Ah... retire. The word has such a nice ring to it. It is the end of a career and the beginning of freedom. It's also step 3 of The Plan.
On the surface, this one might seem like the simplest of the steps, but there is a lot more to it than you might think. How can you make sure you're ready, both financially and mentally? What about the logistics - how exactly does one retire? Don't you have to be old to retire? What about all those articles out there saying that Gen-X and millennials will never be able to retire?
Slow down there, Sparky. Let's tackle the questions one at a time.
How can you make sure you're ready, both financially and mentally?
Now, I'm not a financial genius, nor would I ever claim to be. But I read. I read a lot. And the best article I've found to set the stage on how to be sure you're ready financially for retirement is this classic Mr. Money Mustache article -
I'll wait right here while you read it.
Ok, back already? Good. So, let's summarize for the person in the back of the class who didn't actually go read it. You need to have 25x your yearly expenses saved and invested in order to attain what is commonly known as the 4% safe withdrawal rate. I'm slightly more conservative than that, so I'm hoping for a 3.5% withdrawal rate, which would be 28x my yearly expenses. You'll have to decide for yourself what number makes you comfortable.
Once you hit your number, you're ready to retire, at least financially. [Side note: We'll talk more on this blog some other day about some of the things I'm doing to try to hit my number faster, but for now let's just say that there are two basic ways to speed up the process - save more money and/or reduce your expenses.] Financial readiness isn't the only readiness you have to worry about though. What about mentally? Are you ready to give up the career, or are you one of those folks who think you will die if you stop working?
You need to be honest with yourself. If your career defines you, maybe you should keep working. For me, it doesn't. I love what I do, but I love my hobbies and interests more. If the choice is working or hiking, I'll choose hiking every time.
What about the logistics - how exactly does one retire?
I'm still figuring this part out. Hey, if I had all the answers I'd be retired already, right? 😏
As far as I can tell, you need to make sure you have your ducks in a row financially, including figuring out how you're going to access the money you'll use to support yourself in retirement and what you'll do about healthcare. Then you need to work out a date with your employer.
My expectation is that I will make sure I have the finances in order, then give my employer a few months notice. Since I am planning on retiring early, I'm not sure I will call it "retirement" when talking to them, but I will let them know that I am moving to Maine after a certain date, and help them find and hire my replacement. I will want to ensure that I am not leaving them in the lurch, and will want to treat them as fairly as they have treated me.
Don't you have to be old to retire?
No. Many people retire early. Look at all the financial independence blogs that exist. Heck, even my parents both retired before traditional retirement age.
What about all those articles out there saying that Gen-X and millennials will never be able to retire?
I don't think there is anything preventing a particular generation from retiring. I think it's about choices. If you are determined to make it happen and make enough money to be able to save some of it, you can eventually retire. If you want to spend every penny you earn (or more) to drive fancy cars, eat dinner out every night, go on expensive vacations every year, and live in a McMansion, you probably won't be able to retire. If you want to major in underwater basket weaving and never make any money in the first place, you probably won't be able to retire either.
Thanks for reading. Keep an eye out for step 4.