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Ready To Retire Early? 3 Questions To Answer First

After spending decades at a nine-to-five, the idea of retiring early is an appealing prospect for most. In fact, a recent study from research firm Hearts & Wallets found that over a third of people under 54 said they aspired to retire by 55.

But how many of them are prepared (financial or otherwise) to do so? For many pre-retirees, leaving their jobs early can feel more like a dream than an actual possibility.

We want to help pre-retirees determine if retiring early is an attainable goal. Below consider three questions regarding your financial and emotional preparedness for an early exit from the workforce.

Question #1: Are You Financially Ready for Retirement?

The idea of retiring early is exciting, but cutting your timeline short will require more savings than you previously anticipated. You’ll likely need more savings the earlier you wish to retire. Shaving 5+ years off your timeline may require different financial strategies than only retiring a year or so earlier than planned. 

To determine your retirement readiness, reverse engineer your savings. This process puts a rough number on retiring early, which you can use to establish a savings goal.

Start by figuring out your yearly expenses. Take a look back at the past couple of years and identify recurring bills or costs. These could include house payments, insurance, travel, holidays and birthdays, phone or internet bills, utilities, taxes, debt, etc. The more detailed you can be with this list, the more accurate your estimate is.

Also, don’t assume you’ll automatically spend less in retirement—many retirees’ spending remains relatively consistent and can even spike in the first couple of years as you check off big-ticket items like traveling, moving, etc. 

Once you have a comprehensive roundup of your annual expenses, multiply it by the number of years you anticipate being in retirement. If the current average lifespan in the U.S is about 80 years and you retire at 55, you could be in retirement for 25 years! Count on a long and prosperous retirement, as you want to be sure your nest egg lives longer than you.

This exercise can leave you with a rather large, intimidating number to put on your retirement. If you find that you’re a hair or two shy from your goal, consider how you can make up the difference:

  • Delay retirement to continue to work and max out your retirement savings vehicles.
  • Plan to pursue a part-time job or encore career after you leave your job so you can rely on a steady paycheck.
  • Redirect current spending toward saving for retirement.

With enough planning, dedication, and sound strategizing, we can work together to get you there.

Bonus: Make A Cash Flow Plan

You want to retire early, incredible, but how will you access your hard-earned money? In most cases, you have to be 59 ½ to withdraw funds from your retirement accounts (401k, traditional and Roth IRA, etc.) without a penalty. 

So, what can you do?

  • Consider the Rule of 55. This IRS rule allows you to withdraw funds from your 401(k) before 59 ½ without the 10% penalty. But, you’ll have to follow a couple of rules. First, you have to leave your job in the calendar year that you turn 55 or older. Second, you can only withdraw funds in the 401(k) from your most recent employer, not any others you have floating around—which makes consolidating sound like an excellent idea. 
  • The 72(t) Rule. The 72(t) rule allows you to access funds from your IRA before you turn 59 ½. But this is an incredibly complex rule riddled with intricacies. We can review your situation to determine if it could be a good fit for you.
  • Use your Roth IRA. While you can’t withdraw earnings, you can withdraw contributions penalty-free if the account has been active for five years.
  • Lean on personal savings. Now is your brokerage account’s time to shine! You can use some funds to supplement your expenses.

Question #2: What Are You Retiring To?

What is your reason for wanting to retire early? Escaping a stressful work environment is understandable, but dig a little deeper into the “why.”

If you’re unhappy in your current position, consider whether a job change or career shift could be a suitable alternative to retirement. Retiring early requires an immense amount of planning and preparedness. If you think you may find fulfillment by switching jobs instead, it could be a less financial strain in the long run. 

Not to mention, entering retirement before you’re truly ready is a jarring experience. A significant number of retirees suffer from depression caused by loneliness and isolation, and the CDC estimates that over 7 million adults over 65 battle with depression. Going into the next phase unprepared may not be the right answer to combating an unfulfilling work life.

