A New Beginning
Deciding whether you can afford early retirement is more than a matter of dollars and cents. It also involves making sense of your quality of life.
"First, it's a qualitative issue, not a quantitative, financial issue: What are they going to retire to? What are they going to do with all their time?" said John Napolitano, CEO of U.S. Wealth Management in Braintree, Vt., and a certified financial planner.
"Most people who retire early have no clue, all of a sudden, how much time there is in a day," Napolitano added. "I've had a lot of clients fail retirement because they didn't have a plan for what they were going to do with all their time. It wasn't because of lack of funds; it was a lack of direction, and they didn't really know what they wanted to do with their time."
So, what's a prospective early retiree to do?
"The first thing," Napolitano said, "is go through some life planning, figure out what's really important and what they really want to do, as if this were their last year on Earth. No waiting at this point in time. It's time to get it done, whatever it is."
Napolitano said it's important to keep active after retirement.
"Gone are the days where people's vision of retirement is they sit around in a hammock or a lawn chair and kick their feet up," he said. "And there are only so many rounds of golf you can play."
Early retirement generally refers to those wholeave the work force before or at age 62, when they can collect reducedbenefits from Social Security, rather than wait for full federalbenefits that can come when the person reaches an age between 65 and67, depending on when they were born.Napolitano said a retiree can expect to withdraw 4 to 5 percent ofa total portfolio and still keep it intact so that it will last."So if someone's retiring with $500,000 in a 401(k), and that'sall they've got, I think they should realize that $25,000 a year iswhat they can pull out of that safely and make it last for a lifetime,"Napolitano said.Retirement is one stage in a person's life. Then there's"beyond retirement," said Bill O'Neill, branch manager of TD Ameritradein Braintree. So it makes sense to do long-term planning."This is just the beginning," O'Neill said of early retirement."We make so many decisions leading up to retirement, we sometimes don'tthen alter our plans for what's going to happen after retirement. Lifespans are longer now, so sometimes in retirement we're talking 20, 30years for many people."One variable that may come into play when considering earlyretirement is the health of the retiree, said Tim Barry, a senior taxmanager at the Needel, Welch & Stone accounting firm in Rockland,Maine.
"If you have a client whose health is not that good," Barrysaid, "they might make a decision to retire early to spend theirremaining time with their families and loved ones."Health insurance is another issue," he added. "If they retireat age 55 or 60, what will they do for health insurance? They're nolonger going to be working and they'll need to either get a policy oftheir own or go onto someone else's policy and the benefits might notbe as good as the health insurance they had while they were working. Sothat has to be considered very carefully."Other factors in planning for early retirement include housing, long-term care and part-time employment.Another issue is whether to plan for your retirement yourself,have the planning done by a professional, or make it a combination ofboth."Regardless of who does it, what is necessary is that planningis done," Barry said. "When you're talking about retirement, for somepeople, it's going to be 20, 25 years and you've got to have someplanning there. You don't just go into those years and kind of wing it.There's too much to risk."Source: The Patriot Ledger. Powered by Yellowbrix.
Source: Money & Work
