Achieving an early retirement may be the life dream of many workers but it takes more than dreaming to actually reach such a goal without already being independently wealthy. There is actually a lifestyle associated with planning for an early retirement and planning is a key element in that lifestyle.

Here are some valuable questions you need to ask yourself as you plan to achieve an early retirement:

What Is Early Retirement For Me?

In order to live a lifestyle of early retirement it is essential to first identify when retirement would come early. There are workers who would like to see themselves retire by their early 40’s while others are aiming for the age of 60. Regardless of how you identify the early age of retirement, it is essential you do by considering a few factors like your specific life expectancy to ensure you would have enough cash; whether or not you can afford continued health insurance for the necessary period of time; and when you’ll actually be ready to put your career behind you.

What Kind of Income Will I Need in Retirement?

There can be so many factors that influence once ability to survive financially after retirement. Once you pinpoint your age desire, you’ll need to calculate your cost of living plus all the other expenses such as hobbies, entertainment, and even travel. This is not an easy calculation to determine but estimates are necessary to begin aggressive planning, especially if you are fast-approaching your designated early retirement age. It may be necessary to sit down with a financial advisor who can highlight the expenses to consider in retirement if the concept is too overwhelming. Many people skip the financial pre-planning process of planning for retirement simply because there is just too much financial information to ingest.

Can I Live Like I Am Already Retired?

In order to guarantee a successful early retirement, it is essential to have the financial means. This translates to starting to live like you’ve already retired. It will be very important to set goals that allow for the most money to be put into retirement accounts and investments. Living like you’ve already begun retirement will include balancing a frugal lifestyle but still living efficiently. Budgeting will be required to ensure the allocation of funds into retirement accounts is adequate. Depending on one’s income, it can be hard to put that cash towards retirement goals when other needs must be met. Those who hope to retire by 45 but have a family to support may find it difficult to meet all of their financial goals for retirement at a younger than average age.

What is My Investment Plan?

Retirement funds are solely created for the purpose of saving for later in life. Depending on early contributions as well as those after early retirement goals have been set, your retirement funds may not be enough to sustain you for long. Employer-offered retirement accounts should be utilized effectively to ensure that paychecks are sufficient but contributions are consistent. Those who invest their income into various vehicles to earn additional retirement funds are always at risk for losing money. It is essential to have an investment plan for now as well as for the future. You must be able to choose investments that will provide the funds you need in your retirement years. It is extremely important to research and plan investments wisely so they will fulfill that purpose. Mistakes can be made easily which can hurt your chances for achieving an early retirement.

Living an early retirement lifestyle also means living a progressive, forward-thinking life where early retirement remains a priority. Being willing to sacrifice now for what you can have in the future can be a hard commitment to live with especially if early retirement is still a long way of for you.

photo credit: SCA Svenska Cellulosa Aktiebolaget

When you are in your 50s you will find yourself thinking more and more about your retirement. However, instead of thinking where you’ll travel to first in your caravan or which color the tiles in your remodeled bathroom should be, you’ll need to turn your mind back to financial matters for a little longer to make sure your travel and decorating budgets are up to scratch.

While you may have financial plans in place for your retirement, when you are in your 50s it is the time to review these plans and take another look at your expected expenses in your retirement. If you find that changes need to be made, you’ll have the time to successfully make them, and ensure that you will still be able to enjoy the retirement you’re dreaming of. Therefore, make sure your pre-retirement investment strategy includes these five steps.

1 – Know what you can contribute and withdraw from retirement funds

During your working life it is easy to absentmindedly make contributions to your retirement fund, hoping it will be enough. However, by the time you reach your 50s you need to start looking more closely at your contributions, to work out if you want or need to make extra contributions, or you are ready to start withdrawing from your retirement fund.

When you reach fifty-nine and a half, you can start making withdrawals from your 401K or IRA retirement funds, penalty free. However, from the time you are 50 you also have the opportunity to make catch up contributions which are more than the annual contribution limits. Since you are likely to be in your peak earning years later in life, with the highest salary of your life, this is the time to take advantage of your experience.

