Money Clinic: The 2 Most Important Rules for Early Retirement

Finding relatively safe sources of retirement income has become tougher in this economy. Interest rates are hovering near historic lows, and some experts think relatively low rates may persist for decades. That means that you can’t put a lot of money into safe investments (which would more realistically be called savings instruments) and expect to live off the interest.

The most obvious solutions are to save more or live on less. For example, you might be able to catch up with bursts of savings once big expenses like college or a mortgage fall away. To get away with saving less, you have commit to living on less.

However, early on in retirement, many people tend to spend more freely, since they can finally do all the things they were too busy to do when they worked. So, you have to be careful to not burn through all of your savings too fast or you might need to scale-down your dream vacation a little.

However, after you hit your mid-70s, your outlays usually start to drop, even when you take health care spending into account. Therefore, if you can get through your sixties with a fair amount of savings, you should be ok.

That’s why it is so important to build up a large savings account before you retire. This enables you to have money available to spend on things that you enjoy. It also takes time for retirement benefits to kick-in, so you want to have money available in the transition to retirement.

Having a goal to build a nice savings account before retirement also gives you a nice goal to work on. It is also psychologically aesthetic to start planning out those exotic vacations you intend to go on!

Just like any new shiny object eventually fades, so does the euphoria over retirement. That is why it takes meticulous planning to be prepared for the type of retirement that you desire.

As always, it makes sense to prepare yourself with multiple income options so that you can withdraw money no matter what lies ahead in the economy. Study your options well in advance of retirement so that you can make the right choices.

Very simply put, if you can build up a nice chunk of money in your savings account by the time you retire, and you balance that out with a plan to have multiple income sources, you should be more than adequately prepared for retirement.

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