Lifestyle

Want to Retire Early? Be Aware of These 5 Financial Risks.

early retirement

Many people want to take early retirement. If you’ve saved up enough money then why not? Well, first of all, you have to be sure that you’ve saved up enough money. Many people think that they have planned accordingly only to realize that there are a lot of financial downsides to early retirement.

Here are five of the biggest money problems that people tend to face in early retirement:

1. Failing to Plan Properly for Taxes

Did you know that many people are in a higher tax bracket at retirement than for much of their working career? This means that you’re likely to owe more at tax time than you’re accustomed to. Moreover, once you start taking out your 401K money, you’ll have to pay taxes on that.

Therefore, taxes in retirement can be pricey. If you haven’t planned ahead, then you’re going to have to readjust for that reality. If you retire early, then you’ll have to start figuring that out years ahead of your peers.

2. Years and Years of Spending Ahead

That brings us to the next key point. If you retire early then chances are that you’ll have more years of retirement. Therefore, you’ll have to make your retirement income stretch. If you retire at 55 instead of 65, that’s ten less years of earning and ten more years relying on retirement income.

3. Where Will Your Money Come From?

You won’t even be able to access some of your retirement funds, such as your 401K, until you hit a certain age. Therefore, you’ll have to figure out where you’re money is going to come from prior to that. If you haven’t planned in advance, then you can easily find yourself overspending in those early years. If you tap into your savings or refinance your home to cover those costs then you’ll have to find some way to make up for it later.

4. What About Healthcare?

Just because you retire early doesn’t mean that you can access Medicaid early. Therefore, you’re going to have to figure out how to pay for health insurance until you reach regular retirement age. If you’re not working anymore then you can’t count on employer rates. Your health insurance could get very expensive very quickly.

Even though you’ve retired early, you’re old enough that you can’t risk going without healthcare. If anything were to happen, your care costs would be exorbitant. Therefore, you do have to pay out of pocket for health insurance. How are you planning to do that if you’ve retired early?

5. You Don’t Maximize Your Retirement Benefits

If you take early retirement then you may not make as much money post-retirement as you could have. For example, if you have a job that pays a pension, the pension amount might be significantly lower if you retire early. Likewise, if you start access Social Security early (“early” currently means age 62) then you won’t get as much as if you’d waited. So, you start using the money sooner and yet you’re getting less of it than you could have. Waiting to retire could be well worth it.

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Time Freedom: Embracing an Abundance Mindset for A Better Quality of Life

time freedom

One of my favorite things about my life is the time freedom that I have. I worked hard to be independently-employed. The money I earn is nice but it’s simply a means to an end. The structure of this kind of work affords me the opportunity to define how I spend my time. Recently, I’ve been reading a book about abundance that allows me to take this to the next level.

What is Time Freedom?

Time freedom is really a very simple concept. It’s the ability to define how, where, and with whom you would like to spend your time. It is the cornerstone of why I love working freelance instead of 9-5.

Time freedom doesn’t mean that I don’t work. It means that I do work that I enjoy. More importantly, I’m able to adapt my work to a schedule that allows me to maximize my time. I’m able to do all of the things that I want to do in a day including my work.

The Fear of Scarcity Reduces Time Freedom

One of the traps that I’ve fallen into over the years is that of reducing my own time because of scarcity fears. I worry that I’m not going to make enough money. Therefore I devote more hours to work than is healthy. If I’m passionate about a project and really involved in it, then that’s different. However, if I’m driving myself to the brink of exhaustion because I want to earn more money, then I’m eating away into my own time freedom.

Embracing Abundance

Recently I’ve been reading The Abundance Project by Derek Rydall. The gist of his belief system is that we all have exactly what we need within us. In order to experience abundance, we merely need to recognize this fact.

Of course, he goes into a multi-step approach to practically realizing abundance. The main point, however, is that changing your perception from one of scarcity to one of abundance makes all of the difference in your life.

This makes perfect sense when it comes to time freedom. When I am in a scarcity mindset, afraid not to earn enough, I overwork. I don’t give myself the balance that I need. On the other hand, when I am in an abundance mindset, I balance everything better. I still give time to work. However, I use my time freedom to make sure to enjoy my other priorities as well.

Giving Time to What Really Matters

Abundance means so much more than just having more-than-enough money. In fact, to embrace an abundant lifestyle means digging deeper into core values. Money helps, and certainly aiming for an abundance of money is fine. However, when you look at what you really value, you realize that you need much more than money. Some of the things I personally value include:

  • Long walks with my dog
  • In-person chats with my friends
  • Attending performance art and other events in my city
  • Connecting regularly with my siblings
  • Spending time each day reading and writing
  • Creating art of various kinds

These are just a few of the things I want to focus on. Earning money isn’t on the list, though it’s necessary. In order to have these things, what I really need is time freedom. When I recognize how important it is to give my time to those things, I loosen up on a work focus. As a result, I more thoroughly enjoy each day of my life.

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Best Places to Retire Depending On Who You Are

best places to retire

I’ve been looking at some recent lists of the best places to retire. They aren’t bad options. However, I think retirement locations really depend on the individual. No matter how cost-friendly it is, a place isn’t the right place if you don’t love it. After all, you’ve worked your whole life to reach retirement; you should definitely love where you live in those later years! Luckily, the lists do tend to reflect a variety of options for people with different lifestyles.

Retiring on the West Coast Requires Money

Forbes recently came out with their 2019 annual list of the 25 best places to retire. They specifically note that you’re not going to find many options in the Northeast or anywhere on the West Coast. That’s because affordability is one of the main factors that they take into consideration when ranking this list. Yes, the West Coast can be very expensive. If you want to retire in a place like the San Francisco Bay Area then you need to have a decent amount of money in the bank.

That said, I love San Francisco. I love living here. In fact, I really don’t want to live anywhere else. Will I be able to retire in San Francisco? I don’t know. I’m working towards it. But even if I can’t, chances are that I’ll want to stay somewhere on the West Coast. It’s the way of life that I prefer, even if I have to sacrifice financially in other ways to make it happens. Therefore, these lists of the best places to retire often exclude the very places I want to live.

Variety in Options of Best Places to Retire

Although the list excludes much of the West Coast, it does offer a lot of variety in other ways. The 25 cities they claim are the best places to retire range in population from 8000 (Brevard, North Carolina) to 1.5 million (San Antonio, Texas). While that excludes the largest cities in the US, it does offer a decent range for people to choose from. There’s also a range in median home price from $135,000 (Savannah, Georgia) to $297,000 (Wenatchee, Washington). That’s not a huge range but it reflects the opportunity to choose from different living styles. Whereas most cities listed are in warm locations, there are a few cities for those who think the best places to retire have many months of snow.

US News offers even more variety in their report. They include 100 best places to retire. These are generally larger cities than those on the Forbes list. Population ranges from 500,000 in Santa Rosa, CA (a West Coast option!) to the many millions of New York City (which actually ranks #16 on this list of best places to retire.) The difference between these two lists really highlights that people seek many different things when it comes to retirement and therefore it’s not easy to rank cities this way at all.

You Don’t Have to Retire in the US

Of course, these lists all offer options in the United States. However, you don’t have to retire in the US at all. If you’re adventurous, have family elsewhere, or just want to spend your later years somewhere new, then you might consider retiring abroad. US News has listed the ten best places to retire in Latin America, and many of the cities on that list hold broad appeal. So, if you’re looking towards retirement, don’t just rely on lists or what others have to say. Really think about who you are, what you want, and what’s realistic for you in your later years.

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