Retirement Step 1: Shall We Quit?
Sure, you like your job. But if you had the chance to retire early, say at age 50, would you sniff at it?
"Pshaw. I love it here in my comfy Naugahyde chair." (Never mind the duct tape sticking to your legs.) "I have a window!" (Facing a brick wall.) "My work is important." (So much so that you have to be at the office 12 hours a day, and keep your BlackBerry with you the rest of the time?) "And look here in my top drawer -- a deluxe hole-puncher and all the paperclips I could ever use!" (No comment.)
For most people, a 30-year career is quite enough, thank you very much. But is early retirement realistic for you, Fool? Let's take a look.
At age 50, the government says you've got about another 34 years to live. Good grief! That's longer than your entire working career. With life expectancy increasing by leaps and bounds, you may want to think in terms of a 40-year retirement. Besides travel, golf, fishing, and classes in paperclip art, what else is on the agenda? How much will it cost? If you're at a loss, take a look at our post-retirement expense calculator, which will help you figure out just how much it might cost.
Will you have enough to do it all? How much must you contribute from each paycheck to increase that stash? Good question! You might want to take a look at our other retirement calculators as well. (Particularly the "Am I saving enough? What can I change?" calculator.)
Have you thought about inflation? After all, the $50,000 that looks like a good annual income now will certainly have to be larger to buy the same things in 20 years as it does today. But what will the rate of inflation be in the years ahead? And that's just to get you to the first year of retirement. What impact will inflation have over the 40 years after that?
Where will you live? With luck, the mortgage will be paid off, so you'll only have to worry about property taxes. Maybe you'll even sell out and move into a smaller place in a sunnier clime. Sure beats having to shovel snow at age 70, even if you end up farther away from kith and kin. Besides, the kids can always come down for a visit.
You should think about insurance, too. You're probably insured under group policies through work for disability, life, and health coverage right now. In fact, your employer may kick in part of the premium, or maybe the entire cost, for that insurance. But when you retire, you will most likely lose that coverage. What happens to your spouse if you're inconsiderate enough to die early or (heaven forbid) become permanently disabled? If required to do so, how will you pay for a major illness or hospitalization and all of the attendant physician's bills? Forget about Social Security or Medicare. You're way too young for either of those to apply. And even if you did qualify, would the assistance be enough for a survivor and/or all the medical bills? If not, what alternatives would you have? And what about long-term care costs?
Right about now, you may be wondering whether you should have a few more kids to help support you in your golden years. Don't worry, Fool. You needn't sire enough offspring for a soccer team. Our advice? Never leave your job.
We're just kidding, of course. We're confident you can retire at a reasonably young age without working until you drop, or having to populate the Dakotas. The trick is careful, Foolish planning, and we'll guide you step by step through the whole process.
Retirement planning entails far more than just picking an age to do so, and a beachfront property to do it upon. It requires a hard look at your lifestyle, your resources, and a whole host of factors that we tend to take for granted while we're working. Most of these elements, but not all of them, deal with money issues. As Fools, we'll face them head-on.
Now, let's proceed to Step 2, and figure out how much you'll need to spoil yourself and your grandkids rotten.