Across the PF blogosphere, we tend to talk about early retirement as though it's a no brainer. Duh, of course we all want this. But the truth is, of course, that not everyone wants or needs to retire early. It's a very different path from the one most people follow for a reason, and it's not one we should go down without having our eyes wide open. This path isn't well-trod — it's windy and uneven, and unmarked in places. Think of it as path on the beach, marked by stone cairns, instead of a large thoroughfare with well-marked exits. Early retirement won't magically fix everything we wish was different about us or our lives, and it comes with its own set of pitfalls and stresses. To some of us, those things are worth it, but we can only know that if we do some real introspection and planning. And not just financial planning, but also planning around personal fulfillment, health and self worth.
To help sort this out, we've put together a list: the ten questions you should be able to answer before you retire early. No matter what stage you're at in thinking about or planning for early retirement (or, heck, for regular retirement!), take some time to think through these questions and their answers. If you struggle to answer any of them, then early retirement may not be right for you, or may not be right for you right now, and that's okay! Not everyone has to share this vision for their future. Particularly if you don't have a clear vision of what you want to retire to, there's nothing wrong with working a little longer, or even a lot longer. Not liking your job — being clear on what you're retiring from — is not enough of a reason to retire early. The answer may be much, much simpler: find a different job, or a different career path. If you're committed to retiring early, but don't have good answers for all of these questions, then let them kick start some additional thinking and planning that will pay off once you pull that ripcord and wave arrivederci to your career.
The answer could be any number of things — earning dividends from stocks you own, selling shares of index funds, collecting rent on an investment property or ten, doing part-time work, or some combination of the above. The answer can also change over time, focusing primarily on one strategy until you reach age 59 1/2, for example, and then shifting to live off your 401(k) or IRA after you reach the eligible age.
Other pieces to consider: Will you follow the 4 percent rule? Have you put together a realistic budget that will account for all potential expenses and things you want to do in retirement? Have you done multiple projections to ensure that you're saving enough before retiring to provide enough income for the full period that you'll need it, even if the markets don't provide good returns every year? If you have kids, will you plan to pay for their college?
2. What is your backup plan for dealing with financial emergencies or hardship?
How will you make sure that your whole plan doesn't get sunk, especially after you've given up a well paying job, by a natural or financial disaster? Will you budget for homeowners or renters insurance? Will you maintain an emergency fund, separate from your other investments? Will you carry life insurance? Will you build in any other contingencies like the ability to downsize a home or move somewhere cheaper? How will you ride out bad periods for the stock markets, including possibly extended recessions? How much of a cash cushion will you maintain? Could you trim back your early retirement budget if you had less to spend some years? A full rundown of our contingency plans is here.
3. How will you get healthcare?
4. How will you keep your body and mind healthy?
What is your plan for eating healthily, exercising and stimulating your mind in early retirement? Does that plan look a lot like what you already do now, or does it involve some drastic changes? Early retired you is still you, so ask yourself if drastic changes are really realistic, or if you need to start making incremental changes now to make sure staying healthy is doable once you're retired. On the mental front, will you embrace new technology and other societal changes as you age? Will you befriend younger people? Will you engage in activities or hobbies that expand your thinking, and force you to form new neural pathways?
5. What are you retiring to?
This question is perhaps the most important of all. Nothing is worse than saving for years to retire early, burning bridges in your career, and then discovering that you're bored. Consider well before that happens what you will do with your new-found time in early retirement. What will excite you about getting out of bed every day? How often will you check things off of your bucket list? what do you want your contribution to the world to be?
6. What will your living situation be?
Do you plan to stay put where you are for retirement? Do you plan to move into a smaller home that's easier to maintain and which frees up some capital? Do you plan to relocate? Do you plan to go nomadic and live the rv lifestyle? For aspiring rv-ers, do you have a plan for if or when you decide you ultimately want to put down roots, and now need to pay rent or buy a home? For those planning to live in a home, will you pay off the mortgage before you retire, or keep paying it off in your retirement years? If you plan to keep paying off the mortgage after you retire, have you considered the health insurance subsidy and tax implications of needing enough income to make your mortgage payments? Have you budgeted adequately for miscellaneous housing expenses like property tax, rent increases and utilities?
