Entering retirement is the toughest phase of life regardless of the extensive planning you put behind it. Sudden or early retirement can be distressing. Being caught unawares by retirement can cause severe stress and even depression. In such a scenario, following the steps listed below can help ease the process.
1. Assess your financial position
Being forced into early retirement for any reason can impact the financial situation. Hence, it becomes imperative to assess and analyse your financial situation. Start with getting a grip on:
- Deposits and assets
- Loans/credit cards or debts – these would need to be closed as soon as possible
- Interest rates on loans – floating or fixed rates – to help prioritise which loans need to be closed first
- Income (interest, dividends, spouse income, etc.)
- Expenses (which are important and which are not) – critical in the process of bringing down the expenses
A grip on these five aspects will help you understand focus areas of your finances. Once these aspects are analyzed, you will have a clear picture of whether you can cover the costs or reduce spending or look at additional sources of income. Your retirement plan would need to be revisited considering the early retirement and this analysis will go a long way in helping you make an informed decision.
2. Re-plan your finances
If the costs are higher than the income from investments, then there are two ways of handling it; either spend less or find ways to earn more.
An early retirement means you still have some time before you can completely stop working. Consulting, writing, training or utilising your untapped skills can all contribute to additional income while you re-strategize your financial goals.
Moving to a location with reduced a cost of living index or availing government benefits can have a considerable influence on curtailing expenses. Funds invested in medium or high-risk instruments can be moved to less risky investment options.
These steps can help achieve the balance between income and expenditure which is of utmost importance at this stage.
3. Don’t tap into the retirement fund sooner than planned
Being forced into retirement early doesn’t mean that you start utilising your retirement savings sooner. Any investment made in your younger days can make a noticeable difference in your savings due to compounding.
Try to keep the retirement corpus working till such time that you can work. This will ensure that the retirement fund will be intact and useful when working won’t be possible. Apart from the steps listed above, health is undoubtedly the biggest wealth one can own. With time on hand focus on your health and well-being and think positively. The right balance between a small change in lifestyle and an additional source of income can help you overcome this period with ease. Early retirement can be the beginning a beautiful phase of your life.