Early Retirement Planning

Early retirement planning is more challenging than retirement at traditional retirement age. Without the safety net of Social Security, there are many extra risks, but here’s how to master it.

You can't wait to finally leave your 40+ hour job? Before you do, follow this early retirement planning exercise to know that you have a solid plan to retire early.

If you retire at 55 (or before full retirement age), you have extra things to think about!

You don't want to be a year or two into retirement and need to go back to work because you forgot something important!

This page will help you plan early retirement in full detail and look at the risks you should address before you are ready for retiring early.

Consider non-financial plans for retirement in addition to the financially-focused planning. These other topics can play a role in the financial plan, in some cases increasing the costs of retirement.

Early Retirement Planning: Document Your Plan In Detail

early retirement planning

You will need a divided retirement planning notebook for tracking and documenting your plan.

If you're a fan of paperless records, you can do this with a spreadsheet or other type of computer file, too.

It sounds a little like work, but doing this task to plan early retirement will help you be prepared for a successful and happy retirement!

Sections in your notebook should be:

  • Pre retirement to-do list - what you need to do to finish your plan. These are things to do now.
  • Finance - your retirement budget and income plans
  • Insurance - what insurance you need to line up before you stop working
  • Passtimes - What you plan to do with your time (more on this below)
  • Freedom to-do list - this is where you list all the things you want to do when you have the free time

Early Retirement Planning: Health and Medical Insurance Coverage

If you plan to retire early, you won't be eligible for Medicare to cover your medical expenses, and you may not have coverage from your employer unless you have worked long enough to be eligible for their retirement benefits AND the plan provides health coverage or a group option.

If you don't know what your employer provides, this is step one before you can plan for early retirement. Otherwise, you will need to pay your own health care costs or purchase your own health insurance until you reach age 65. This coverage can cost as much as $2000 per month for some situations.

If you're offered early retirement incentives or a voluntary early retirement, insurance may be part of a package or discussed in bargaining.

Do you need to add this item to your To-Do list in section one of your retirement planning notebook?

Other Possible Insurance Needs In Early Retirement

Other insurance coverages to consider include long term care, life insurance, and disability insurance.

When you think about long term care, one of the considerations is family history. If your family has a history of diseases such as stroke, Alzheimer's, or others that might put you at risk of needing long term care, you may want to purchase it sooner rather than later.

Would your spouse have a reduced standard of living if you were to die before retirement age? If so, you should buy term life insurance that would provide the income that would end if you were to die earlier than expected.

If your early retirement is really a semi-retirement plan, and you will be working part-time, as a consultant or in your own business, you may need to have disability insurance. Would you be able to live well enough without those income sources if you were to become unable to work?

More on insurance for retirement here.

Early Retirement Planning: Will You Get Bored Or Lonely?

Do you know how you will spend your time when you are no longer working? It is easy to think you have so many things to do with your free time, but after a few weeks you may begin to feel isolated.

Your work life gave you a sense of identity and relationships with people other than your spouse or other family members. If you don't have a plan for a new identity and a place in mind to interact with others, you may find yourself wanting to find a new job.

Some possible solutions could be to take a class, volunteer, join a club, etc.

What interests do you have that fits one of these suggestions? Is this another topic for your pre-retirement to do list?

Develop a schedule for your first 6 months to address your social needs.

Your first month could be just getting started on some of those things you've been dreaming about, and a celebratory vacation.

Your second month is where you need to find an outlet for social contact.

Put down some ideas for what you might do, even if it is just a to-do list with things like "find a drawing class" or "join the League of Women Voters" or contact so and so to explore volunteer organizations.

In some of your months, plan lunches with your friends who still work. Plan a party and invite friends and family, and maybe new friends from your new activities.

Early Retirement Planning: Finances

If you haven't already created your retirement budget, this is the first item on your pre-retirement to-do list. Do it now!

Articles on Retirement Finances

Targeted articles

Early Retirement Forums

Start with a copy of your current budget. A spreadsheet works best.

Make a column for future budget and add and remove things that will be different when you are retired.

Make sure you include an item for everything you can think of that you will spend money on.

Then add an item called "cushion" for unexpected and unplanned expenses.

One "real people" couple shared their retirement budget which may help you as you develop your early retirement plan. Look for it in the Financial Planning section.

If you plan to retire before age 59 1/2, read this guide to withdrawals and see the section on 401k and IRA accounts.

Life After Job Home > Early Retirement Planning: You are here