Taking Early Retirement With No Financial Flexibility
Your ability to maintain long-term financial comfort after early retirement is contingent upon having the financial flexibility to adapt to changing conditions. Your financial position is unlikely to stay exactly the same throughout your whole retirement. In fact, retiring early extends the number of years you must adapt to financial ups and downs. Examples of unpredictable factors that may impact your financial situation during retirement include:- Home value depreciation, if you own your own home.
- Medical insurance cost increases.
- Declining pension plan payments.
- Declining income earned from investments.
Not Sticking to a Spending Plan During Early Retirement
When you first retire, it is easy to spend more each month than you initially planned on spending. If you have a lot of money set aside for your retirement, you may think there is nothing wrong with spending a little extra money. However, the funds you spend in the early days of retirement will cut into your later spending. Having too relaxed of an attitude regarding your spending habits may leave you struggling financially several years after you retire. There are several ways to avoid overspending early in your retirement. One option is to set a strict budget for yourself and stick to it. You must make the budget realistic by incorporating all predicted expenses. Examples of such expenses include:- Utilities.
- Vehicle repairs.
- Travel.
- Medical expenses.
- Home repairs.
Not Considering Medical Expenses
According to the Social Security Administration (SSA), the full retirement age is 67. However, you can begin collecting retirement benefits at 62 years of age. If you retire before reaching 62 years of age, expect no Social Security income until you reach retirement age. Additionally, the benefits you can collect at 62 years of age are 30 percent lower than those available at 67 years of age. If you wait to collect Social Security benefits until you are between 67 and 70 years of age, you receive an additional benefit increase of 8 percent per year. Therefore, you must financially prepare for delayed and decreased Social Security benefits when retiring early. You must also consider the cost of future medical care when opting for early retirement. You cannot collect Medicare until you are 65 years of age. You also do not have the benefit of medical insurance provided by an employer when you are retired. Your retirement plan must include options to pay for your own medical insurance. Additionally, you must be aware your medical status is likely to change significantly as you get older. At the time of early retirement, you may have no medical concerns, but hospital bills are likely to pop up in the future. You must make sure your financial plan for early retirement includes the funds needed to cover any emergency costs.Not Factoring in Extra Free Time After Early Retirement
When you choose early retirement, budgeting your free time is as important as budgeting your money. Do not think of the process as retiring from your job. Instead, consider it an opportunity to spend more time on activities you enjoy or to develop new hobbies. Also, be aware that not everyone around you has the financial stability to retire early with you. Your friends and family may not be as available as you want them to be for social activities right when you retire. When deciding how you want to budget your free time during retirement, consider expenses related to your chosen activities. You must have the funds to enjoy the activities on your list. If those funds do not exist, you may quickly overspend. Examples of expenditures that can quickly add up include:- Crafts and hobbies.
- Home repairs or decorating.
- Taking vacations.
- Shopping.
By Admin –
