Retirement refers to the time of life when one chooses to permanently leave the workforce behind. The traditional retirement age is 65 in the Zimbabwe and most other developed countries. Many countries have some kind of national pension or benefits system in place to supplement retirees' incomes.
If you’re dreaming of early retirement, the following financial tips might help your dream become a reality.
Have a financial plan
It’s a good idea to have a financial roadmap that spells out things like your financial goals, expenses and debts so you always know where you are. A detailed plan can also help you stay on track with your goals, as you can check in regularly to see how your savings are going, and how any big expenses can set you back.
Set up your savings goal and reduce your expenses
You could consider spending less and saving more by embracing the FIRE (Financial Independence, Retire Early) philosophy of living frugally, saving hard and investing wisely. This means spending less now to put more aside for your retirement, so you may be able to better enjoy those work-free years.
Pay off your home loan
A mortgage is probably something you don’t want to take with you into retirement, so priorities paying it off to give yourself greater financial freedom. If you can do this, then when you retire you won’t have to spend a portion of your savings on continued mortgage repayments. Plus, paying off your mortgage early (without incurring fees from your provider) could mean you pay less interest overall. Be sure to speak with your provider about maximum early repayments before making any changes.
Boost your super
While you may not be able to access it straight away, your super will most likely make up a major portion of your retirement savings, so increasing it while you’re still working is like making a payment to your future self. You could try adding lump-sum payments into your super whenever you can manage to put more money aside.
Create a retirement budget
Calculate how much you may need in retirement. You may not have as many expenses but you wouldn’t want your standard of living to drop substantially. Think about dividing your outgoings into essentials, like groceries and utility bills, and discretionary, like overseas trips and a new car. And consider how you’ll cover expenses like home repairs and renovations.
Increase your income
Are there ways you could increase your income in the lead-up to retirement? Could you increase your hours at your current role or take on more work? You could try anything from talking to your boss about a pay rise to putting a few hours of overtime occasionally.
Build the right investment portfolio
Make sure you’re investing in the right mix of assets to achieve your investment goals and build your wealth for retirement. You could consider talking to an adviser about developing an investment strategy that’s right for your particular circumstances.
Plan to cover healthcare costs
As you get older you could be faced with increased healthcare costs so it’s important to factor these into your long-term retirement budget.
Some Pros of Retiring Early
It could be good for your health sleeping later, getting out in the fresh air and sunshine, no more gulping meals at your desk we can all easily imagine how leaving behind the office grind leads to healthier habits.
This isn't just supposition. A 2002 study of British civil servants, for example, found that retiring at age 60 had no adverse effect on the subjects' physical health overall. Those with higher-level jobs saw an improvement in mental health, possibly because they were no longer subject to work-related stress (and had better pensions than lower-ranked workers).
Other studies, however, have suggested that retirement can be hazardous to your health, as we'll get to in the next section.
- You'll enjoy more time to travel
Oh, the places you'll go! Or could go, once you're no longer limited to the proverbial two weeks a year vacation. Plus, the earlier you retire, the more years you'll have before health issues begin to limit your mobility.
- It's an opportunity to start a new career
If you dream of switching fields or starting your own business, sooner may be better than later. You'll be a more desirable job candidate to many employers the more years you have ahead of you.
If you want to be your boss, you'll have more time to get your new venture off the ground. A business you launch at age 60, for example, could easily keep you intellectually challenged and out of mischief for another 20 years or more.
Some Cons of Retiring Early
- It could be bad for your health
A 2008 analysis from the National Bureau of Economic Research reported that retirement leads to declines in mental health and mobility and increases in other poor health outcomes, such as heart disease and stroke.
While that's one argument for delaying retirement, those problems aren't inevitable. The report also concluded that retirees who remained physically active and socially connected were less likely to suffer any ill effects.
- Your Social Security benefits will be smaller
The sooner you start to take Social Security, the lower your benefits will be. If you were born in 1960 or later, for example, and you start taking benefits at age 62, the earliest age at which you're eligible, your monthly benefits will be 30% less than if you wait until age 67, which Social Security refers to as your "full retirement age."
For each year you postpone from age 67 to 70, you'll receive an additional 8% in your monthly benefit. After age 70, there's no further bonus for delaying.
- Your retirement savings will have to last longer
If you retire at age 62 and live to 90, let's say, your retirement accounts (IRAs) and other savings will have to cover you for 28 years. If you retire at 70 and live for the same length of time, however, your savings will only have to last for 20 years. Working longer also means you'll have more years to contribute to a 401(k) or another retirement plan, and the money in your plan will have more time to compound.
"An easy rule of thumb to estimate your retire-ability is to multiply your expected draw on investment portfolios that will supplement Social Security and other sources by 25," says Stephen J. Taddie, co-founder and managing partner of Stellar Capital Management LLC, Phoenix, Ariz. "If you have that amount of money in your combined accounts, you're ready to put a pencil to it. If you're 'close,' think twice."
And don't assume that living will be less expensive, either. "One common myth is that your expenses decline in retirement," says Jennifer E. Myers, CFP, president of SageVest Wealth Management, McLean, Va.
Myers adds the following:
“We seldom find that to be the case for three primary reasons. First, you simply have more time on your hands to enjoy, partake, and spend. Second, as individuals grow older, they tend to outsource more, layering on new expenses. Third, your healthcare expenses logically tend to increase as you age. It's important to make sure your assets can sustain potential, and perhaps inevitable, growth in spending over your lifetime.”
- You'll need to find health insurance
Unless your ex-employer provides it, you'll have to pay for health insurance on your own until you're eligible for Medicare at age 65.5 If you do, be ready for sticker shock: Insurance premiums can easily be double or triple what you're used to paying on your workplace plan there's no company picking up most of the tab anymore.
At the same time, unfortunately, health insurance rates climb as you get older, skyrocketing into four figures monthly after age 55.
- You might get bored and miss working
Many retires have a tough time making the transition from the daily routines of a full-time job to the unstructured life of retirement. They may also miss their former colleagues (sometimes even the boss) and yearn to return. Unfortunately, it isn't easy to get back into the workforce once you've left it, voluntarily or otherwise.
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