What Early Retirees Need to Watch Out For

beautiful elegant mid age couple daydreaming retirement outdoors

Retirement is a phase of life everyone looks forward to. The ability to choose your own schedule and relax as much as you’d like is enticing. Depending on the funds you have saved, retirement is possible for people at different stages of life. Before retirement, there are a few factors to consider:

Sequence of Return Risk

According to ReturnOne, a sequence of return risk is the risk that an investor will experience negative returns based on their investments and money withdrawals. When it comes to retirement, this is particularly dangerous because your investment’s value is unpredictable which means your net worth is constantly fluctuating. It is unwise to invest all your money into one industry or to have it all tied up. To avoid backlash should the market crash, it is best to have some money independent of investment services. When retiring it is also recommended you watch the market and its health before making withdrawals on your investments. 

Rising Healthcare Costs

 Whether you consider yourself a healthy person, it is important to consider the rise in healthcare costs before retiring. The cost of healthcare has dramatically increased over the years and will continue to do so. As you age, your medical needs, including prescriptions to keep you healthy, will increase. According to Xevant, prescription drug costs are a major driver of healthcare inflation. In addition to maintaining a good health insurance plan, it is wise to set aside money to cover medical bills throughout your life. 

Cost of Living

 When considering retirement, according to Axis Mutual Fund, it is important to plan for all your living expenses—current and future. A few things you may want to consider is if your home is paid off? What is your debt ratio? Do you have money set aside for different living arrangements should they be needed? What about travel expenses?

Establishing healthy savings is the first step to covering your living expenses. It is also wise to live frugally to ensure you do not outlive your income. Understand that if you retire early, you will receive less social security income, you need to have savings or investments built up to cover the difference.

Retirement is a well-earned achievement. When considering early retirement, it is important to evaluate your sequence of return risk factors, the rising healthcare costs, and your living expenses. Planning for these variables will help you enter retirement with confidence and security.

Read this next: What Every Business Owner Needs to Enjoy Retirement

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