Retiring early -- possibility or pipe dream?
Setbacks foil best-laid plans
During those years, the Warners' adult daughter, who was living in New Orleans, came back home to live with them following Hurricane Katrina and decided to return to college.
Their homeowners insurance also jumped from $2,000 to nearly $8,000 a year following a spate of hurricanes in the South. "So even though I had budgeted enough for what I thought we needed to spend, all of a sudden our expenses went way up," Warner recalls.
Financial setbacks, of course, are a major stumbling
block for any retiree. But they're especially
troublesome for those who cash out early,
forcing many to rein in spending, chase higher
investment returns and in some cases, even
re-enter the work force, says Ed Rose, a financial
planner for Bayside Wealth Management in Pensacola,
"If you quit working when you're 55, for example,
you've got 30 or more years to make your money
last, so you'd better have plenty of assets
on hand or be ready to get another job if
necessary," says Rose, who manages the
Warners' investment portfolio. "You can
whittle your money down pretty rapidly."
Early retirement remains an
attainable goal for those willing to live
within their means. You should plan well in
advance, prepare to make sacrifices and insulate
your nest egg against life's curveballs, says
Plan to live to 90
To ensure your money lasts as long as you
do, conventional wisdom holds that you should
withdraw no more than 4 percent of your portfolio's
value each year, leaving your underlying principal
untouched, though some
experts challenge this idea.
Curt Weil, a certified financial
planner in Palo Alto, Calif., says you may
be able to withdraw up to 6 percent each year
(edging incrementally higher to account for
inflation) if you put a financial safety net
in place. That means setting aside two years'
worth of living expenses in a money market
fund or ultra short-term bond fund.
"When the market is down, you pull temporarily from your reserve fund and if the downturn lasts more than two years you start pulling from your portfolio again but give yourself a pay cut," says Weil.
When crunching the numbers to determine how much you'll need, he adds, all retirees should base their financial plan around a life expectancy of at least 90.
"Many people underestimate the length of time they need to provide for themselves," he says. "With medical advancements, people are living longer than ever before."