(3 of 5)
"If you start eating into your principal before you are 70, you're going to find yourself in trouble down the road," Wacker cautions. "With inflation at just 3% a year, you have to think that in 10 years, it's going to cost you 40% more to live the same way you're living now."
RETIRING EARLY WILL PROBABLY MEAN A DROP IN PENSION
Of course, having a pension--which can sometimes provide a substantial percentage of your current salary--adds a nice cushion for early retirement. Pension plans typically pay 1% of salary for every year of service (e.g., if you worked for a company for 20 years, your pension would be 20% of your annual salary), although government and union jobs tend to have much loftier pensions. "But remember that you will earn less pension with an early retirement," Westbrook points out. Plans can pay as much as 35% less if you retire at 50 or 55, vs. 65, Westbrook says. Again, this can vary according to the job you are leaving.
Then get good help, but keep in mind that any outside expertise you seek doesn't come free. Depending upon the complexity of your portfolio, a basic financial plan will run between $500 and $3,000, according to NAPFA. If you want your assets managed on an ongoing basis, the financial planner will charge an additional 1% or so of the total assets. Many in the financial-planning industry consider fee-only planners, who do not receive commissions on investments they recommend, to be the most objective in their suggestions.
Once you decide to retire early, change your life-style to meet your new circumstances. In other words, cut back. This can mean using coupons at the supermarket, eating dinner at home instead of going to a restaurant, and buying some clothes at thrift shops, says Marc Eisenson, co-author of the new financial-management guide Invest in Yourself (John Wiley & Sons; $22.95). This also means cutting back on debt by paying off mortgages, winding down car payments and paying off credit-card bills. "The less debt you have, the more freedom you have," Eisenson says. "You don't have to earn the maximum amount of money if your overall expenses have been lowered."
Assuming that the numbers place you in the black, you then have to decide what to do in this new chapter in your life. Don't wait for inspiration. Experts advise getting some experience in a career field or business area that interests you a year or so before you plan to retire. This can be done many ways, including a part-time job or volunteer work. "If you want to own a coffee bar, get a part-time job dishing out caffe latte and see if it's for you. If you want to be a teacher, volunteer in a school," says Richard Knowdell, executive director of Career Planning and Adult Development Network, an international organization of career counselors based in San Jose, Calif.
A CAREER SHIFT MAY TAKE YOU BACK TO SCHOOL