7. What do you want a day in retirement to look like?
What will an average day in your new retired life look like? What activities will you do every day? How will you spend most of your time? Will you spend a lot of your time surfing the web and watching TV? When you look at your vision for each day, does it sound both realistic and fulfilling to you?
8. What will your social circles and interactions be like?
Who will be your primary friends once you retire? Will you be able to see them more often, or will their work schedules prevent them from spending time with you during your new free time? How will you make new friends? If you have a partner, do the two of you plan to spend most of your time together, or apart? Will you have your own hobbies, or share most of your hobbies with your partner?
9. How will you and your partner, if you have one, stay on the same page about money and life goals?
Are you both equally committed to retiring early, and do you share the same vision of what's worth sacrificing to reach your goals? Have you mapped out your big goals for your lives together? Do you both feel comfortable with your retirement budget and projections, or does one of you feel they are too aggressive or risky? Are you both committed to the discipline and frugality needed to ensure you don't outlive your retirement savings? Do you regularly check in with each other to make sure you're still on the same page about money and life goals? If you're currently single, does your vision allow for flexibility if you one day get in a serious relationship?
10. How will you define yourself and derive self worth post-career?
Once the title is gone, how will you see yourself? What will you do to ensure that you see yourself as a worthy person making contributions in the world? How will you find fulfillment without a job? How will you give back? What will you want to have accomplished, looking back on your life at age 80 or 90?
Want extra Our Next Life content? Get the e-newsletter!
Subscribe to get our periodic newsletter with tons of top secret, behind-the-scenes info we'll never share here on the blog.
Wohoo! You're officially one of our favorite people. ;-) Now go check your email and confirm your subscription so you don't miss out!
To me, the most important question is, simply, why? Why do you want to retire early?
I think a lot of that answer is covered in these questions as well, but I think the "why" question really gets to the heart of what our true purpose in life is – or at the very least, what we THINK is our true purpose. If somebody says, "I don't know", or "I hate my job", that might pose a problem in post-retirement because your purpose is still yet undefined.
But, if your answer is something like, "We'd like to travel the world and document people's stories", or "I'd like to spend more time doing charity work" or something similarly pointed and focused, these people will probably find a lot more satisfaction after they finally quit as their purpose has been defined. Of course these purposes can change after retirement, but the point is to have one. Have something to define you once you're done.
Your "why?" is a much more succinct way of asking what we see as the most important question: what are you retiring *to*? So couldn't agree more! It's not just about escaping something, it's about reshaping your life to focus on something more fulfilling, and if you don't have a clue about where that fulfillment will come from, we worry you'll be sorely disappointed when you quit working. Fortunately it seems like most people we've heard from have a pretty clear sense of what they want to be doing — I sure know about your and Courtney's awesome plans, and think that sounds great!
When I read posts like this, I'm kind of relieved that we don't currently aspire to retire early. It seems to be one of the biggest decisions a person can make, and these questions would certainly help someone really examine their priorities. It kind of rubs me the wrong way when people treat early retirement as an escape route but don't really have any plans beyond that. But if you can run through all of these questions (or be the blogger who generates all the questions to begin with), then it seems you're much more ready to make that kind of permanent change in a really effective and satisfying way.
