“When can I retire?” is a common question we receive in our business. How that question is answered can change over time, as new approaches are brought to the fore. For example, you may remember commercials asking you what your “retirement number” (the amount of money you need to retire). In the early 1990s, the Financially Independent Retire Early (F.I.R.E.) movement gained popularity and then resurfaced a decade or so ago.
The F.I.R.E. approach to retirement is tethered to the hope of retiring earlier than at a historically typical age. Certainly a lofty and noble goal, but what has seemed to be missing is what life will look like after retirement – which we’ll touch on in another post.
Recent articles have introduced a variation of this mindset called Coast F.I.R.E. The idea here is not simply to save aggressively in order to retire early, but identifying if you’ve saved enough that, if left alone, your investments will grow to meet your future needs – allowing you to coast to retirement without the need for additional retirement savings. Sounds simple enough but pursued without the experience and counsel of a financial professional can be tricky.
Below are some considerations when evaluating any financial hack or trend:
1. Missing Stress Tests
The hallmark of many “retire early” trends is this: if you stopped contributing today, your existing portfolio (thanks to compound growth and income generated) would be enough to support retirement at your target age. How can you be sure you’ve hit this mark? It’s tough without a financial professional.
A financial advisor can run detailed projections including factors such as inflation, stress-tests in the markets, and identify potential risks to your plan. This is key to not only knowing when you’ve reached your retirement goal but also to help guide you through the remaining years and impart wisdom, he or she has gained through helping many others throughout their experience.
2. Spending is Key
Achieving an accumulation goal doesn’t eliminate the need for a spending plan. Knowing your monthly budget and sticking to it is key. Also knowing how best to structure any withdrawals from retirement savings to meet spending needs can be complex and requires understanding of taxability of a withdrawal and knowledge of current tax strategies.
3. Insurance and Emergency Funds Are in Place
“Coasting” assumes that you won’t need to tap into retirement accounts prematurely. That makes an emergency fund and adequate insurance, both life and property/casualty, essential in the success of a financial goal.
Next month we’ll look beyond the numbers and explore finding joy (and flexibility!) after retirement.