July 24, 2024
A Day in the Life of a Financial Advisor
July 24, 2024
You’re looking for a new financial advisor, someone you will give access to your life savings. Don’t you want to know how they spend their time?
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It’s an exciting fantasy for many young workers—to work for 20 years, retire, and spend the next 30-40 years doing whatever they want.
However, early retirement is still a significant life transition, with many hidden challenges to your financial and emotional stability. There are several factors to consider outside of your savings plan, such as:
In today’s article, we’ll discuss whether retiring as early as 40 is possible, what the downsides may be, and what to consider when planning to retire early in general, even if it’s just a few years before the official date.
It’s clearly possible to retire as early as 40, but it’s certainly not easy. According to The Motley Fool, 2% of Americans retire in their 40s. Around 17% exit the workplace in their 50s. Most do this by saving a considerable amount of their income—often up to 75%. While this is not realistic for most Americans, accelerating the exit date can teach us much about retirement planning.
When you decide to retire over 20 years earlier than your colleagues, you must be rigorous with your calculations and cutting expenses. Unlike other retirement plans, there may be little room for flexibility, as we will see when looking at common early retirement strategies.
You don’t want to start with “how much should you have saved” by retirement because this question is largely meaningless without clarifying certain factors. Most online gurus can only offer vague answers, with the most common being $1 million or $2. But that’s only because they can’t track your specific situation.
Consider your lifestyle now and in the future. You’ll need to consider your living expenses, hobbies, travel, medical expenses, and so on. And you’ll want to assume that these increase—due to inflation—over time. Furthermore, you’ll need to estimate how long you will live post-retirement.
Many today retire at 67 or 72, only to live until their nineties. Retiring earlier means you must stretch your funds out longer, no matter how much you accumulate.
Outside of receiving an inheritance, there are two general strategies to save enough to retire by 40:
Short for “financially independent, retire early,” FIRE is a strategy that advocates for a rigorous savings regime, usually more than half your income, and extremely frugal living.
What may be more realistic for many is semi-retirement In semi-retirement, you retire from full-time employment early, but your side income enables you to reduce reliance on savings. This can be very similar to the Coast FIRE approach, with the main difference being that you are working primarily for the income, not necessarily the healthcare or employment perks.
Retirement is a dream for many, but life doesn’t suddenly “come together” once you graduate from the workplace. As with any major life transition, retirement has its own set of challenges—that may affect your savings and long-term health.
Nearly one-third of retirees suffer from depression—and there are several potential catalysts—loss of purpose, chronic health issues, lack of financial support, and social isolation. For many, one’s job is their identity. Without that social identifier, retirees must often reinvent themselves.
Retiring early, especially as early as 40, would require significant planning regarding life goals and overall well-being. This, of course, feeds into finances. You will want to account for bucket list items, hobbies, and other activities in your retirement planning.
But first, let’s look at some of the trade-offs of early retirement plans.
Most early retirement plans, such as FIRE, hinge on living frugally now so you can live comfortably later. This means sacrificing the present for the potential future. It may seem like a logical choice to suffer a little today for more freedom tomorrow. But it’s also important to remember that this isn’t one month or a year of frugality. It is often one or two decades.
The fact is that tomorrow isn’t guaranteed. There may be times when it would make sense to spend more—even if it sets your retirement plans back.
It’s important to understand the psychological ramifications of the lifestyle required to save 50% to 75% of your income. Will you be missing out on important milestones, such as friends’ weddings or the birth of nieces and nephews, if these events fall outside your budget? What about quality time with loved ones — those high-paying jobs may not give you the flexibility required to be there for your family.
We can’t predict illnesses, car crashes, deaths in the family, economic downturns, or other serious events that affect your well-being and finances. Even if you successfully retire early — something unexpected may draw you back to work, for better or worse.
A successful retirement lies in the planning process. Your strategy must go well beyond saving X amount of money. You’ll want to answer a number of questions, including:
These are just a few considerations one might have, even when retiring on time. You will also want to consider things like:
This shouldn’t deter you if your goal is to retire early. After all, it’s great to retire early if you can. But it’s important to tackle the transition prepared.
It is often helpful to have someone in your corner. Trusted friends, family members, and advisors can help you to flesh out your early retirement idea.
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or call me at +1 (828) 884-8840.