If you have found that you won’t have as much in your retirement fund as you would have hoped, you can contribute up to $22,000 to a 401K plan in 2011 and this includes a $5,500 catch up limit. In 2011 you can also contribute up to $6,000 to IRA accounts, including a catch up limit of $1,000. Contribution limits are adjusted each year and you will need to check with your financial advisor for 2012 limits.

It is also important you take the time to consolidate your retirement plans in your 50s because all of the smaller plans you have with each employer you’ve worked for throughout your life can be costing you money. With a consolidated retirement plan you have an overall view of your position heading into retirement and you can more easily manage your portfolio.

2 – Assess your assets

In your 50s you still have a number of years before you need to access your retirement funds, so you can continue to take advantage of assets such as stocks. Stocks are the only asset type which has consistently outpaced inflation so your retirement nest egg will not be eroded by the increasing cost of living. At the same time, consider reducing some of your stock allocation and replacing it with bonds which can generate an income into your retirement, and reduce the volatility of your portfolio.

When looking at your assets you will need to make sure you also have a sufficient allocation of cash because if you have to sell long term investments to free up cash for an unexpected expense, if you happen to be in a market downturn at the same time the longevity and success of your portfolio will suffer. While having ready cash available will lower your investment returns, your long term investments will be better placed to overcome market fluctuations.

Also look at how you are protecting your retirement assets and products such as long term care insurance which will ensure you won’t have to dip into your retirement assets if you need expensive medical assistance in the future. If you are planning to retire early, in your 50s, you may also want to purchase an annuity which will maintain an income stream for as long as the insurer is solvent. An annuity guarantees that you won’t outlive your retirement assets and can be helpful if you are not comfortable managing your own assets into your retirement.

3 – Minimize your investment risks

As you head into your 50s it is not the time to make high risk investments in the hopes of a high return, as the chances are often just as likely you’ll pay a high price. Therefore, minimize the risks to your retirement investments by ensure your portfolio is a mix of stocks, bonds and short term cash investments such as term deposits.

You will also need to make sure you have balanced the risks and rewards, as you don’t want to diminish your retirement returns either. You will also need to make sure you can access funds when you need them, to avoid having to sell stocks when you need cash, and risk selling at a low point.

4 – Reduce your debts

If you have been paying just the minimum on your mortgage in order to channel more funds towards investments, you could actually be better off clearing your home loan and being mortgage free. In the later years of a home loan term, very little of your repayment is going towards interest charges, and so only a small amount of your mortgage repayments are tax deductible. Therefore, you can get a better return on your money by reducing your interest expenses and paying off your home loan sooner, and there is no risk to the return of paying off your loan.

It is also important that you don’t have high interest debts such as credit cards as the interest you are earning on your investments won’t usually be higher than the rate of interest you are being charged on these debts. Plus, the compounding effects of credit card interest will quickly diminish the interest income from your retirement investments so focus on clearing these high interest debts to really let your retirement funds grow.

5 – Will you keep working?

As you approach retirement age, you may need to keep working to bring in an income, or you may want to keep working to stay active. No matter what your reasons, there are a number of ways you can earn an income in your retirement, and keep your retirement investments healthy. For example, you may be able to switch your current position to a part time position and continue your current role, or you may have a hobby or skill you can turn into your own business.

The social security rules have also been changed to make it more financially attractive for you to keep working. Where your benefits were reduced if you earned an income over a certain amount, you can work as much as you like in your retirement and still receive the full benefit.

Just keep in mind that earning an income after retirement is not always a viable contingency plan as you may see your skills and health diminish, or find it hard to secure work as an older employee. Instead, aim to secure your retirement investments with these steps, and work because you want to, not because you have to.

Alban is personal finance writer at Home Loan Finder, home loan comparison website.

What happens if 70 becomes the new 65?  How does it affect you, the workplace, and your plans for retirement? Are Boomers re-shaping the economy, or is the economy re-shaping them?

photo credit: Squid!

Could 70 be the new 65?  It may have to be for some!  One effect of the recent volatility of the financial markets is that many Americans are electing to postpone their retirement.  If 70 becomes the new 65, it will result in many changes to the workplace.  These trends could affect you, your employer, and your financial future.

