Thinking about retiring early? We’ve put together a list of key early-retirement questions to ask yourself to find out if you’re ready.
According to a report by the Federal Reserve Bank of New York last year, nearly half of Americans expect to retire before they turn 62, a two-point rise on prepandemic levels.
And you can see why. Long walks. Even longer lunches. Time with the grandkids. Vacations. Golf. Retiring early can promise all kinds of opportunities and benefits. But it also carries some risks, as it means your nest egg will need to last longer and adjust to a wider variety of fluctuations in your own life and in the economy overall.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
It’s therefore vital to ensure you’re fully prepared, both financially and emotionally, which is exactly where the following 10-point checklist can help. But, warning! There are no C grades in early retirement. Unless you can answer “yes” to at least eight of these questions, you may want to consider holding off on writing that resignation letter just a little while longer.
1. Do You Have a Long-Term Care Plan?
Whether it’s due to illness or old age, there’s a strong chance that one day you’ll have to finance a period of medical support for you and/or a loved one. Which means you need a clear plan for how to pay for long-term care as part of your early-retirement fund.
2. Are You Debt-Free?
From credit cards and car notes to mortgages and other bank loans, having to pay off significant debts, including any interest, is a drain on your nest egg. You should clear any significant fixed outgoings from your life before saying goodbye to your salary.
3. Are Your Dependents Independent?
From kids going through college to elderly parents needing support with medical costs, you may have various people in your life who depend on you financially. It’s best to wait until the majority of them are financially independent before you retire.
4. Do You Have a Stress-Tested Financial Plan?
A written financial plan must clearly set out how your nest egg will cover your expected expenses in retirement. A qualified financial adviser can then run a Monte Carlo simulation, stress-testing that plan through different possible scenarios to reveal whether it’s up to the job.
5. Do You Have a Trusted Sounding Board?
Whether it’s a professional, a colleague or a friend, find someone you can rely on for smart, objective financial advice, ideally from outside your network of dependents. The same person can also provide invaluable decision-making support if you’re ever faced with being no longer of sound mind.
6. Are Your Legal Documents in Order?
As well as a will and health care directives, you should get a power of attorney in place. This gives someone you trust the ability to make financial decisions on your behalf if you become temporarily or permanently incapable. Name a back-up, too, in case your first choice (for most of us, our partner) passes before you.
7. Do You Have a Passion Project?
One of the biggest issues in retirement can be depression. Suddenly, you go from running 100 miles an hour to feeling like you’re twiddling your thumbs. And no amount of golf, needlework or Netflix can fill the gap! Passion projects fire our engines as human beings, so ensure you have something to engage you mentally, emotionally and physically when work’s no longer part of your life.
8. Can You Replace Your Paycheck?
Without a salary, you’ll need to use your nest egg to create a regular income stream to cover your expenses. That’s where fixed-income-oriented instruments, such as dividend-paying stocks and annuities, come in. Ideally, you should use these to reliably cover 70% to 85% of your former paycheck.
9. Have You Adjusted for Inflation?
Inflation runs at an annual average of 3%, which means your cost of living will be much higher in the future than on the day you retire. Remember to adjust for this increase when assessing the value of your retirement fund. Or put another way, as well as replacing your paycheck, ensure you’re able to give yourself a 3% raise every year, too!
10. Are You Investing for the Long Term?
Most of us become more financially conservative as we approach the end of our working life. But as an early retiree, you need to know your investments will keep delivering returns for 30 years or more.
Even when the markets are volatile and the temptation to be risk-averse is greatest, try to keep a 70/30 or even 60/40 split between safer, fixed-income investments and those with higher equity risk but higher potential long-term rewards. All being well, you’ll need them!
-
How to Adopt AI and Keep Employees HappyThe Kiplinger Letter As business adoption of AI picks up, employee morale could take a hit. But there are ways to avoid an AI backlash.
-
Don’t Let Your Dreams Go Unfulfilled: Plan for Your Passion in RetirementFollow these three steps to ensure you are emotionally and financially prepared for your passion in retirement.
-
I'm an Estate Planning Attorney: These Are the Two Legal Documents Everyone Should HaveEvery adult should have a health care proxy and power of attorney — they save loved ones time, money and stress if a sudden illness or injury leaves you incapacitated.
-
I'm a Financial Professional: Here's My Investing Playbook for Political UncertaintyFor successful long-term investing in a politically charged environment, investors should focus on economic data, have a diversified portfolio and resist reacting to daily headlines.
-
The Truth About the Dark Side of Rooftop Solar PanelsRampant bankruptcies in the solar panel industry have left many consumers with systems that don't work and no way to get them fixed. Worse, they're being hounded to keep paying despite not receiving what they were promised. What can they do?
-
Six Big Beautiful Opportunities: Advisers' Guide to Tax and Client StrategiesHere are several ways financial professionals can help their clients maximize opportunities in the One Big Beautiful Bill Act, which extends key TCJA provisions, introduces increased deductions for people 65 and older and more.
-
Five Ways to Maintain Charitable Giving During Volatile Times: A Giver's GuideWhen the economic outlook is uncertain, charitable giving is even more important — and impactful. You can be strategic by using donor-advised funds, diversifying assets and prioritizing unrestricted gifts.
-
Avoid Medicare's 'Shadow Tax' With This Financial Expert's IRMAA-Busting TipsYou're cruising along in retirement, and then bam: Your Medicare premiums soar because your income crossed the limit. Take a breath. There could be a solution.
-
Grilling Season and ETFs: There's More Than One Way to Cook Up a PortfolioExchange-traded funds come in a multitude of 'flavors' these days, from passive to active to factor-based. Their flexibility is what makes them so delicious.
-
You Don't Want It, But You Should Plan for It Anyway: An Expert Guide to Long-Term CarePlanning for long-term care is crucial to protect your independence, family and financial stability against unexpected health events and rising care costs not covered by standard insurance.