We ran into a few post-early retirement challenges, even after thinking we'd done enough homework to avoid them. Healthcare was by far the biggest variable. Beyond the outrageously high monthly premiums ($945 per month for 2016 for me, age 59), there is no included dental and/or optical coverage. One crown costs in excess of $1000! Co-pays are increasing in 2016, and medical providers charge both for the doctor ($35 in 2016 for the "gold" level), and the facility (also $35 in 2016). So in addition to the monthly premium, one doctor visit with lab work will add $105 to monthly outgo. Homeowners insurance can also increase dramatically if you move to an area with high fire or flood risk (ours more than doubled when we went from a small urban home to a mountain community). Veterinary bills can be staggering as well, even with pet insurance. Trips to an emergency vet become a necessity if you live in rural areas (fox tails, interaction with wild animals and other assorted mishaps). We've had five months in a row of vet bills in excess of $500. Many expenses can be reduced in early retirement because we have the time and the inclination, but some large expenses continue and some (like lack of an employer subsidized health care plan) can increase dramatically. The health care exchange has a calculator that will allow you to determine whether or not you are eligible for subsidies, but those subsidies are indexed by area. If you move to a lower cost of living area (as we did), you may save on gas and groceries but become ineligible for reduced medical insurance premium rates based upon the cost of living in your target retirement location. The exchange uses income tax returns to determine eligibility, so make certain you do your homework! Out of pocket costs increase annually (as well as premiums and co-pays). We are in the process of calculating our 2016 spending plan based upon a $145 increase in premiums and an additional $500 in co-pays (worst case scenario). That's more than a mortgage for most people (thank god we own our home outright), and doesn't include Medicare parts A, B and D for spouse (another $105, $145 and $57 increasing to $67), and part B increases in August. Doable? Yes, we are fortunate in that we can accommodate the increases. But every time I read about someone considering early retirement I feel compelled to remind them that medical insurance (not to mention auto and homeowners) can easily become as expensive, or more expensive, than home ownership. I did a lot of research and budgeted $1000 per month for medical expenses when I retired in December 2014. Conservatively that figure will need to increase by 50%. Lesson learned.
Wow — those are big costs you're citing! We've mostly run the calculators for our own ages, and haven't looked as much at what coverage is likely to cost when we're older. Thanks for pointing this out.
One thing I noticed in your comment — you said you have a gold plan. Have you looked at going to a silver plan? Many of the available subsidies are only available on silver plans, so it's possible your total costs could be lower if you switched, even though silver comes with higher copays. Just a thought!
Something else we've been looking at is medical tourism. If we need to have a pricey procedure, we could look at going abroad and paying less for it. Have you all looked at that?
Thanks for weighing in with this great info!
Our income exceeded the maximum for any subsidies (on any plan). I actually looked at going up to platinum since 2016 is the last year for the increased medical expense deduction if you or your spouse is at least age 65. No telling whether or not I'll regret staying with gold, only time will tell. Medical tourism is an option I would be comfortable with (spouse not so much), but it's routine costs that add up rather than one-offs (for which medical tourism would be an option). Just a routine appointment, say for a sinus infection, will cost $55 for the doctor (ENT is a specialist), $35 for the facility, $35 for lab work and 20% of whatever the medication costs in addition to the $945 premium. 20% of a mammogram, MRI, colonoscopy…it really adds up. Just the increase in premiums is $145 a month, and that doesn't include the reduction in coverage. I remind myself on a regular basis that before the affordable care act I may not even have been able to obtain medical insurance at any price, so I'm not complaining! Just a cautionary tale that these expenses can greatly exceed anticipated. It really pays to do your homework and check into all your options. We certainly could have opted for less coverage (or more); it's a balancing act at best, but for anyone contemplating retirement before Medicare coverage, it's important to be aware of how costly coverage really is. When I called to find out what rates would be for 2016, I was told the cost increase would be between four and seven percent for the same coverage, not nearly 20% for less coverage! I'm not willing to gamble on going without coverage so it's a necessary evil, but it certainly makes me realize how easily a budget could go from robust to fragile in the process.
I'm so glad that you address, "What are you retiring to?" I mean I understand that many people have horrible jobs and such, but I that a lot of people just need a little sabbatical more than they need to retire. On the other hand, if full time work is keeping you from your calling, then you've got a great reason to retire.
Great questions ONL and really great comment Hannah. I agree that this is the biggest one!
We are completely with both of you guys! It's the same as Steve's point, too — the "why" is the most important question of all!
This is one of our favorite subjects to talk about with each other: the "what are we going to do in early retirement" talk. We discuss what a perfect day will look like, what we're going to do about healthcare, what we're going to do for fun (everything!) and more. Here's what we've decided so far: for healthcare, we'll use our knowledge of the health system and skills (we're both practicing healthcare professionals) to do things as inexpensively as possible (we know where to go to get free screenings, bloodwork, etc. at free community events as well as how to save big at the pharmacy…I'll be writing a post about that shortly), we'll have our self-run business buy us healthcare as it's employees for tax purposes, we'll take part in all of the free activities offered through Meetup (an amazing website) and we'll likely volunteer a whole lot. Of course, we'll still be side hustling at auctions and garage sales, because even if we don't need the money, it's an addiction and so much fun we can't stop.
