Early
Retirement
It can happen, but you gotta start now
and work your assets off
Here's a real-life story about someone
who took her future into her own hands, established a plan and stuck to
it. The result is that she's no longer shuffling from one meeting to another,
but rather shuffling from one hobby to the next - all while not worrying
about tracking her vacation hours.
Tan had just celebrated her 11th
anniversary with her employer in 1990 when merger fever struck, and her
job security 
was suddenly unsure. She was 40 years old. Tan survived a series of reorganizations
over the next few years, but the uncertainty forced her to be more serious
about saving money in fear that she wouldn't always be so lucky. Among
other things, she gave up season tickets to the symphony and cut back on
spontaneous weekend trips. Tan discovered she could live on much less money
than she had previously. It was a revelation that changed her financial
life.
Tan had already been contributing
to EPF at work, and she stepped up her savings and other investments to
include a money market account. Four years later, Tan's investments had
started to grow, and she began planning for early retirement. If she couldn't
predict what would happen on the job, she would quit working! With the
help of a financial planning consultant, Tan set a goal to retire in the
year 2000, just before her 51st birthday. When she cleaned out her desk
that year, Tan also cleaned out her EPF account valued at about RM275,000.
She had also accrued nearly the same amount with her other investments.
On the advice of her financial professional, Tan invested about 60% in
investment linked fund and the rest in mutual
funds, and she lives on a monthly withdrawal of RM3,000, about 40%
of her previous salary. Plus, she moonlights as a part-time consultant
to her former employer.
Tan thinks of the 10 years prior
to her retirement as basic training for living on less. She had been told
she would need at least 70 percent of her pre-retirement income, but she's
proof that you can make it work with less spending money in your pocket
(and more in the bank). Our retirement planning
calculator may be just what you need to launch your dreams.
Take These Reality Checks To The
Bank
These are the few pointers you'll
need to consider if an early exit from the rat race is part of your game
plan.
Be sure to think about health
insurance because the costs could derail your plan. One myth is these
expenses will decrease once you retire, but the truth is health insurance
(and prescription drugs) may cost several hundred dollars a month. Some
employers offer health-care benefits to retirees, but probably not those
who retire early.
Depending on your situation, it's
wise to pay off your home mortgage before you
retire or have a plan in place to take care of the loan soon after you
quit collecting a paycheck. Or, be prepared to sell your home and move
into something smaller.
Seriously consider the price tag
of the first few years of early retirement. Dream vacations, a cabin in
the woods, trips to visit your adult children, and any number of other
expectations cost money. If you haven't prepared for these types of expenses,
you could be forced to draw on investments too soon, which could jeopardize
your long-term financial picture.
Phasing into retirement is also a
viable option. If you change jobs or become a consultant, perhaps you'll
make enough income to avoid drawing on your retirement investments too
early, and you may qualify for health insurance benefits through your new
employer. |
