Consider Retiring Early
[Editor’s Note: I don’t get very many international submissions for guest
posts, which is fine since my website has a fair amount of focus on US tax
rules and 98% of my readers are from the US. This one comes in from a recent
early retiree in Scotland who has started blogging about retirement after a
long career in IT management. Since her blog is anonymous, we’ll keep her
anonymous here. It’s not particularly physician focused and it is interesting
to see the talk of “pensions” and no talk about how to pay for health care in
early retirement. But other than that, the issues faced by early retirees are
pretty darn similar on both sides of the pond. I liked the points about
getting the finances right, retiring TO something, and the concept of trying
retirement out before committing to it. We have no financial relationship.]
I’m not advocating extreme early retirement, just retiring
time, when you have the wealth to do so, and the health to
of us work far too hard, and then die within sight of that
In 2016, I attended 8 funerals of friends and family. Half
65. They never saw their pension.
a bit ahead of
enjoy it. Too many
elusive pension.
of them were 50 to
I retired early a few years ago, aged 55, and I can safely say it was the
best thing I have ever done. Since then, my husband and I have traveled the
world. I spend time on my hobby working with metal. I manage our investments.
I read widely, both fiction and non-fiction, I am learning French and
Spanish. Recently I have taken up blogging. If the weather is good, I work in
the garden, or just stretch out on a lounger and enjoy the sun.
I left my IT management job and the 6 figure salary behind without a second
glance. Why? I realized that I was killing myself. The warning signs were
there, the weight was piling on, the blood pressure wasn’t what it should be,
I was always away from home, I worked all hours, took too little exercise.
You get the idea… My husband, a chartered engineer, still had several years
to go before his pension kicked in, but he hated all the admin at work. My
elderly mother was at the time about 90, and while she was in great shape, I
wanted to be able to spend more time with her and do more to support her.
We only get one shot at life, so we decided to retire early. Once the idea
was voiced, it started taking shape. It took about 2 years preparation. Here
are some things to consider, stuff that we did, to make it work for us.
Regardless of whether you are ready to retire, they are still good things to
do.
Note: I am not a financial advisor, so do make sure you take professional
advice.
Priority 1 – Get the money right
1. Calculate your net worth. All your assets less all your debt. If you are
seriously considering retirement and your net worth is not positive,
then you need to do some serious work on it!
2. Work out how much money you will need in retirement. Factor everything
in, from holidays, to home repairs, replacement cars etc. If you don’t
have free healthcare, make allowances for what it is likely to cost.
Work it out as a monthly rate. Will your proposed income match it? If
not, you’ve work to do. Either increase your retirement income, or cut
your spending!
3. Consider what income you will have immediately. How many years will you
have to wait until any workplace pensions start? What are you going to
do for money in the gap between retiring and pensions? In my case, while
we could have used investments, I decided to take an actuarial reduction
in my pension, and take it early. My pension would comfortably keep both
of us until my husband’s pension started 2 years later.
4. Are there any actions you could take in advance, that will help later?
Several years before retirement, I significantly increased my
pension contributions. Under UK tax rules, I was able to take some
of these tax-free when I retired, effectively giving me a 40%
return on my money.
Be aware of any potential changes in legislation. In the UK, there
is now a limit on what you can put into your pension each year, and
how big your pension pot can be.
5. How long will your money have to last? My family members all live into
their 90s, so I planned for 40 years. There is lots of discussion about
the Safe Withdrawal Rate of 4%. In my view this is too high. So be very
sure of any calculations you do. Be pessimistic, not optimistic. It’s
better to take less out to start with. You can always revise it, ten
years in. Beware of inflation!
6. Do take professional financial advice. Preferably paid by the hour,
rather than by a percentage of the funds being managed. If you do not
have an advisor, ask friends or family for a recommendation. The
advisors will understand the nuances of the law, and work through the
options with you. It will be money well spent.
Priority 2 – Work out what you are going to do, once you are
retired
There is no point in retiring if you are going to get bored, just snack and
watch daytime TV. You’ll be better off at work.
1. Consider reducing your hours rather than retire completely. A few months
after we retired, my husband was asked to do some work for his previous
employer. He negotiated a part-time contract where he works only on the
things he wants to on his own time and he can flex it around our travel
plans. A friend who is a doctor, aged 60, isn’t ready to retire, but now
only does day shift in maternity. No nights.
2. Consider some part-time roles. If you’re a professional, it might be
possible to obtain a paid non-exec directorship in an appropriate
industry. This will probably take up 2-3 days a month, and lets you
continue to use your expertise.
3. Do you have hobbies you want to spend time on? Are there things you have
always wanted to do but not had time to? Now is your opportunity. Do the
research in advance.
4. Do you want to travel? Where? Why? When? One of the benefits of
retirement is that you have far more flexibility about when you travel
and for how long. We factor in one long-haul and one short-haul each
year. We like to spend at least a month in a different European city
each year.
5. De-clutter. You’ll feel great doing it.
6. Are you going to move homes when you retire? Downsize? Re-locate? Now is
the time to start the research on how and when you are going to take
those steps.
7. Consider some volunteer work.
Priority 3 – Try it Out
1. Do you have the opportunity to take a short term break? I took six
months off without pay for family reasons. That confirmed to me that I
wouldn’t get bored, (I was a workaholic), and that we could live on our
proposed retirement income.
2. Reduce your monthly spend to your anticipated retirement income. We did
this about 2 years out. It boosted our retirement savings, and also let
us realize what we really needed to spend money on. There is a big
difference between Need and Want! It starts gently changing your
mindset.
Finally
You (and your partner, if appropriate), have done all your sums, you’ve
reviewed them with your financial advisor. You know you’re going to be able
to use your time sensibly, and live comfortably.
1. Talk to your financial advisor. Put the initial financial steps in
place. Get the money in the right places, ready for when you need it.
2. Start preparing yourself mentally for wind-down.
3. Start talking about your plans to friends and family.
4. Only when you are very, very, sure, resign, have a great party, and
start the rest of your life.
Enjoy!
What do you think? Would you like to retire early? What will you retire to?
Do you have a method of trying out retirement? Comment below!