That's our plan for now. We're still 7 years away, though, so I'm sure laws will change and we'll have to adjust our strategy.
Wonderful post that got my FI juices flowing and boosted my excitement about ER!
I think that covers it pretty well! I think the one thing that will be interesting to figure out is where I want to live. I can't even decide that NOW, let alone in the future. Also, at some point, I'd like to get married, but who knows with that too. Lots of things that could happen between now and then, but one thing I can control is my mindset about spending and saving!
I think it's exciting that you don't have all the answers — it means you still have lots of possibilities in your life and in the future! Should have probably said this in the post, but none of us have to have everything all figured out and wrapped up in a little bow. Where's the fun in that?? But it's good to have thought for real about all of the questions!
Thanks, Maggie! Always happy to plug your great blog. :-) I'm sure you guys saw Go Curry Cracker's recent Obamacare posts, where he broke down the individual mandate requirements — basically you don't have to buy insurance in the US if you're an expat. So your years out of the US would likely be much cheaper on all fronts! When you're here, though, that stuff is more predictable thanks to the Obamacare calculators. The annual max OOP limits are such an incredible comfort to our budget!! And of course it could all change before you guys pull the plug!
I've been following those posts closely. And his recent trip to a healthcare spa! All around, I'm loving that option!
Absolutely — we are not ruling out medical tourism as a future option!
Although I don't aspire to retire early — at least not VERY early (ask me again at age 50 or 55, I guess) — this post was still really interesting to me. So are the comments. I remember looking at the Frugalwoods' first projections for their homestead costs and they had budgeted something like $100/month for tools and maintenance, which everyone immediately told them needed to be vastly increased. Same with health costs here. I guess the lesson is that you shouldn't retire early unless you have a big cushion in your monthly budget to account for this stuff.
Totally agree with you! There's so much that's counterproductive in our work culture and labor laws. There are some promising moves with companies like Netflix going to unlimited parental leave, but gaps are still seen as bad in virtually every circumstance. It's not healthy. Mr. ONL took a "sabbatical" early in his career to ski bum and travel Europe (sabbatical really meaning he quit his job, but later went back to it after his travels concluded), and was just lucky to come home to a booming economy. If a recession has hit in the meantime, he might have never found another job, and we'd be in a very different place now, which is a little crazy to think about. The U.S. doesn't even appreciate the gap year the way a lot of other western nations do — such a shame!
For me, there's one additional question that induces more fear than any of the above (perhaps it's just a more tactical framing of your Question #1): How would you feel and what actions would you take, if any, if your retirement savings were to drop by 20%? 40%? 50%?
Of course, the risk of a bear market is already built into the 4% safe withdrawal rate, but most of us will still contend with major stress and emotions watching our savings be depleted in a 2008-style recession. I think it's important for early retirees to think through what a recession would look like in dollar terms (e.g., your $1M account balance is now $500k) and how they would react, or if they really would be comfortable riding it out with no changes to spending or income.
Totally agree, Matt! For us that's part of the contingency plan question, and the cash buffer, but you're right that everyone should think long and hard about their ability to ride out stressful market periods without having a heart attack! For us, that means keeping a good cash buffer, having multiple streams of income, diversified investments and the ability to trim our budget back by 50% — which is probably more of a backup plan than most people need! But that's what *I* need to feel comfortable. :-) How about you?
Having multiple streams of income is probably the biggest comfort for me. I'm anticipating that ~50% of my cashflow will come from rental income and side projects, which helps hedge a bit against market fluctuations.
I'm also willing to go back to work if things get really ugly, though that doesn't necessarily mean returning to my current profession. Maybe I'll get a job at a brewery or something fun like that instead!
That's a great plan, Matt! And we'd love to do some fun jobs, too!
I guess the questions I would add stretch beyond the logistics & tangibles. What is your concept of time & how will you structure it without a built in "work" schedule? How will you continue to fulfill your definitions of "success" and "happiness" in 5 years, 10 years, 20 years? If you end up discovering a new passion, will you find a way to share it with your family, friends, communities?
I also love that you talked about getting on the same page as your partner. My partner is much less enthusiastic than me about the thought of early retirement, but isn't opposed. So I think it would be very important for us to sit down and hash it all before going full steam ahead. I love your continued emphasis on working with your partner each step of the way.
