Actionable Strategies and Money-Saving Tips
Navigating the early retirement risks requires a proactive and strategic approach. It’s not enough to simply save money; you must have a plan for how you’ll manage these specific challenges. Here are concrete strategies to help you build a more secure early retirement.
Strategy 1: Methodically Plan for Healthcare Costs
Do not leave healthcare to chance. Your first step should be to get concrete numbers. Months before you plan to retire, investigate all your options.
- Request COBRA information from your HR department. They can provide you with the exact monthly premium you would be responsible for.
- Visit the ACA Marketplace website. Use their calculator to estimate premiums based on your projected retirement income. Be sure to look at not just the premium, but also the deductible, copays, and out-of-pocket maximum. A cheap plan with a $9,000 deductible can be financially devastating if you have a medical emergency.
- Consider a Health Savings Account (HSA). If you are currently enrolled in a high-deductible health plan, you can contribute to an HSA. This money is triple tax-advantaged (tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses) and can be an excellent way to save for healthcare costs in retirement.
By comparing these real numbers, you can budget accurately for this massive expense instead of being surprised by it.
Strategy 2: Create a “Bridge” Income to Protect Your Portfolio
One of the best ways to mitigate the risks of early retirement is to avoid drawing down your investment portfolio too aggressively in the beginning. This is especially important because of something called “sequence of returns risk”—the danger of a stock market downturn happening in the first few years of your retirement. Withdrawing money from a declining portfolio can permanently cripple its ability to recover and grow.
To avoid this, consider creating a “bridge” income through part-time work or consulting in a field you enjoy. This isn’t a failure to retire; it’s a smart financial transition. Earning even $20,000 a year could cover your health insurance premiums and property taxes, allowing your investments to stay put and continue growing. It can also provide social engagement and a sense of purpose, which are critical for a happy retirement.
Strategy 3: Develop a Smart Social Security Strategy
The decision of when to claim Social Security is too important to be an afterthought. For married couples, there is an opportunity for strategic planning. For example, the lower-earning spouse might claim their benefit earlier to provide some household income, while the higher-earning spouse delays claiming until age 70. This maximizes the higher earner’s benefit, which provides a larger monthly check for as long as either spouse lives. It also ensures that the surviving spouse receives the highest possible survivor benefit. You can model different scenarios on the Social Security Administration’s website to see the long-term financial impact of your choices.
Strategy 4: Budget for the “Fun” and the “Forgotten”
Many early retirement budgets fail because they are unrealistic. They account for essential bills but forget two key categories: discretionary spending and unexpected major expenses. Your new freedom will come with costs. You might want to travel more, dine out more often, or invest in hobbies. These are not frivolous; they are the reasons you retired early! Be sure to budget generously for them.
At the same time, plan for major “lumpy” expenses that occur every few years. This includes things like replacing a roof ($10,000 – $20,000), buying a new car ($25,000+), or major appliance repairs. Setting aside money specifically for these capital expenses will prevent you from having to sell investments at a bad time to cover an emergency.