Retirement will no longer be an event.  It will become a process.  If 70 becomes the new 65, more people will probably leave the workplace gradually instead of automatically at age 65.  This may not be that bad for baby boomers that want to stay active and engaged.   A manager or VP who was used to working 50 hours a week may become a consultant or a coach working less than 8 hours a day or maybe three days a week.  He/she might simply want to work less, for less pay, but not be ready to call it quits.  He/she may wish to make a lateral move within a company that would allow an exit on his/her terms.

Will more Boomers have the opportunity to shape their exit?

More and more expect “mature” employees to negotiate the terms of their retirement.  As gradual retirement becomes more common, so will the options and alternatives.

• How many hours they will work on their way out?
• How accessible they will be?
• Will they work from home or the office?
• Who will take the reins from their hands someday?
• If a boomer offers a personal exit plan that will help a business to cut labor costs without losing a valued employee, isn’t that a favor to management?

Tough Decisions For Businesses and Government Organizations.

In June 2009, the Bureau of Labor Statistics estimated that 23% of Americans employed or seeking work were age 55-64.  The 2009 Retirement Survey from the Employee Benefit Research Institute found that 51% of Americans age 25 and older now think they will retire at age 66 or older. 

Universities, state and local governments and public agencies will probably not see the same kind of retirement turnover they did in the past.  For businesses, who want to pay older workers to retire so that they can stay profitable in this economy, this could become a problem.  Organizationally, what is the economic value of retaining wisdom and experience?  Should they stop or slow down the recruiting of new managers, new faculty, or new administrators for the near future?

Will There Be A Wave Of “Re-hirement”?

In the EBRI survey, of the roughly 1,200 respondents 20% felt they would never retire.  This compares to 11% in the 2007 poll.  Part of that increase reflects what happened in the stock market, but it also may represent a perception shift in progress.  Baby boomers, as a group are doers, proud contributors to society who are re-shaping the old retirement template.

Changes Boomers Can Believe In!

Two distinct phases of American life seem to be emerging.  The first phase is one in which you work for a “living”.  That is followed by the second in which you work for “meaning”.  A wave of mature employees, professionals and entrepreneurs may be one result, but is another possibly return to the past?

Is this a real change to the culture of the recent past where people continue to retire at an earlier age?  Could it result in a cultural change unlike any this country has never seen?  … Or maybe it is simply a return to a work ethic that this country had at one time, …by a large group of  people, who had it, … but for a while seem to have lost it?

Boomers are back and the work ethic taught to us by our fathers is really starting to show.

As for Papa Boomer, I gave it up at 54.  Didn’t have the option of three days a week,  just a lot less money.  Given some of the options above, I might go back in a flash.  In the mean time, … I’ll just spend seven days a week … b%#&ching …blogging about it!  PB.

Are you a baby boomer that dreams of retiring before you turn 60? How about before you turn 50? Well, if you do, you might want to think twice before you make the move. If your heart is set on leaving work early you want to be sure to leave with the right mindset and the right estimation of your financial potential.  Early retirement can be done with the right financial plan.

Retire with a realistic picture of your income needs.

In 2007, the Center for Retirement Research at Boston, College served a 400 private sector employers. Those employers estimate that one fourth of their employees between 50 and 60 years old lack the financial resources to retire even at the traditional retirement age. If you’re like most baby boomers, your retirement expenses will be roughly 75% to 80% of your pre-retirement expenses. So you need to determine if the income derived from your 401(k), 403(b), pension or other sources could generate that. Remember that you can’t receive any Social Security benefits for age 62.

Retire with the idea that you’ll live to be 100.

With the recent advances in healthcare you might become a centenarian. Your income streams may need to last 20, 30, even 40 to 50 years. In the income streams that you have today may soon need to be supplemented or adjusted due to unforeseen needs and inflation. Many new retirees make the mistake of withdrawing income at too high a rate in the first few years after work. They live high on the hog for a while and find out that their retirement nest egg is shrinking because they are spending more than their portfolios can unpack . 2008 didn’t help that situation any more. Additionally, you may also have to pay for health insurance if you retire before age 65. All of this may point you in the direction of part-time employment rather than total retirement.

Retire with a purpose.

Leaving work behind can be exhilarating, but after the first few months of fun there can also be a now what. Any early retirement becomes better with a plan for purposeful and meaningful living irrespective of your finances.

photo credit: Vinay Deep