Millions of working Americans, many of them in their 50s and early 60s and inching closer to that gold watch and their golden years, are having a tough time saving for retirement.
According to a recent study from Transamerica's Center For Retirement Studies, 40 percent of baby boomers expect a decrease in their living standards in retirement.
Meanwhile, 83 percent of Generation X workers say they'll have a "harder time" achieving financial security than their parents' generation, while only 18 percent of millennials are "very confident" about their future retirement, Transamerica reports.
"Today's workers are grappling with retirement security and challenged by the wobbly three-legged stool comprising Social Security, employer-sponsored retirement benefits and personal savings," said Catherine Collinson, president of TCRS.
"Although the Great Recession ended years ago, millions of Americans are still regaining their financial footing," Collinson says. "As each year passes, people's fears about our current retirement system come more sharply into focus."
Even so, more Americans want to buck that negative retirement trend and retire early -- much earlier than their parents and grandparents. According to the Center for Retirement Research at Boston College, the average retirement age for women is 62, and 64 for men. Both are well below the Social Security's newly-recommended retirement age of 70.
If you really want to retire early, more power to you. But first, know and understand the financial benchmarks you'll need to hit as you close in on an early retirement. Because if you don't see them, you have no business retiring early.
To get you going, here's a short list of "green lights" that indicate you're ready for early retirement:
Your "Monte Carlo" plan shows you can cover expenses well into your 80s. An accurate financial plan can project your money realities in retirement, says Douglas Carey, a financial planner and president of WealthTrace, in Boulder, Colorado. "You'll need to see how much money you'll have at age 60, and how much their financial safety buffer is when they're in their 80s, he says.
"If your financial plan data shows your income covers expenses every year in retirement, they are very likely all set to retire early. (Carey recommends using a Monte Carlo-style retirement planning model that takes into account all of your income, expenses, taxes, and historical rates of return and the historical volatility for your investments. Ask a financial advisor to walk you through the plan.)
You have little or no debt revolving debt. Brett Anderson, a money manager at St. Croix Advisors in Hudson, Wisconsin, says that having no debt as you approach your retirement years is a great sign that you can retire ahead of time. "No debt is great, but I recommend you have your home paid off before retiring," he says. "That will help you live within your means -- if you do that, you'll enjoy your retirement years."
You show the ability to live off half your income. Xavier Epps, president of XNE Financial Advising in Alexandria, Virginia, says a key green light to look for in retiring early is if have the ability to live off of half of your current income. "Plus, you'll need a debt-to-income ratio below 20 percent, and savings that can cover over 12 months of monthly expenses," he says.
Another good financial sign from Epps: "If the income you'll receive during retirement (excluding Social Security benefits) allows you to save between 20 and 30 percent monthly after living expenses have been covered, that's another green light that you can retire early."
You already have great cash flow. The biggest signs that you can retire early is you have enough cash flow now to carry your normal expenses, as well as for any future contingencies, says Michael Eisenberg, a certified pubic accountant, and a member of the AICPA's National CPA Financial Literacy Commission.
"Early retirees need to ask what happens if there is an unexpected car repair bill of $1,000, or an emergency medical bill that pops up unexpectedly," he says. "If you can you handle those items now, and you'll be able to handle them when regular paychecks stop coming in, that's a good sign."
Is your company offering an incentive for retiring early? This factor, by itself, isn't a guarantee that you can hang up your office pass early, but it sure can help make early retirement more attainable. "Some companies periodically downsize and offer incentives for senior employees to retire early," says Sharon Marchisello, author of the e-book, "Live Cheaply, Be Happy, Grow Wealthy," and an early retiree at age 60.
"These may include large severance checks and/or additional benefits not normally available to regular retirees. If you're thinking about retirement and your company has a history of offering packages, try to time it so you can take advantage," she says.
You meet these key financial criteria. Deb Meyer, chief executive officer of WorthyNest, a St. Louis, Missouri-based a fee-only financial planning firm that works with many early retirees, says there are five benchmarks to consider.
-- You have historically lived within your means. Frugality and financial confidence metrics are high.
-- You are not tempted by outside influences to make large impulsive purchases.
-- You have stress-tested a financial plan created by a certified financial planner professional. If the confidence level of success is still high after the stress tests, you could be ready for retirement.
-- Other than Social Security, you have some form of certain, steady income such as a pension or annuity that will cover basic living expenses.
-- You view retirement as a gradual road to financial independence, not as an all-or-none proposition. Many successful retirees have passions outside work and find creative ways to turn these passions into businesses. Or rather than "fully" retiring, they scale back through a flexible, part-time schedule.
"I think stress-testing the financial plan is most critical because it forces each potential retiree to look at the numbers -- in black and white -- and see if retirement is possible," says Meyer.
"Just remember, there is no magic number to retire," she says. "Each family will be different. But if you can recognize these signs in your life, you might be ready to retire early." Maybe even a lot earlier than you think.
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