Thanks, Taylor. :-) Having kids is potentially a huge financial deal (and a huge deal overall!), but is not something we have experience with since we don't have 'em. Retire Before Dad is a great resource for folks looking to retire early while paying for the many expenses that come with child-rearing — he's even saving up to pay for college in its entirety for all three of his kids, so he gives lots of great advice!
I'd add to the backup question, would a return to work be out of the question? or part-time work if needed? For some work really defines them and after giving it up they might have second thoughts, so it might be a good idea to map out the options of returning to work on some level and in some cases you might need to for financial reasons. So always best to think these things through ahead of time.
Great point, Brian. That was part of the contingency question in our minds, but it's worth spelling out. Thanks!
Our plans are more along the lines of take a sabbatical and find something more rewarding for both of us. That being said, I really like what I do, and wouldn't mind doing it my whole career, if I had to do it for another 10 years. I think I can make more of an impactful difference in many other ways though. I expect I'll have some kind of income at some point, it just may not be a lot. Maybe working in a brewery as written above, or in a fly shop, or maybe start my own guide service when I find some good consistent fishing spots. Even volunteering with organizations around town could lead to a paying gig. Who knows?
I'm excited about it overall just because we'll be in the drivers seat as to where we end up and what we choose to do with our time, unless Mrs. SSC gets a teaching offer from somewhere we weren't thinking about. We're fine with that too, we don't mind being transplants.
The biggest worry for me is health care, and the ubiquitous, "did we account for enough savings to cover everything?" I know we didn't account for enough to cover everything, but even with our current incomes, we couldn't afford every scenario. That's why our budget has a 5% slush, and our allowances are an automatic $12k added to the yearly pool to spend, and I wouldn't mind working again in some form.
Yeah – to chime in with my hubs – there are so many 'careers' I want to try out – teacher, baker, photographer, I even would like to be a lactation advocate and consultant (random, I know). If the land we buys allows it – I'd love to build a tiny house or two, or cabins, and rent them out… or maybe once the kids have left run a B&B. Life is just too short for one career!!!! So – while I may not have a full-time job again, I am pretty sure that we will still have some money coming in.
I LOVE all of those ideas, especially the B&B (or camp?!). And totally with you trying different mini-careers. For us, the best part is that we can do things like all of your ideas without worrying about how much or even if we get paid. So exciting all around!
These are great questions to think about and I can feel a blog post coming from this. For us, I don't necessarily see a huge lifestyle shift since we're actively working to shape our future life right now. Most of the big pieces are in place: we already have 3 kids, investments are doing their thing, and we're generating steady passive and part time income. We just need to figure out where to live long term. And based on my personality, I think I'll find lots to do when I'm not burdened with the need to make money.
Please do write a post about it! You guys definitely seem to be rocking your plan, and already have so much good stuff in place for your FIRE lifestyle. So curious to know where you'll eventually land!
I really liked this post because you didn't simply focus on the financials. Although obviously hugely important in a decision like this, there will be other consequences like, as you said, social life, health and fitness… I have spoken to many people who retired at the expected age and still struggle with such a change. Some even miss working!
Thanks, Jenna! That's what we're all about — going beyond just the finances. :-) I also think retiring at the "normal" age is tough for folks because you've spent three, maybe four, decades working at that point, which makes it harder to redefine yourself than if you've only been working for 15 or 20 years.
Hugely important questions – I think understanding how you want your retirement to look (other than – "not working for the man") can help people prepare for early retirement. A lot of folks don't think about it and find themselves bored and start to lose direction and focus… not what they expected in retirement.
So true! Our goal is to help avoid that situation by stoking good thinking around the non-financial Qs.
Healthcare is a very important area to tackle. We are self-employed and healthcare is not easy at all. We are currently looking for a new plan because our old plan is being phased out. There isn't a SINGLE plan in our state that will cover us out of state and that stinks because we are full-time in an RV.
I don't think I realized you're full time in the RV. I bet that does make health insurance much tougher! Can you move your residence to a more part-time friendly state?
Pingback: Weekly Recap #15 | Welcome to Two Cup House!
