By: Martha Harris Myron
Should you take early retirement or not? You are 45 years old. You want to take the leap into your future.
Facts:
You’ve been saving consistently for years and years, socking away every bonus, every bit of extra income, keeping expensive debt under control. Can you reach any financial decisions about your future?
SOME EARLY RETIREMENT DECISION FACTORS:
Let’s consider a typical individual planning to retire early with no challenging outlier issues at this point in life, in order to run a longevity estimate. Health (although under some stress), lifestyle, employment, family, and so on are all fairly-well balanced for this individual.
LONGEVITY FAMILY PATTERN
Our individual’s assets must generate income for his remaining lifetime. The “Living to 100 Life Expectancy Calculator” result projects that our individual may live almost 50 more years!
INCOME PRODUCING CAPABILITIES
We don’t know the complete answer to this part of the equation yet. However, at age 45, our individual is:
- Too young for any social government pension.
- Ten years from any distribution from his private pension.
- Determined to control personal spending as affected by inflation.
- Unsure of the way to handle 50 years of tracking savings, investments, and the like. He knows that the portfolio needs to be conservative, yet income producing.
UNPAID LIABILITIES
This can be an insidious problem as individuals approach retirement. Simply because, once retired, there is no consistent income wage inflow for mortgage payments, for anyone on a fixed income.
BERMUDA INFLATION RATE
Historically and currently, Bermuda’s cost-of-living is high with an inflation rate in the 2.0% to 2.5% per annum.
IDENTITY CHALLENGES
Beyond the financial considerations, will you experience a loss of identity or self-worth? If you were a star at work, who will you be now? Your current friends are all still working. Will you feel isolated or depressed if your new life is not what you expected?
CHANGES IN SOCIAL EXPECTATIONS
Can you find a new sense of purpose by volunteering, teaching, mentoring, writing, speaking to share your experiences while helping others?
YOUR “WHAT-IF” FINANCIAL PROBABILITY CALCULATIONS
What is your annual income requirement currently? Can you duplicate this income amount with earnings from your current various savings and outside-of-pension investments, without touching your capital? If not, can you halve (or quarter) what you need for living expenses and still get by?
It is important to consider various scenarios of your life and financial needs in retirement. Simple projections of expected income from pensions and investments are straightforward – albeit you can’t predict market ups and downs. A fair and reasonable estimate will suffice at this stage.
WHY NOT USE A GENERIC RETIREMENT CALCULATOR?
- Your personal inflation rate in Bermuda will vary.
- Your investment total rates of return will fluctuate depending upon market conditions.
- The mortality age in your family may vary.
- The size of your total savings may vary.
- Your tax structure may vary, depending upon your residence and citizenship.
- Your income needs may vary.
GENERALLY, THERE ARE TWO EARLY RETIREMENT CHOICES – FORCED EARLY RETIREMENT OR VOLUNTARY RETIREMENT.
FORCED EARLY RETIREMENT.
No job is secure forever, these days. If you are in a disruptive industry, always be cognizant of potential changes early on – make it your lifestyle to anticipate and prepare for any outcome.
REVIEW THE STATE OF YOUR CURRENT FINANCES TO BE ABLE TO:
- Maintain cash cushion savings, at least two years’ worth. Must be very accessible.
- Have a contingency plan for the loss of employee benefits.
- Pay off as much debt as possible – except the mortgage.
- Manage on a simple lifestyle.
- Have a part-time outside job that can become a full-time situation, if needed.
Individuals experiencing company restructuring may receive a decent termination package. The negative becomes a positive in that you have the opportunity to reverse course, revitalize, and to live life simply and harmoniously without any severe disruption in your financial condition.
CHOOSING VOLUNTARY EARLY RETIREMENT
You think you have enough for a simple life – you’ve worked those investments and other numbers using every “what if” scenario possible and are comfortable with your probability percentage of success.
IF YOUR SITUATION IS:
- Conservative, diversified savings, an investment portfolio with a steady income.
- Absolutely no debt! Own all your assets outright, home, vehicles, etc. outright.
- You have all the contingency protective planning in place: large cash cushion, whole life, health, property insurance.
- You can raise your family to adulthood.
- You can maintain and nurture relationships.
- You can work on achieving the best health fitness ever.
- You can pursue another vocation (volunteer, part-time or full-time stress-free employment).
- You can keep your sense of identity intact.
- You can have an even better sense of purpose and meaning to your life going forward.
Martha Harris Myron JSM CPA
Pondstraddler Life™ Financial Perspectives For Bermuda Islanders Financial Columnist since 2000 for the Royal Gazette Senior Advisor, Olderhood Group Bermuda