Before diving headfirst into the unknown, think about what you want your next chapter to look like. You know you’re looking for a change, but that doesn’t have to be as drastic as early retirement. Pivot career tracks to something that’s more aligned with your interests. Or, check out part-time jobs, consulting or freelance opportunities, even starting your own business. These can be fulfilling alternatives that continue to keep you engaged without the commitment or stress of a full-time job.

Leaving the workforce altogether may still be your ultimate goal. But before clocking out for good, put a clear plan in place for what you want to do next. One of the most critical elements of your retirement lifestyle is planning for your time. Build a purposeful and meaningful routine you’re excited to pursue—not just idly feeling the sand wedge into your toes. 

Set up volunteer opportunities in your community, offer to babysit your grandkids a couple of times a week, or focus on hobbies you’ve wanted to try. Retiring with a solid game plan is what makes you feel fulfilled and satisfied in your golden years.

Question #3: What Adjustments Do You Need to Make?

Before leaping into early retirement, there are a few things to check off your to-do list first. These include lifestyle adjustments that will help make up the difference between how much you need to sustain your retirement and how much you already have saved up. Examples of these lifestyle adjustments include downsizing your home, increasing your retirement savings, and paying off debt.

The fewer financial obligations you’ll have in retirement, the less you’ll need to have saved up. That’s why reducing or eliminating debts like a mortgage, car payment, and personal loans can impact your retirement plan.

Finances aside, keep in mind the personal adjustments you’ll face in retirement. If you’re used to spending every day at the office, what will you do with your weekdays in retirement? Going from a full workweek to an empty schedule is more difficult than most people realize. It’ll be helpful to determine how you want to spend your days ahead of time to avoid any shock and doubt during the transition into retirement.

Bonus: Make A Healthcare Plan

Leaving your job comes with several consequences, and one that many early retirees forget about is their health insurance. If you retire before you’re eligible for Medicare (65), you must have a plan to supplement your expenses. Here are some ideas to consider:

  • COBRA coverage—usually available for up to 18 months after you leave your job
  • Become a dependent on your spouse’s insurance
  • Shop for a policy on the marketplace.

Retiring with Legacy Wealth Advisors

Retiring early is an exciting dream, and for many diligent savers, the reality is more possible than they realize.

If this is something you’re considering, we encourage you to speak with your advisor sooner rather than later. At Legacy Wealth Advisors, we can help you create a strategy that moves you closer to your goal.

Feel free to get in touch with us today; we’re happy to dive deeper into your goals for retirement.

Disclaimer: Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. 

Legacy Wealth Advisors does not offer tax planning or legal services but may provide references to tax services or legal providers. Legacy Wealth Advisors may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters.

The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed.

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5 Items to Cross Off Your Estate Planning Checklist for 2022

The new year is an exciting time to start fresh and celebrate new beginnings. As you get to work putting your financial house in order, now’s an ideal time to run through your estate planning checklist.

If you haven’t started your own to-do list, that’s okay! Our team at Legacy Wealth Advisors has put together a quick, five-step list anyone can use to brush up their estate plan heading into 2022.

Item #1: Assess Your Assets

First things first, take stock of your assets. From family heirlooms to vacation properties, you need to account for everything of value in your estate plan.

This could include:

  • Houses
  • Rental properties
  • Cars
  • Boats
  • Artwork and collectibles
  • Jewelry
  • Electronics

It’s possible you may have accrued or lost assets since the last time you looked at your estate plan. Taking a few minutes to check can help ensure your assets are properly passed down to loved ones when the time comes.

Item #2: Review Your Insurance Policies

Once you’ve reassessed your assets, the natural next step is to review your current insurance coverage. Does your homeowner’s insurance adequately protect your belongings? Or do you need to add additional riders or endorsements to cover everything?

Another essential question to consider—what types of insurance do you need? Should you still be carrying a life insurance policy if you’re in retirement? If your children are grown, independent adults, it could be time to drop or reduce your policy.