Some good questions you throw at us. I will save the article to make sure I can still access it in 2015 when these question become relevant for me.
Thanks — glad the questions are helpful! And we're curious to see how our life will change too! :-) Thanks for following along.
Excellent list, thanks. Healthcare is among the biggest question marks, and possibly the least considered. People often don't realize how high premiums and deductibles will rise as they age. We solved this challenge by moving to Canada. :-) Virtually every first world country except the US, and many third world countries, offer guaranteed, affordable health insurance. Worth considering, for those keen to retire early. Relocating out of the US takes a gigantic variable–health insurance and care cost–out of the early retirement question.
Thanks, MC! I'm so intrigued to know more about your story and what made you decide to move to Canada. For sure the health care deal is better there! Seems worth considering for sure.
You certainly have covered the necessary questions. I think many people who are on the early retirement journey understand the financial side of things and there are many tools/calculators to help figure that out but the non-financial aspects need just as much attention, understanding and planning. This is what I found with my first early retirement. It is an adventure where things change, you change, and so will your answers as you transition from a long career driven mindset to hopefully a passion driven one. Plan on there being a lot of continued self assessments. Just as much as there are financial ones. Knowing the questions and having an answer is the first vital step. It makes us aware that we need to address them. Anyway, that was/is my experience.
Such a great point. We try hard to focus on the non-financial stuff just as much as the money decisions and plans, but so true that it will always be a continuous evolution. And that's a good thing!
Great post. I think you bring up some very important discussion points about early retirement, some which I have been thinking about lately even though I am years away from our goal. I do wonder what my daily life will look like and if I will be bored. Although I don't want to be tied to a desk for the next 30 years I am probably going to need something to give me some fulfillment and a part-time job may not give that to me. Health care is also a big question mark. I guess I still have plenty of time to work out all of the kinks as we still have years before we can make it work.
Even if you're years away, those are great questions to be asking yourself! It's worth reading up on what healthcare costs are now, just to give you a sense for budgeting. And the fulfillment question is a biggie, too! Good you're thinking about that!
Hi Jaymee! Never too early to start thinking about this stuff. :-) Thanks for reading!
out your website on my iphone during lunch break.
look when I get home. I'm shocked at how quick your blog loaded on my mobile ..
Holy Toledo- did I finally make it to the first Capitalized Blog Post?! And nobody else seemed to realize it, interesting. Good to feel like I'm chipping away at the enormity of this masterpiece.
So for us I think we have a good handle on most of the questions. I just researched ACA costs the other day and was pleasantly surprised! I had budgeted more than 2x what it seems like we need…though I expect a tumultuous road ahead with insurance so will revisit it often.
I'm betting the biggest issue for us will be the social aspects as we get a lot of interaction now from our jobs. But we also expect to add volunteer work and other social hobbies which will hopefully fill any void. Though no matter what happens, we're both so excited to get there!
Wooohooooo! ;-) Re: ACA, don't adjust your budget downward. First, nearly all the plans have fairly high deductibles, and second, premiums are WAY outpacing inflation. (20% a year in many states!) And the social stuff is definitely interesting — even in a ski town where people have more free time, we've had some interesting swings and misses in trying to brand out socially!
Hiya! I'm Tanja. That's Mark.
Our e-newsletter is pretty rad.
Extra behind-the-scenes content every month or two. Get in on it!
You rock! We're stoked you joined the list. Now check your email to confirm your subscription and make it official.
Make sure you're on the newsletter list to get all the updates on how we can hang out in real life.
Reno, NV Book Event: Thursday, June 6, 6:30-7:30 PM, Sundance Books and Music, 121 California Ave.
Everything on this blog is provided for informational and entertainment purposes only and is not intended to substitute for obtaining professional financial advice. Nothing contained here or in the book Work Optional implies a consulting or coaching relationship. Please consult a licensed financial or legal professional for advice on your own situation.
The books I recommend include affiliate links, and the revenue from them ($.50 or less per book purchased) covers a small fraction of the out-of-pocket costs of providing ad-free, unsponsored content to you at no charge. In any calendar year in which affiliate income fully covers the cost of web hosting, photo editing and email list maintenance, I will donate all earnings above and beyond expenses to charity directly or to our donor advised fund for charitable giving, for the remainder of that year.