Thursday, April 25, 2013

How to Safely Retire Early

Recently, NBCNews.com published a story titled "6 signs that you are ready to retire early." As the baby boom generation matures and more people hit the "normal" retirement age of around 65, many boomers are asking whether or not at 55 they can retire.

 The first question someone needs to ask is whether they can live on their anticipated retirement income for some period of time. The article recommends 6 months, although 12 months might be a more realistic test period.

The second question one needs to consider is whether or not the retirement portfolio, when paired up with savings, can support the withdrawal rate that will occur when retirement comes along. These days, a 4% withdrawal rate is about the most a person should consider for their portfolio. On $1mm, that means a maximum of $40,000 a year could be safely withdrawn. Lately, with interest rates as low as they are, that can be an immediate deal breaker.

Other points covered in the article are important, but these two seem to be the most important. 1) Can I live on my anticipated retirement income and 2) Am I assuming a 4% or less withdrawal rate from my savings and retirement portfolios.

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