For a lot of people, it’s what dreams are made of. Particularly as the retirement age only seems to be going one way, the thought of hanging up your tools, computer or whatever other equipment you use on a daily basis much earlier than you may have initially planned is music to one’s ears.
Of course, it’s not plain sailing, and it does take years of planning. Those that do try and achieve this tend to fall into some common traps and through the course of today’s article, this is what we are going to investigate. Let’s now jump into five of the biggest mistakes that you must avoid if you are serious about taking early retirement.
Mistake #1 – You don't start saving early enough
Unsurprisingly, this is one of the primary mistakes that most people make. As we all know, as soon as we enter the world of work we are gifted paychecks for the first time. They are something of a novelty as well; we feel a sudden need to spend them as a matter of urgency often after pressure from social media! It means that quite often, by the time the end of the month arrives, we are left eagerly awaiting that next pay packet.
Of course, you are allowed some leeway with this, but if you continue with such an approach you are going to be left wanting for your retirement.
Want some hard, but impressive figures? If you saved $100 per month from the age of 25 until you retired forty years later, you would retire with $600,000 in the bank. Suffice to say, for every year that you leave this, this figure is dwindling.
Mistake #2 – You don't look at the big picture
When we refer to this big picture, we're actually talking about what happens when you do reach your retirement age.
Most of us think that the house will be paid off, and all debts will have been eradicated. While this might be the case, you've also got to think about the likes of funeral costs, elderly care costs and even the price of sending the kids to college. It all adds up – and can mean that you need more than you initially thought.
Mistake #3 – You don't take advantage of your pension plan
From a young age, we're taught that there is no such thing as free money. Well, let's dispel this one once and for all.
Sure, free money doesn't exist in most walks of life, but when it comes to your pension this is something that you should well and truly be taking advantage of.
Up until a certain limit, your company is going to match what they contribute to your pension. It means that if you put 3% into your fund, they will put 3% as well. The best part of all is that this isn't taxed, meaning that the hit to your final pay packet isn't as significant as you might first believe.
Mistake #4 – You take social security too early
As we all know, social security is something of a minefield. However, if you are to take just one piece of advice from today's article it surrounds the time you take your social security.
It can be tempting to grab this with both hands as early as possible. Unsurprisingly, this isn't the wisest course of action. The earlier you file for social security, the lower the benefits.
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It means that while some of you will be counting down the days until 62 (which is the earliest age you can file for the benefit). It's not until you reach the “full retirement age” several years later when the benefits start to max-out. What does this mean in relation to early retirement? It probably means that you need to find a different income source for those years leading up to the date where you can claim the full amount.
Mistake #5 – You create too much free time
OK, on paper this final mistake sounds ridiculous, but please give us time.
One of the main “traps” that a lot of people fall into is that they have significantly more time when they retire. What does this result in? They have more time to spend money.
Ultimately, their retirement plans are in tatters. It means that when you start to plan your early retirement, make sure that you account for this increased disposable time that can really make a difference to your income.
A final takeaway on retiring early
As we all know and have discussed at length, retiring early is part of the stuff that dreams are made of. Unfortunately, it’s not easy, and this is why people are retiring later and later.
However, some people most definitely make it more difficult than it actually has to be. Today, we have looked at five of the most common mistakes that can blight your early retirement journey. And if you can least keep these in the back of your mind in the years leading up to the “big day”. You’ll be much better equipped to deal with your post-work life.
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