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Retiring early raises a series of questions around both income and spending. You will need to manage your portfolio for longer-term drawdowns, an early end to new earnings, and a long wait for Social Security to kick in. You will need to manage your spending around new needs, particularly health insurance, long-term care insurance and a largely fixed income.
But with certain considerations, it looks like you have the right assets in place. You will need some investments, since without growth your portfolio likely isn’t enough to pay for your lifestyle through a lengthy retirement. But you won’t need aggressive or unrealistic returns, putting you in a comfortable position to enjoy the good life today.
Here are a few things to think about, in addition to talking through your plan with a financial advisor.
This portfolio should last you for a long time, said Matt Willer Managing Director of Capital Markets, Partner, at Phoenix Capital Group Holdings, LLC, provided you invest it wisely. Fortunately, wisely doesn’t have to mean speculatively.
“Interest rates [today] allow investors today to comfortably generate 5-6% annual yields with virtually no risk… Assuming all the savings are taxable, and not in qualified accounts, this translates to at least $100-120k in annual gross interest income, and post taxes is still beyond sufficient to meet the $6,000 after tax expense requirement,” said Willer.
You can increase this even more by accepting modest risk into your portfolio. A blended portfolio, with a good mix of bonds and stocks, will often return an average 8% – 11% return said Willer. This can not only provide a generous retirement income and lifestyle, albeit one that will require some risk-management plans but will give you a hedge against inflation.
Talk to a financial advisor about the best investment strategy for you.
Hedging inflation should be a major priority, and national inflation and your personal inflation may not always be the same thing.
The Federal Reserve sets a benchmark inflation rate of around 2%, typically accepting any number between 2% and 3%. That rate alone will double your costs of living roughly every 30 years. Your personal spending power may erode even faster, said, Vijay Marolia, Managing Partner of Regal Point Capital, because of the costs associated with how and where you live.
This is personal inflation, the idea that the costs you pay for your life and lifestyle may grow more quickly than the national averages. For example, say that you rent an apartment in a popular city. Historically, your housing costs will increase much faster than 2%. If you enjoy travel, then your entertainment costs have surged over the past two years. Meat eaters have seen their grocery bills rise faster than vegetarians, and pedestrians aren’t as individually worried about gas prices.
