Financial Independence After Early Retirement

Welcome back my future millionaire investor. Here we explore what is needed to retire early, what role financial independence plays and how inflation affects your retirement portfolio. 

Many Americans are opting for an early retirement due to financial concerns and the recent pandemic burnout. This trend may also reflect an optimistic outlook, fueled by gains in stock and real estate. According to the U.S. Bureau of Labor Statistics, the labor participation rate of Americans over 55 remains below 40 percent in February 2020, and it has recovered at a slower pace than the general population. In short, early retirement can be short lived without a solid financial plan and a proper plan of action.

Financial independence

When you are approaching financial independence after early retirement, you need to be realistic. Don't expect to make drastic changes overnight. Consider practical living and saving for your children's college. Cutbacks in your budget could reduce the contributions you make to a 529 college savings account or high-yield savings account. But, don't give up just yet! It's possible to reach financial independence with time and a few strategic decisions.

Whether you choose to pursue an investment strategy or take a more traditional route, it is possible to make financial independence happen. The FIRE movement need to read two books: Your Money Or Your Life and Playing with Fire. The authors encouraged readers to redefine how much money is enough and to take an honest look at their spending habits. Today, the movement has become an online discussion and a movement. This book is a guide for people who want to enjoy their retirement while avoiding the stresses and financial burdens of a traditional career.

How much do you need to retire early?

Depending on your age, savings rate, and goals, the amount you need to retire early varies from person to person. For instance, if you want to retire at 50 years old, you may need to save at least $2 million. This amount is much higher than the average retirement nest egg of $1 million, but it's still not low enough to retire early. You may need to pad your retirement savings with an additional $2 million in case inflation increases your cost of living.

Retirees must be aware of the costs associated with their retirement plan. The average life expectancy in the U.S. is 78.6 years, making it challenging to save enough money to retire early. For this reason, the average retirement fund should be at least six times higher than the pre-retirement income. But there are some ways to reduce your retirement costs and increase your chances of early retirement.

How does inflation affect retirement?

As the cost of living rises, many retirees are concerned about the impact it will have on their savings. While the Social Security Administration does not issue annual increases to Social Security benefits, housing costs, travel, and supporting adult children will continue to drive up retirees' costs. In a recent survey, the Employee Benefits Research Institute found that 45.9% of households spent more than they did before retirement and nearly twenty percent of those households were spending more than a year before they retired. The survey also showed that some households had spent up to 120% more than they had before retiring, which is known as lifestyle inflation.

Another factor to consider is the rate of inflation. As the price of everyday goods and services rise, your savings will also decrease. If your fixed income only keeps up with inflation, your purchasing power will be much lower than it is today. Eventually, your retirement savings will not be able to support the lifestyle you have today. With these increased costs, you may have to adjust your portfolio to match your spending power. However, it is important to understand how inflation works in retirement planning.