementing savings strategies that are less tax-effective than super contributions and require more heavy lifting earlier to build up enough savings. This may be a delicate balance to strike with other priorities in play like paying off a mortgage or sending kids to private school.
Retiring after age 60 offers the possibility of using the potentially more tax-effective strategy of building wealth in super.
Have I got enough $$$?
This is the $64,000 question! Using assumptions such as life expectancy and long-term investment rates of return it is possible to model cash flow over time to provide some context to answer the question.
Other rules of thumb like the 25x retirement rule can provide some guidance to answer the question.
Gaining confidence to answer yes requires forecasting expected costs in retirement. Including regular annual expenses and potential one-off larger expenses, for example a new car or home maintenance / renovation.
These inputs can be used in long-term models to provide some confidence that there is enough capital to retire.
What am I going to do with my time?
This may not be the first question we ask but it is an important one.
Retiring early may provide the time and energy to find a new purpose or rediscover an old one. This doesn’t have to be the first thing on the list to do in retirement, why not take some time to do nothing and recharge the batteries?
But retiring early may mean 30-40 years ahead of the rest of us. Doing nothing sounds great but 30-40 years of daytime TV may make work seem not so bad!
What about a gradual transition?
For those of us with flexibility in our jobs cutting back to 2-3 days a week might be a good option to gain valuable time and keep earning an income to help reduce the risk of outlasting our money.
Another thing to think about is that early retirement doesn’t have to be forever. You can choose to return to work if early retirement doesn’t work out to be what you had hoped.
Who knows, finding new purpose may lead to new opportunities to work in a different field. You may gain great satisfaction and employment income that will refill the retirement savings coffers for the future.
When to start planning?
The earlier the better generally. Especially if early retirement is a possibility. Creating a roadmap to the destination can provide confidence that your goals are achievable. Who knows, you may be able to retire even earlier than expected!
