[Editor's Note: I don't get very many international submissions for guest posts, which is fine since my website has a fair amount of focus on US tax rules and 98% of my readers are from the US. This one comes in from a recent early retiree in Scotland who has started blogging about retirement after a long career in IT management. Since her blog is anonymous, we'll keep her anonymous here. It's not particularly physician focused and it is interesting to see the talk of “pensions” and no talk about how to pay for health care in early retirement. But other than that, the issues faced by early retirees are pretty darn similar on both sides of the pond. I liked the points about getting the finances right, retiring TO something, and the concept of trying retirement out before committing to it. We have no financial relationship.]
I’m not advocating extreme early retirement, just retiring a bit ahead of time, when you have the wealth to do so, and the health to enjoy it. Too many of us work far too hard, and then die within sight of that elusive pension. In 2016, I attended 8 funerals of friends and family. Half of them were 50 to 65. They never saw their pension.
I retired early a few years ago, aged 55, and I can safely say it was the best thing I have ever done. Since then, my husband and I have traveled the world. I spend time on my hobby working with metal. I manage our investments. I read widely, both fiction and non-fiction, I am learning French and Spanish. Recently I have taken up blogging. If the weather is good, I work in the garden, or just stretch out on a lounger and enjoy the sun.
I left my IT management job and the 6 figure salary behind without a second glance. Why? I realized that I was killing myself. The warning signs were there, the weight was piling on, the blood pressure wasn’t what it should be, I was always away from home, I worked all hours, took too little exercise. You get the idea… My husband, a chartered engineer, still had several years to go before his pension kicked in, but he hated all the admin at work. My elderly mother was at the time about 90, and while she was in great shape, I wanted to be able to spend more time with her and do more to support her.
We only get one shot at life, so we decided to retire early. Once the idea was voiced, it started taking shape. It took about 2 years preparation. Here are some things to consider, stuff that we did, to make it work for us. Regardless of whether you are ready to retire, they are still good things to do.
Note: I am not a financial advisor, so do make sure you take professional advice.
Priority 1 – Get the money right
- Calculate your net worth. All your assets less all your debt. If you are seriously considering retirement and your net worth is not positive, then you need to do some serious work on it!
- Work out how much money you will need in retirement. Factor everything in, from holidays, to home repairs, replacement cars etc. If you don’t have free healthcare, make allowances for what it is likely to cost. Work it out as a monthly rate. Will your proposed income match it? If not, you’ve work to do. Either increase your retirement income, or cut your spending!
- Consider what income you will have immediately. How many years will you have to wait until any workplace pensions start? What are you going to do for money in the gap between retiring and pensions? In my case, while we could have used investments, I decided to take an actuarial reduction in my pension, and take it early. My pension would comfortably keep both of us until my husband’s pension started 2 years later.
- Are there any actions you could take in advance, that will help later?
- Several years before retirement, I significantly increased my pension contributions. Under UK tax rules, I was able to take some of these tax-free when I retired, effectively giving me a 40% return on my money.
- Be aware of any potential changes in legislation. In the UK, there is now a limit on what you can put into your pension each year, and how big your pension pot can be.
- How long will your money have to last? My family members all live into their 90s, so I planned for 40 years. There is lots of discussion about the Safe Withdrawal Rate of 4%. In my view this is too high. So be very sure of any calculations you do. Be pessimistic, not optimistic. It’s better to take less out to start with. You can always revise it, ten years in. Beware of inflation!
- Do take professional financial advice. Preferably paid by the hour, rather than by a percentage of the funds being managed. If you do not have an advisor, ask friends or family for a recommendation. The advisors will understand the nuances of the law, and work through the options with you. It will be money well spent.
Priority 2 – Work out what you are going to do, once you are retired
There is no point in retiring if you are going to get bored, just snack and watch daytime TV. You’ll be better off at work.
- Consider reducing your hours rather than retire completely. A few months after we retired, my husband was asked to do some work for his previous employer. He negotiated a part-time contract where he works only on the things he wants to on his own time and he can flex it around our travel plans. A friend who is a doctor, aged 60, isn’t ready to retire, but now only does day shift in maternity. No nights.
- Consider some part-time roles. If you’re a professional, it might be possible to obtain a paid non-exec directorship in an appropriate industry. This will probably take up 2-3 days a month, and lets you continue to use your expertise.
- Do you have hobbies you want to spend time on? Are there things you have always wanted to do but not had time to? Now is your opportunity. Do the research in advance.
- Do you want to travel? Where? Why? When? One of the benefits of retirement is that you have far more flexibility about when you travel and for how long. We factor in one long-haul and one short-haul each year. We like to spend at least a month in a different European city each year.
- De-clutter. You’ll feel great doing it.
- Are you going to move homes when you retire? Downsize? Re-locate? Now is the time to start the research on how and when you are going to take those steps.
- Consider some volunteer work.
Priority 3 – Try it Out
- Do you have the opportunity to take a short term break? I took six months off without pay for family reasons. That confirmed to me that I wouldn’t get bored, (I was a workaholic), and that we could live on our proposed retirement income.
- Reduce your monthly spend to your anticipated retirement income. We did this about 2 years out. It boosted our retirement savings, and also let us realize what we really needed to spend money on. There is a big difference between Need and Want! It starts gently changing your mindset.
You (and your partner, if appropriate), have done all your sums, you’ve reviewed them with your financial advisor. You know you’re going to be able to use your time sensibly, and live comfortably.
- Talk to your financial advisor. Put the initial financial steps in place. Get the money in the right places, ready for when you need it.
- Start preparing yourself mentally for wind-down.
- Start talking about your plans to friends and family.
- Only when you are very, very, sure, resign, have a great party, and start the rest of your life.
What do you think? Would you like to retire early? What will you retire to? Do you have a method of trying out retirement? Comment below!