6 Financial Signs It’s Time To Retire Early in Kansas City

Ah, retiring early! It sounds wonderful, right? It brings up thoughts of road trips whenever you want, fewer emails to dig through every day, and of course less stress! Then the more practical side strikes you, and you think will I have enough money to retire from my Kansas City job? Look for these 6 signs, and you’ll know you can retire early.

Kansas City early retirement

Retiring is a right of passage, so it’s understandable it brings up a mix of emotions. It’s never easy to say goodbye. However, if you’re thinking about ending your career earlier, there are more looming questions because you’ll need to live off your saved money for longer.

These are 6 financial signs you may ready to retire early:

1. You can live off retirement income for 6 months.
2. Your debts are paid off.
3. You have a healthy emergency fund.
4. You have healthcare.
5. Your Kansas City company is going through a merger or acquisition.
6. You’re offered a buyout.

Create a pre-retirement budget

Your retirement income is like your working income. It fluctuates from year to year, depending on your investments. You’re no longer relying on a merit raise or promotion, you’re relying on the market, which can be volatile at times, and rules for withdrawing from various investment vehicles.

If you're a federal employee, you may be able to retire earlier than the average worker and still get retirement benefits, depending on your job and circumstances. You'll have that income plus your investment accounts, perhaps the Thrift Savings Plan.

If you quit your non-government job early, you likely won’t have as much income as you would at normal retirement age. That’s due to age restrictions on when you can withdraw money penalty-free from certain investment accounts and of course, Social Security, if eligible.

For example, the longer you wait to collect Social Security, the more you’ll receive. The increase is significant. You can withdraw 8 percent more each year, up to age 70, when you wait past age 62.

When you’re creating your budget, set a standard budget that will account for changes in the market that may impact your net worth, fluctuations in expenses for things like healthcare, and added income from mandatory or allowable withdrawals based on age.

So, how much income should this budget include? The 4-percent rule is a general rule of thumb. For instance, you take 4%t of your assets as income in the first year of retirement. In year two, you take the same income plus an extra 2% into account for inflation. Each year, you add on inflation.

It’s no longer a hard and fast rule, especially if you’re not waiting until your 60’s to quit working. It’s a starting point. Your Kansas City financial advisor can offer specific guidance based on your portfolio. It’s better to base it off your investments rather than some number that a national financial expert threw out there because even they can’t agree on whether you need a $1 million or $5 million nest egg.

1. Can you live off your retirement budget?

Once you create a budget, try living by it for six months. For example, if you plan to take a vacation every six months when you’re retired, set that money aside as if you were going to travel. Of course, you probably won’t spend that money because you’re still working but don’t touch the money.

Where are you going to live? Will you move to a warmer state with no income tax, like Florida, or are you going to stay in Missouri? The cost of living is cheaper in the Midwest, including lower home prices on average, but there are other financial tradeoffs. Before you consider a move, think about the financial implications. Review this financial checklist for moving.

Think about your lifestyle, too. What will you spend money on? For instance, will you spend more on entertainment and dining now that you’re not tied to a 9-5 schedule? If you’re still working, indulge yourself and start going out more so you’re prepared for your new lifestyle that’s around the corner both emotionally and financially. If you’re the frugal type, again set the entertainment funds away. Don’t touch them while you’re living by your retirement budget yet still working.

At the end of six months, ask yourself how it felt to live with that budget? Did you feel cheated or fulfilled? You may have to use your imagination a little and pretend you took those vacations even though you didn’t because you were still working. If the answer is fulfilled, that’s one sign you’re ready to retire.

2. Do you have zero debt?

Second, look at all your debts when you create your six-month pre-retirement budget.

Is your house paid off? Credit card debt? Student loans, as silly as it sounds but it’s possible with people retiring younger and younger. A second sign you’re ready to retire is if your debts are paid off.

Since income will be limited to what you’ve said, or a side gig you get, you want to make sure your budget isn’t paying down debt.

If you still have a few years before your mortgage is paid off, which is probably your biggest debt, make sure it’s possible to pay down the loan on a tighter budget.

3. Do you have a healthy emergency fund?

Also, set aside an emergency fund in this retirement budget just like you hopefully did while working. If you own a home, one of your expenses will be maintenance to your property.

Secondly, add a cushion for medical expenses. You can probably count on more medical costs the older you get. If you leave the workforce early, medical expenses may not be top of mind in your 40’s and 50’s but they may become more prominent in your 60’s and 70’s.

With such big swings in needs and income as you age, look at your budget in phases. For example, create a budget for each decade and create various scenarios. What can I live on in my 40’s? How about my 50’s? At age 62 you can start collecting Social Security, although you won’t get full benefits until 66, but what about your health at that age? Will you have more medical expenses that will eat up the difference in income?

You can’t predict the future, especially when it comes to your health so that’s where a healthy and robust emergency fund is key. If you didn’t have one while working and survived, that’s one thing. When you’re retired, it’s smart to have more money set aside for unexpected expenses.

4. Your healthcare is covered

Healthcare is expensive. Premiums aren’t cheap and most plans are catastrophic, so if your sick often you’ll likely face a high deductible. While an emergency fund will cover some unexpected expenses, you still need to think about healthcare before retiring.

AARP suggests you don’t underestimate how long you will live. They point out that at age 55, men live 28 more years on average and women 31 years. Practically speaking, your expenses especially medical will exponentially increase as you age. Predicting expenses for three decades is difficult when you’re working, never mind retiring.

Medicare kicks in at age 65, so you have to account for medical expenses in your budget until you reach that age.

If your employer covers your healthcare when you retire, it’s probably an easy decision to leave work. It’s yet another sign you’re ready to retire, even if it’s early.

If you have to buy medical insurance privately, speak with an experienced agent, especially if you’re buying through Healthcare.gov or on the exchange. You’ll pay the same price whether you buy the coverage yourself through the exchange or through a trained insurance professional.

Speak to your financial advisor about setting up a Health Savings Account or HSA. You can set aside money each year, even years before you think about retiring, and withdraw the money tax-free to cover medical expenses.

You may even have one already setup through your employer that you can continue using after you stop working. You may not be able to continue contributing, though. They all have different rules and fees so check with the specific HSA plan.