According to a recent Gallup survey, the average retirement age in the United States is 67. This is up from a decade ago, when 63 years of age was the norm. In Israel, the standard retirement age for men is 67 and 62 for women.
Although retirement ages are rising, many people still choose to retire early. If this is something you want to do, take the following three rules into account before making your decision: Know the risks and be prepared for them
If you think you have enough money saved to retire before the standard retirement age, ask yourself if your plans are realistic. If your investments fail to outpace inflation, do you have a contingency plan? Can you afford to live on your savings and investment income until you are eligible for governmental pensions and can receive your work pension benefits? Answering the “what if” questions could spell the difference between a successful early retirement and financial disaster.
If retirement was a foot race, it would be a marathon instead of a sprint. Unfortunately, too many early retirees are sprinters when it comes to spending. Younger retirees tend to be active individuals who are prone to spending on hobbies, travel, and entertainment, without thinking ahead. Free time is rarely, if ever, truly free. Increased leisure time usually means increased spending. You might not be able to control the economy, but you can control your spending. When you were working, there was the opportunity to increase income with additional hours or changing jobs. Unless you consider part-time retirement work, retirement depletes your savings, as opposed to increasing them. Therefore, you need to live within your budget and control spending. Ideally, your budget has a line for a “slush” fund that allows for discretionary spending, but expenditures need to be kept in check.
Stay flexible to be able to adapt to life changes. If medical expenses increase, you’ll need to decrease other expenses. If the market doesn’t follow your predictions, you might have to withdraw less from your accounts.
Sometimes retirees think that if they run out of money they can get a job. While flexible thinking is a marker of a successful retirement, re-entering the work force may not be an option. Perhaps your health won’t allow it, or you will face age-discrimination from employers who want to hire younger (and cheaper) employees.
If you choose early retirement as an option, be aware that you are also choosing to address certain risks and are prepared to lower your spending in case you need to stretch your resources further.
This is an excerpt from The Retirement Planning Book. The complete e-book can be downloaded for FREE here.
About the Author: Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd, a financial planning firm located in Jerusalem. He specializes in working with clients in New York, Florida, and Israel and is a licensed financial professional both in the U.S. and Israel. Securities are offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, SIFMA. Accounts held at Pershing LLC., Member NYSE/SIPC, a subsidiary of The Bank of New York Mellon Corporation. Neither Profile nor PRG gives tax or legal advice. Before immigrating to Israel, it is advisable to consult with a tax attorney who is knowledgeable about Israeli law. Doug’s newest book The Expatriates’ Guide to Handling Money and Taxes is available at www.expatguidetomoney.com. He hosts a weekly finance show, Goldstein on Gelt, on internet radio. Listen live or download podcasts. Toll-free from U.S. 1-888-327-6179, Jerusalem: (02) 624-2788. Follow on Twitter: @DougGoldstein or contact at email@example.com.
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