If you’re concerned about your future care, perhaps you want to add a long-term care policy.

Estate planning is about protecting yourself, your belongings, and your loved ones when you become unable to care for yourself. Your insurance coverage should reflect your wishes, working in tandem with the rest of your estate plan to reduce the financial burden on you and your loved ones.

Item #3: Reflect on Past Changes

A lot can happen in 12 months, especially these past 12 months. Have you had any major life events that could affect your estate plan?

Impactful changes on your estate plan could include:

  • Marriage
  • Divorce
  • New in-laws
  • Grandchildren
  • Retirement
  • Large inheritance or windfall
  • Medical diagnosis

List out any changes you and your spouse have experienced over the past year, and we’ll help determine if you should make changes to your estate plan accordingly. 

Nobody wants to forget a grandchild in their will, and taking the time to check for these changes now can help prevent such blunders later down the line.

Item #4: Organize & Review Documents

Should something happen to you tomorrow, does your family know where your important documents live? Do you?

Establish a safe, secure location where you can organize and store the relevant documents your family will need during the transfer process. Create digital copies (if possible) and give select beneficiaries access.

While you’re sorting your documents, review your current power of attorney, patient advocate, and joint ownership on accounts. If you haven’t yet established these, add this to your to-do list. These are the individuals who can speak on your behalf and in your best interest should you become incapacitated.

Our team can help you and your loved ones determine these designations while keeping potential tax considerations in mind. For example, creating joint ownership on bank or investment accounts can keep your assets protected from certain estate or inheritance taxes during the transfer process.

Item #5: Update Beneficiaries

Similarly, take some time to review and update the beneficiaries to your accounts. This could include insurance policies, retirement accounts, mutual funds, annuities, and more.

If you’ve gone through a life event like marriage or divorce, your current beneficiary designations may be outdated. Having an up-to-date beneficiary designation is crucial, as this person will help execute your final wishes. It may be difficult (or impossible) to correct errors in designations after your passing, and trying to fight it could cost time, money, and heartache for your loved ones.

Having your beneficiaries established now can create a smoother transition process and help your estate avoid probate. Something that, again, could otherwise cost your heirs time and money.

Bonus Item: Build Your Estate Planning Team

One of the most impactful items you can check off your estate planning to-do list is building the right team of trusted financial professionals. Having a knowledgeable professional at the helm can help ensure your estate plan is staying the course.

Whether you’re building your team from scratch or looking to grow your support system, Legacy Wealth Advisors is happy to help. We work with individuals and couples in retirement who are focused on optimizing and protecting their hard-earned wealth.

Don’t hesitate to reach out to our team to see how we can help navigate you and your loved ones through the estate planning process.

Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted.

All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Legacy Wealth Advisors does not offer tax planning or legal services but may provide references to tax services or legal providers. Legacy Wealth Advisors may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters.

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Do Your Financial Pros Know Each Other? Top Benefits Of Coordination

A coordinated financial plan can help take your money from good to great. 

Your finances have several moving pieces and many of those may be executed by multiple professionals—a financial advisor, CPA, attorney, broker, etc. Instead of staying in their own lane, what would happen if their paths intentionally crossed? 

There’s a reason the “unlikely friends” narrative is so compelling in movies, books, plays, and, it turns out, even in real life. Building a deliberate and coordinated strategy brings more nuance, finesse, and continuity to your financial life.

How can you create a coordinated financial strategy designed to bring confidence and joy to your life? Let’s find out.

Build Your Core Team

The first question you have to answer is who’s in the room where it happens? (Hamilton fans certainly catch our drift). In general, these are the three professionals who should be working together to help build your plan:

  • Financial advisor
  • Estate planning attorney
  • Tax professional/CPA

You want to have the right professionals in close contact as you move through your financial plan. Why? Because every aspect of your financial plan is connected. Let’s take a closer look.

