The traditional view of what retirement should be is quickly fading in the rearview mirror as Gen X and Baby Boomers are flipping the script on what your post-career lifestyle can look like. An increasing percentage of pre-retirees are now planning to retire early (at age 62 or earlier), and it’s becoming more common to see people opting for an alternate lifestyle once they do take the retirement plunge. Instead of golfing, boating, or snowbirding, we’re seeing retirees pursue consulting, an encore career, volunteer work, a more robust travel schedule, and so many more options that felt out of reach or unavailable just a few years ago.
Whether you want to retire early or you’re craving a slower-paced lifestyle through a sabbatical or a career change, we’re here to help you chart your own path. Let’s go over how you can prepare to enter a new season of life with confidence through maximizing your savings, minimizing spending, and evaluating your goals and values.
Preparing Financially to Sunset Your Career
You might be planning to retire early and move to Italy, or you might just want a several-year hard reset while you think about what comes next in your career. Whatever you’re thinking, it’s important to plan ahead financially. During your career, you’re in accumulation mode. Your earnings are strong, and you’re saving consistently.
When you take an alternate path, you minimize your years in accumulation mode. This doesn’t have to present a big problem – especially if you know ahead of time that you plan to make this shift. However, it does take some time to think strategically about your spending and to make adjustments to your portfolio to better support your new lifestyle.
Think Through Your Next Chapter
Before you look at the dollars and cents of your next chapter, it’s helpful to think about what you hope to gain from your new lifestyle. Fully retiring is very different from taking an extended career “pause,” and both of those things are different from going through a full career pivot and changing industries or job roles.
You don’t have to know exactly what your daily life looks like for the next 20-30 years, but having some ballpark ideas about what you want can help. Start with these questions:
- What reason do I want to change your lifestyle? Am I burnt out? Hate my job? Just want to pursue something different?
- Do I want to work at all? In what capacity?
- What type of industry would afford me the slower lifestyle or pace that I’m craving?
- Is there an alternate option to fully retiring – like going part-time, consulting, or switching to freelancing?
- Do I want to stay where I’m at right now, or travel?
- What type of “bucket list” items are on my list?
Having these broad-stroke ideas about what you want life to look like, how long of a break you want to take, and what new pursuits interest you can help you get a better idea of what you’d spend or what type of cash flow you’d have coming in throughout this new season of life.
Maximizing Your Money: Steps To Take
Time to crunch some numbers. Even if you don’t know your exact “number” for retiring comfortably, there are a few things you can do to get the ball rolling in the right direction.
Maximize savings while you can. While you’re employed, even if you move to part time, maximize savings while you can. This likely means maxing out retirement savings accounts like a 401k or Roth IRA, and opening a brokerage account to continue saving beyond the “traditional” routes.
Take your time. If the option presents itself, and you’re not faced with extreme burnout, take your time to remedy your situation. Create a glide path plan to transition out of your current role. This could look like steadily reducing hours, making a several-year path to moving out of your role, transitioning to consulting, or picking up other freelance work in your field until you’re ready to fully retire or make a career change. Buying yourself a bit of extra time can free up cash flow, and present a “light at the end of the tunnel” that alleviates some of the stress you’re feeling right now that’s motivating you to change.
Diversify where your funds are invested. Creating a diverse portfolio that balances risk prevention with long-term gains is critical. You might even look to create a “bucket strategy” where you invest in different buckets or accounts based on different time horizons. For example, you might have a short-term bucket that’s intended to provide you with stable cash flow until you’re in your mid-60s, a mid-term bucket that’s invested to get you through your 70s or 80s, and a long-term bucket that’s designed to support you later in life. Each “bucket” might have different types of asset allocation, and associated risk, because you’re using them at different times for different purposes.
Diversify what accounts you hold. Many people feel that maxing out their 401k is more than enough to retire early, but that often isn’t the case. This is especially true if you retire early, as you may need to live off of non-retirement-accounts (since there may be penalties for withdrawing from your retirement accounts before your full retirement age). If you plan to retire early, you can invest in a 401k, Roth IRA, Traditional IRA, and/or a brokerage account. Carefully consider the benefits and tax implications of each prior to setting up your portfolio.
Evaluate your cash reserves. Many mid-career professionals feel comfortable with 3-6 months of cash on hand at any given time, but if you plan to go through a career shift, take an extended sabbatical, or retire early, this may not be enough. Evaluate your cash reserves to determine if you need more than you have on hand right now, and work to hit whatever “number” you’re comfortable with prior to making any drastic changes in your lifestyle.
Create a spending strategy that you can stick with. If you plan to change up your lifestyle, you may find that your expenses change, too. For example, if you want to retire early, you should ask what type of daily life you want to achieve – it could include travel, pursuing passion projects, etc. Alternatively, if you want to take an extended career sabbatical, you might need to adjust your living expenses to reflect lower cash flow.
The good news is that, regardless of your decision, you can successfully align your spending strategy with your values during this new season of life. For example, let’s say that you want to take a few years off of work before firing up a consulting firm. During this time you want to travel, spend more time outdoors, and embrace a slower pace of life.
You may sell your large home and new car to buy a smaller living space by the beach with a used vehicle that gets you from Point A to Point B. You won’t need as many business-casual clothes for conferences or work events, and you can shed many belongings that have ongoing expenses or require upkeep. Even though these changes may seem dramatic, they’ll reflect your values as you head into this new chapter – and that will make them more sustainable.
Think about insurance coverage. There are health care options on Healthcare.Gov, and when you turn 65 you qualify for Medicare coverage. Consider which coverage option is best for you, and make sure you account for any increased cost prior to making a career transition.
Think outside of the box. There are so many options for bringing cash flow into your life these days, and new career paths seem to pop up every day. You could look to create passive income with real estate investing, take up drop shipping, freelance, read and review books online, become a content creator, do virtual customer service work – and that’s just the tip of the iceberg. Don’t be afraid to explore all of your options, even if you feel unsure about what’s next for you.
Building a Life You Love
Once you’ve thought through short-term lifestyle goals and financial strategies to support a lifestyle change, you can start to dream up a life you love. This may look like:
Pursuing passion projects. Do you want to learn an instrument? Spend more time in the pottery studio? Train for that cross-state backpacking trip you’ve always dreamed of? There’s no time like the present! Think critically and creatively about what will fuel your passion in this new chapter.
Focus on your health. This season is all about you – restoring your mental, physical, and emotional health, recharging your batteries, and rediscovering what brings you joy and fulfillment. If you’re planning to make a dramatic change in your lifestyle, developing a health and wellness routine can help you to have some semblance of structure and to stay on track as you move toward the ultimate goal – a life you love. You might want to incorporate exercise or movement into your life, check in with a therapist or counselor, and pursue other wellness activities that light you up.
Design a routine. You don’t have to have a rigid calendar that you live by, but having some element of routine that organizes your weeks, months, and seasons can help you to prevent falling into post-retirement depression. Think about how you can find anchors in your schedule to keep you motivated and fulfilled.
Remember: Work Is Not The Wolf
There is an old proverb that says “Work is not the wolf.” In other words, work will not run off into the woods – never to be seen again, just because you didn’t take the “right” opportunity. Just because you opt to retire at 45 doesn’t mean you can’t dive back into the working world at 50. You can choose to change or reinvent your career in any number of ways over the course of your life. Don’t be afraid to try something new, or change course. The next right thing will always be waiting for you.
We’re here for you. If you want to retire early, pivot your career, or make a change – and you feel uncertain about how your finances can support that goal – reach out. We’re happy to answer any questions you have.