“Off The Wall” Blog
Unique, straight-forward, unfiltered opinion on topics of concern for individuals with newfound wealth.
Currently, the average American predicts that they’ll be retiring at the age of 66. And if you offered to pay them to retire early, 25% of individuals believe that they’ll need at least $1 million to live comfortably.
Ok, fair enough. But, here’s the thing. It’s not always about the amount of money that you have when you retire. There is no perfect “retirement calculator”. Your comfort level through retirement depends on how well you plan for it.
Early retirement planning ensures financial freedom by balancing out your retirement expenses with your retirement income, based on your specific wants and needs. But there are pitfalls to look out for. Here are three mistakes you should avoid while early retirement planning:
Mistake #1: Committing To Early Retirement Without Understanding The Costs
It’s important to consider costs that won’t be covered by retiring early. Like healthcare, for example. You won’t be eligible for Medicare until you reach 65 years old. And if you’re accustomed to health insurance through an employer or a company plan as a business owner, the expense of an individual or family policy on the healthcare exchange can come as a significant sticker shock. That’s why it’s crucial to factor in the cost of healthcare when considering how early to retire or the decision to sell a business.
Think about how your spending may change as you move into retirement. Some expenses may be reduced, like commuting and other work-related costs. Other expenses may increase when you have more free time like travel, new hobbies, or enrichment activities. Often, total expenses before retirement and during retirement may be very similar, but in different areas.
Mistake #2: Having Too Many Illiquid Investments or Age-restricted Retirement Accounts
When you’re building your wealth, you may commit to illiquid investments like Private Equity Funds, non-traded REITs, and other alternative investments that are intended to diversify exposure beyond stocks and bonds. However, these investments can come with major restrictions to accessing your capital– often for periods of five years or more.
Be careful about what you commit to… creating cash for retirement isn’t as easy as requesting your share be liquidated.
Similarly, be careful about which assets you plan to tap into in the early years of retirement if you’re younger than 60.
- Tax-deferred retirement accounts can’t be accessed without a penalty until age 59 ½ unless you meet certain exceptions, often associated with financial hardships or life events such as home purchases or paying for education.
- You may be able to tap into your work-sponsored retirement account before 59 ½ if you work until 55.
Here at Monument, we believe in the elegance of simplicity when it comes to asset allocations–we wouldn’t recommend introducing illiquid investments unless they were appropriate for your unique circumstances.
Mistake #3: Not Considering the Entirety of the Big Picture
Legacy goals and desires may change over time. If you spent your career building a profitable business or working in a high-demand executive role, you may not have exactly been focused on your estate and what’s important to you, personally.
Before you start tapping into your assets to sustain a long retirement, be sure that you’ve thought long and hard about your personal priorities and ensured that there are sufficient assets to support your broader legacy goals (passing down wealth to the next generation, philanthropic goals, etc.).
Our well-disciplined Team here at Monument helps you visualize your whole wealth picture through a creative, customizable, and collaborative process we call Private Wealth Design. During this series of meetings, we take the time to understand your exact wants and needs, frame the risks we could see potentially happening along the way, and clarify your options so we can help set you up for a retirement you can be proud of. Early retirement planning shouldn’t be a hassle. Anything worth building is worth doing not just well, but thoughtfully, sustainably, and in a way that matters to you.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument.
Please remember that if you are a Monument client, it remains your responsibility to advise Monument, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Monument’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request.
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