The Sneak Tax Attack: A Case Study

Your financial choices don’t just affect one area—each decision can have a domino effect. Take your investments, as an example. Let’s see how the cookie could crumble, step by step. 

  • Your allocations, as well as buying and selling habits, don’t just impact your portfolio’s balance and growth. They can also impact your tax liability. High buying and selling rates (along with costly securities) could lead to excess capital gains tax.
  • If your choices bump you into a higher tax bracket, you may have other tax fallouts like triggering Alternative Minimum Tax or Net Investment Income Tax, increasing your tax bill.
  • If your tax bill increases, you will need a larger cash reserve to make the payments. This could lead to dipping into a cash-fund for a short-term goal like a vacation or even using your emergency fund to foot the bill.

Do you see how one, seemingly small, event can set off a chain reaction? If your financial planner and CPA are in close contact, they could work together to build a uniform, seamless, and proactive tax strategy. Our office works closely with several great tax professionals, so you can feel confident that your plan would be coordinated from the start. 

Your estate planning attorney is another major player in this space. Sometimes people find it difficult to connect their estate plan to the rest of their financial lives, but that’s our bread and butter. We love helping people make intentional and informed choices that tell a continuous and authentic story for their lives. 

When done right, your estate plan, financial plan, and legacy should all be an extension of the other, weaving together documents and processes that best portray your goals and values. 

Coordination Opens Opportunities

In our opinion, working with a high-functioning team is a valuable asset in nearly every aspect of life, whether at work, with your spouse, or with the community. 

Each member of the team has their unique set of strengths, and a strong team maximizes each member’s specialties to help produce the best outcome. Making the most of your team’s efforts can also lead to solutions and outcomes that one member might not have been able to find on their own. 

The same idea should be true with your financial plan! 

Working in tandem with your professionals ensures that no stone gets left unturned. You won’t make a financial choice without also considering the legal and tax implications, for example. Let’s give this idea some context.

Handling an Inheritance: A Case Study 

Assume you inherited an IRA in 2020. This inheritance inspires several important decisions and discussions.

  • How can you continue your loved one’s legacy with the inheritance?
  • What financial goals could the money help you accomplish? (Pay off debt, add to retirement, pay for kid’s school, etc.)
  • How does this inheritance inform your own estate plan? Are your beneficiaries aligned with your goals for the money/assets? Have you talked to your loved ones about your estate plan?
  • What tax consequences and opportunities can extend the life of the inheritance? (Without the “stretch” provision, how can you keep your tax liabilities at bay?)

All three members of your financial team play a critical role in helping you chart the best course of action. Coordination empowers you to walk into your financial decisions with confidence and clarity, knowing that each step has been carefully planned.

It Protects Your Financial Present and Future

A solid, coordinated team works to help protect your finances both now and in the future. When your pros are working together, they can better anticipate potential roadblocks and strategize solutions. This ensures that you never feel alone or in the dark about your financial life. 

Your team can help you stay the course since everyone is working toward the same goals: yours.

So much of financial planning is developing strategies that suit your unique vision for your life. Entrusting it to a robust team helps protect that vision. 

Coordinating Gives You Time To Focus On Your Goals and Priorities

When you’re not stressing about your financial plan, you have time to live your life. Knowing that your money is in trusted hands can be a weight off your shoulders and give you the space to live your life according to your goals and values. 

Instead of pouring over products, markets, and strategies, you can plan a picnic with your family or have a date night with your spouse. 

It also allows you to put your finances in context with your life. Sometimes when you’re too in the weeds, you can lose perspective on what goals you really want to work toward. Having a team to help guide your resources in the right direction, opens you up to focus on your priorities. 

You’ll find that a coordinated plan can help give you more confidence and security moving forward. A coordinated plan can truly transform your finances. We’d love to speak with you about streaming your finances to give you more time to live your life. Reach out to us today to learn more. 

Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted. 

All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Legacy Wealth Advisors does not offer tax planning or legal services but may provide references to tax services or legal providers. Legacy Wealth Advisors may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters.

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