Are you itching to retire early? If you are, there are a few factors that might indicate whether you’re well on your way to leaving the workforce for good. There are also some indicators that you’re definitely not going to retire early. The most obvious sign is if you’re not saving at all. Surprisingly, a good amount of employees aren’t giving retirement a second thought. Roughly 80% of Americans are employed at a company that offers a retirement plan; however, only 32% of employees are actually participating, according to Census Bureau research.
There are some good, bad, and unusual reasons why you might make an early exit from the workforce. Here are 14 signs you’re going to retire early. How many apply to you?
1. You start contributing early
The earlier you start saving for your retirement, the better. As discussed earlier, you can take advantage of catch-up contributions if you’re age 50 or older. But it’s a lot harder to make up for lost time because you’ll have to save a lot more in a shorter amount of time. You’ll also lose out somewhat on the power of compound interest (when your interest begins to earn interest). The experts at Investopedia put it this way:
The rate at which compound interest accrues depends on the frequency of compounding; the higher the number of compounding periods, the greater the compound interest. Thus, the amount of compound interest accrued on $100 compounded at 10% annually will be lower than that on $100 compounded at 5% semi-annually over the same time period.
A person who invests $5,000 annually between the ages of 25 and 35 will have an estimated $563,000 at age 65, assuming a 7% annual return. By comparison, a person who invests $5,000 between the ages of 35 and 65 will have about $58,000 less. It literally pays to start early.
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2. You work in a physically demanding job
Do you work in a profession that requires you to be in peak physical condition? You might need to prepare yourself to bid adieu to your job years before most people retire. Your body can take only so much wear and tear, so be financially prepared for life after retirement. This would seem like it’s pretty obvious, especially to those who work in professional sports. However, many end up broke by the time the fun is over. If you work in a job that requires you to be mentally and physically sharp, get your finances in order before it’s too late.
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3. You’re maxing out your retirement accounts
If you’re contributing the maximum amount to all your retirement accounts, you’re off to a good start. Those who participate in a 401(k), 403(b), most 457 plans, or the federal government’s Thrift Savings Plan can contribute a maximum of $18,000 for 2017. If you’re age 50 or over and you contribute to one of these accounts, you can contribute an additional $6,000. The maximum annual contribution you can make to an IRA is $5,500. If you’re age 50 or over, you can make a catch-up contribution of $1,000 to your IRA ($6,500 total).
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4. You got fired or laid off late in your career
It can be hard to bounce back after getting fired or laid off. Things can be even more difficult if you’re an older worker. Although there are workplace protections, age discrimination is still alive and well. In fact, workplace age discrimination starts as early as 35 (though depending on the state, you might only be protected by age discrimination laws if you’re age 40 or older). Your chances of being among the long-term unemployed steadily increase as you get older. Not being able to secure steady employment could throw your plans out of whack and force you to leave the work force earlier than you wanted.
5. You aren’t afraid of equities
It’s great if you’re squirreling away cash for retirement. However, you can save even more if you make sure you’re not too conservative. This is especially true if you’re young. This is because you can take greater risk by investing more of your portfolio in equities. You have a longer time horizon than someone who is closer to retiring. The experts at Fidelity Investments suggest keeping your investments focused on equity asset classes with the best rates of return over the last 50 to 90 years.
6. You have emergency savings
An emergency savings fund can reduce your chances of experiencing a financial disaster. Many people are just one financial emergency away from not being able to support themselves. A new Bankrate Financial Security Index survey found 24% of survey respondents said they have more credit card debt than emergency savings. Roughly 52% said they have more money in an emergency savings fund than total credit card debt. Avoid sudden financial hardship by making sure you have at least three to six months of emergency funds.
7. You don’t take care of yourself
If you don’t care for your body by eating right and exercising, your chances of developing a disease that leaves you chronically ill or eventually disabled are higher. Consequently, you could be forced to leave the workforce a lot sooner than you had anticipated. You can reduce your chances of having to leave the workforce early due to health issues by making an effort to eat nutritious meals and exercising daily.
According to a study from Bank of America Merrill Lynch, 55% of retirees actually retired earlier than expected. Unfortunately, health problems was the number one reason for doing so, followed by job loss.
8. You don’t have dependents
Let’s face it: Kids are expensive. The cost of raising a child born in 2015 up to the age of 18 is now roughly $233,610, according to research conducted by the Department of Agriculture. If you don’t have additional dependents to take care of, this frees up cash that could be put toward retirement. There are no college funds to worry about, extra groceries to buy, or additional medical bills to worry about. When you’re only responsible for yourself, you have more disposable income to put toward your future.
9. You work in a dying industry
Is your chosen field fizzling out? Are robots coming to take your job? Unless you pick up some new skills, you just might be bounced from the workforce prematurely. If you see things heading this way, considering going back to school to earn a degree that will prepare you for another field. You could also try snagging a job that requires little or no experience. What’s even better is that some of these jobs pay in the six figures.
10. You know your retirement number
If you know how much you need to retire, you might be more likely to retire earlier. Knowing your target gives you the information you need to plan appropriately, so you can save even more than the minimum and leave the workforce ahead of time. On the other hand, if you don’t know how much you need, all your money moves will just be educated guesses. And when you take an educated guess with your retirement, you’re more than likely to fall short. Consequently, you could end up needing to work longer or go back to work.
11. You save windfalls
It’s always nice to receive a big bonus or a significant pay raise. If you save your windfalls instead of going on a shopping spree or blowing your cash on a night out with friends, you’re likely poised to get out of the rat race early. You can maximize your bonuses and raises by making your savings work harder for you. For example, you can put that money into an investment account, such as a Certificate of Deposit or a mutual fund. You could also boost your retirement contribution.
Whatever you do, remember to pay yourself first by having a portion of your paycheck automatically withheld. This helps limit the amount of temptation you’ll have to spend money on indulgences rather than your future self.
12. You’ve paid down high-interest debt
Have you paid down all your outstanding high-interest debt? If you have, you’ll save a ton of money on interest (which can be set aside for savings), but you’ll also have peace of mind during retirement. There’s almost nothing worse than attempting to pay down high-interest debt, such as credit cards, while you’re trying to relax and enjoy retirement. You’ll always be worried about having enough money to meet all your financial obligations. Make your best effort to pay down as much debt now, so you’ll have additional cash to put toward retirement.
13. You’re not trying to keep up with the Joneses
Money envy can ruin your retirement plans. If you’re content with what you have and don’t pay attention to the success of your friends, neighbors, and acquaintances, you just might be able to enjoy the retirement life a bit earlier. Besides, the Joneses are most likely living a borrowed lifestyle. It’s impossible to know the real story when most people are working hard to keep up appearances. Pay attention to your own financial situation.
14. Your spouse retired early
Some spouses prefer to retire at the same time or close to the same time their partner retires. If your spouse has decided to hang up his or her work hat before you, it’s likely you’ll follow suit. If you and your partner are deciding to retire early, make sure you answer some key questions beforehand. First of all, make sure you can actually afford to retire early. Also, figure out what kind of lifestyle you want to live and how much it will cost to maintain that lifestyle on a monthly basis. Work out a sample budget, and try to live on that budget for at least three months to decide whether you and your partner could both retire early.
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