how to retire well

How to Retire Well

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To retire well includes thinking about the life you’ll live, not just the money you’ll have. Retirement planning is fundamental in creating a secure financial future and a lower-stress lifestyle.

We will all retire one day whether by choice (early retirement), by age, by circumstance, or by a physical condition. Retirement is simply a period when you’re no longer actively working to pay for income. It’s when your time can be spent on more leisure activities.

When you think about your financial wellbeing, you need to consider how you’ll retire. What you do right now will impact when and how you’ll achieve retirement.

What is Retirement?

Retirement is defined as a “withdraw from one’s position or occupation or from active working life.” Many people define retirement as the period where they get to spend their time however they want. Some picture themselves sitting on a beach while others may find themselves traveling and spending more time with family and friends.

However, retirement, as we know it today, didn’t exist until roughly one hundred years ago. It was solidified as a retirement age when government benefits were made available to seniors. The IRS shares retirement ages for specific plans.

Four Types of Retirement

1. Traditional Retirement

This type of retirement is what most people understand. You work for 40-50 years and retire when you’ve reached the full retirement age set by Social Security Administration to receive benefits. Even though you may have enough money to retire before the full retirement date you continue to work until those SS benefits are available.

2. Early (Independent) retirement

If you retire before the “full retirement age” set by Social Security, then you’re retiring early. Others define early retirement as having enough savings or investments that generate income to cover living expenses. This enables them to retire from their jobs to explore new opportunities way before the defined retirement age set by the Social Security Administration.

You can choose to retire when you’ve achieved financial independence or have enough sources of income to cover your living expenses. When you have enough assets or passive income streams, you can choose to withdraw from traditional work and use your time as you see fit.

3. Part-time (Working) Retirement

When you choose to continue working, then you can call yourself semi-retired. You can either choose to work to give yourself a sense of purpose or work to supplement your income.

4. Mini Retirements (Sabbaticals)

You can choose to work for a period of years then “retire” for 1-2 years before rejoining the workforce. The idea is to work for a period of years and save your income (and invest to grow income) so you can take a mini-retirement or what some professions refer to as a sabbatical. During this mini-retirement, you’ll have financial resources to cover your living expenses.

Don’t Retire, but Rewire

You’re never too young to plan and invest for retirement. In fact, starting as early as possible can afford you the opportunity to choose when to retire as opposed to waiting for the full retirement age set by a government agency.

I encourage you to start thinking about what retirement means to you? Create a life plan for your retirement years. This will help you set goals and a plan to achieve them.

How to Achieve Retirement

To achieve retirement, you’ll need a plan. Whether you desire to retire early or work until full retirement age, you’ll need to manage your money in a way that sets up a comfortable retirement.

The key to retiring well is to start saving when you start earning income. The sooner you start the more time you give your money to grow and take advantage of compound interest through savings and compound growth through investing.

Additionally, what keeps many people from saving and investing for retirement is due to lifestyle creep or lifestyle inflation-as income grows so does the cost of one’s lifestyle. This creates a scenario where there’s never enough extra money to save or invest.

Keep in mind, the amount of money you need to retire well (however you may define well to be) is a matter of your lifestyle. You’ll need to save or generate enough income to cover the cost of your lifestyle. The lower the cost of your lifestyle the smaller the amount of money you need.

For some retirement means downsizing. It doesn’t necessarily have to be about limiting your life, it’s about actively creating the ideal retirement life while you’re still in the working stage.

What’s Your Life Plan in Retirement?

It’s not just about the financial plan. You’ll need a life plan because when you regain back all the time you used to spend working, boredom may set in and you’ll find yourself with too much time.

As you working towards retirement, it’s important to discover the elements of your lifestyle you enjoy. And discover your interests and projects you’d like to work on. You don’t have to wait until retirement to find those out. In fact, it’s imperative you live a semblance of the life you want in retirement today.

Doing so will help you identify how you’ll spend your time and how much money you’ll actually need to live it. Sooner or later.

1. Choose a routine

Retirement offers flexibility but for many that freedom can create stress. After years of adhering to a work routine, it can be difficult to find daily meaning in life without some sort of daily activity. As you prepare for retirement, start thinking about how you’d spend your days and integrate them into your current lifestyle.

2. Remain socially connected

Continue to foster relationships with people you enjoy, trust, and share common interests. It’s important to remain connected with others. And equally important to meet new people who can usher enjoyable moments and deeply meaningful connections.

3. Continue learning

Retiring well includes having a healthy mind. It’s important to challenge your brain with activities to remain sharp. When you’re no longer working, you are less likely to encounter situations that require learning something new or meeting new people. You’ll need to be proactive in retirement to keep your mind growing.

4. Have experiences

Retirement is about having time for more preferred experiences. It can be easy to retire and sit at home and spend time binge-watching. You’ll need to put yourself out there to gain new experiences. Whether you decide to volunteer, attend local events, or travel. Prioritize gaining experiences and creating new memories.

What’s Your Financial Plan for Retirement?

There are some best practices for retirement planning but it all starts with understanding your lifestyle choices and the costs to live that life.

Have your retirement plan

  1. We’re all aware of retirement plans offered by employers such as the 401(k) plan or pensions. Get to know your employer plans, participate and max out your contributions.
  2. Contribute to tax-advantaged plans such as your employer’s 401(k) or invest in a Traditional Individual Retirement Account. Consider Roth IRAs for after-tax contributions.
  3. Participate in stock benefit plans offered by your publicly-traded company. Ask your HR manager employee benefits like stock options, restricted stock units, employer stock purchase programs or employer stock ownership plans.
  4. Review your social security benefits to determine how much you’ll receive when you’ve reached full retirement age.
  5. Invest in taxable brokerage accounts to purchase stocks, ETFs or other securities for long-term growth to support retirement lifestyle.
  6. Consider annuities and insurance products.

Pay off debt and reduce your liabilities

The fewer financial obligations, the less income you’ll need each money. As you plan to retire well, focus on paying off debt. Start with eliminating your credit card and unsecured debts. Then, work on eliminating student loans and car notes. Eventually, pay off any home equity and mortgage on your home.

Think about your Income, not just assets or investments

There’s a lot of emphasis on growing assets and sizes of investment accounts. Much of the assets and investments may not be accessible to help cover the cost of your lifestyle. You would need to sell your assets and investments for cash to pay for living expenses.

To retire well, think about your income. The goal is to diversify your income streams such as rental income or dividend income. How are you generating income? What are your income sources? Are you dependent on one income stream? Can your assets be sold for cash? Learn more about the different types of income streams.

  • Earn money through interest income from savings accounts, certificates, and other investment accounts.
  • Make money through dividend payments from stocks, bonds, and funds.
  • Invest in real estate as rental properties that generate a positive cash flow.

Spend your savings mindfully

If you’ve saved enough money to cover your lifestyle, you’ll need a spending plan to ensure you actually use the money you’ve saved and grown. There are some retirees who stress about spending money when financially they could afford to splurge.

It’s important to continue to use a budget to allocate your money so it doesn’t stress you if you’re spending a few wants and luxuries.

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