Many of today's workers are taking a non-traditional approach to retirement, often choosing to delay it or avoid it altogether. In fact, more than one-quarter of baby boomers say they don't plan to retire until at least age 70, according to a report from the Insured Retirement Institute, and 8% say they never plan to retire at all.
Although that approach may work for some people, for others, the idea of working well into your senior years -- or working for the rest of your life -- sounds dreadful.
Early retirement can be an incredible experience that allows you to truly live life to the fullest as you get older, but it requires a lot of planning. If you've got your sights set on retiring early, start by taking these three steps.
1. Decide just how early you want to retire
Early retirement means something different for everyone. Some people may define it as retiring in their early 60s, while for others it may mean retiring in their 40s or 50s. The age you plan to retire will have a huge effect on how much you'll need to prepare, so consider this decision carefully.
The earlier you retire, the more you'll need to save. This also presents an additional challenge, because not only will you need to save more, but you also have fewer years to build that nest egg. If you want to retire significantly earlier than the traditional retirement age, you may have to make a lot of financial sacrifices to save as much as you need.
Be sure to weigh the pros and cons of retiring early to decide just how early you can realistically leave your job. For example, would you be okay with slashing your budget down to the bare bones for decades so you can afford to retire in your 40s? Or would you prefer to delay retirement by a decade or so and live more comfortably while you're still working? There's no right answer to these questions, as it will depend on your individual preferences and situation. But be sure you're thinking about how your retirement age will affect the rest of your life before you make a decision.
2. Create a savings plan
Once you know what age you'd like to retire, it's time to create an action plan. Use a retirement calculator to get an estimate of how much you should save by the time you retire, as well as what you'll need to save every month to achieve that goal.
As you're throwing your information into the calculator, make sure your inputs are as accurate as possible. In particular, think about how much you'll be spending each year in retirement and how many years you expect to live.
Your annual spending in retirement may not differ significantly from what you're spending now, but you could face some big changes. For example, you won't be eligible for Medicare until age 65, so if you lose your health insurance when you leave your job, you may need to buy insurance on your own -- which could be far costlier than what you're used to. You also can't begin claiming Social Security benefits until at least age 62, so you may need to rely on your personal savings alone to cover all your retirement expenses for many years, depending on how early you retire.
Also, try your best to estimate your life expectancy. You can't predict it with 100% accuracy, of course, but if you only plan to live into your 80s and you end up living past age 100, those last couple decades will be tough financially if you run out of savings. So take an honest look at your health and examine your family history to get as accurate an estimate as you can.
3. Adjust your plan when necessary
No matter how diligently you plan for retirement, there's always a chance your plans will change. You may move to a new city with a different cost of living, for example, that affects how much you'll need to save, or you could take on a new job with a different salary that changes how much you're able to save. You may experience a significant life event that encourages you to retire earlier, or you may find your dream job and decide you don't want to retire early after all.
Life will always throw curveballs at you, so make sure you're adjusting your retirement plan as you go. If you stick to your original plan no matter what, there's a chance you could reach retirement age and find that you're not nearly as prepared as you thought you'd be. And at that point, there's not much you can do to change things. By updating your savings plan when necessary, though, you can ensure you remain on track no matter how your goals may change.
Preparing for an early retirement can be challenging, but if you're determined to spend as much time as possible enjoying your senior years, the hard work may be worth the sacrifices. By setting realistic goals and creating a plan to achieve them, you can ensure you're doing everything possible to set yourself up for success.