In 2023, the concept of early retirement continued to gain traction, especially among younger generations aspiring to achieve financial independence at an earlier age than traditional retirement benchmarks. However, transitioning to early retirement requires meticulous financial planning, disciplined saving, and strategic investing.

From a financial planning perspective, early retirement hinges on several key factors: savings rate, investment strategy, and lifestyle choices. A 2022 survey by the Employee Benefit Research Institute revealed that only 27% of workers felt very confident about having enough money for a comfortable retirement, underscoring the importance of robust planning.

1. Savings Rate and Accumulation Phase:

The cornerstone of early retirement is an aggressive savings plan. Conventional wisdom suggests saving 10-15% of income for retirement, but those aiming for early retirement often target much higher rates, sometimes upwards of 50%. The FIRE (Financial Independence, Retire Early) movement, which gained more followers in 2022, advocates for extreme saving and investing during the “accumulation phase” – the period when one is actively earning and saving for retirement.

2. Investment Strategy:
A sound investment strategy is crucial. In 2022, the average return on a 60/40 stock/bond portfolio was significantly impacted by market fluctuations. This volatility highlighted the need for a diversified and well-thought-out investment plan. Long-term growth investments, typically in stocks or mutual funds, are favored for their potential to outpace inflation and provide the necessary growth to fund decades of retirement.

3. Withdrawal Strategy and Sustainability:
Deciding how much to withdraw each year in retirement is a delicate balance. The widely accepted “4% rule” – withdrawing 4% of your retirement savings annually – was scrutinized in 2022, with some experts suggesting a more conservative approach due to market unpredictability and longer life expectancies. Ensuring that savings last through a potentially lengthy retirement is a key challenge.

4. Healthcare and Unexpected Expenses:
Healthcare costs are a significant concern, especially for early retirees who may not yet qualify for Medicare. A 2022 study estimated that a 65-year-old couple would need $300,000 saved for healthcare expenses in retirement, not including long-term care. Early retirees need to plan for these costs, which can be substantial.

5. Lifestyle Choices:
Finally, lifestyle choices play a pivotal role. Living below one’s means, prioritizing experiences over material possessions, and possibly maintaining part-time or freelance work can make early retirement more attainable and sustainable.

At Global Advisers, we view early retirement as an appealing goal that requires a level of financial discipline and planning that goes beyond traditional retirement strategies. The economic landscape of 2022, with its unique challenges and opportunities, served as a reminder of the importance of adaptability and careful planning in the pursuit of early retirement.

Contact us at 1-800-832-8514 to learn more, or visit Financial Planning