Congratulations on your early retirement! Whether you elected to retire early or weren't given a choice, you now have time to travel, pursue hobbies or spend more time with family. You can also remain financially secure during year early retirement when you avoid three common pitfalls.
1. Spend Too Much Too Soon
Just because you have access to a lump sum of money doesn't mean you should spend freely. Take time to think before you start buying. You don't want to run out of money and be left scrambling to find a job or other ways to supplement your income.
Avoid this pitfall when you create a budget. Figure out exactly how much money you need each month to live and where that money will come from. Remember to include annual expenses like insurance premiums, vehicle inspections and taxes. Set up an emergency, fund, too, to cover unexpected expenses like burst pipes or illness.
Next, limit retirement account withdraws. Ideally, you want your funds to last as long as possible, so elect to withdraw only take the necessary minimums if possible.
Make every effort to live within your means, too. Your retirement should be fun and enjoyable, so plan a vacation, buy a boat or invest in a hobby if you can afford it. However, you don't want to sacrifice financial peace of mind for instant gratification simple because you're retired.
2. Rely on Factors you Can't Control
Some retirees plan their budget based on consistent investment results, no health insurance premium increases and a steady home value. These factors aren't ones you can control, though.
For security, be prepared to adapt. Consider getting a part-time job or boosting the amount of money you save each month. Perform a complete financial review at least once a year, too, and adjust your lifestyle, spending or retirement portfolio if necessary. Your flexibility and willingness to adapt could mean the difference between financial freedom and disaster during your retirement.
3. Take Social Security Early
You're eligible for Social Security payouts when you turn 62. Your benefits last longer, though, if you wait a few years.
Use an online Social Security calculator to figure out the best time for you to start withdrawing your benefits. You can also discuss your options with a financial advisor. Being smart you're your Social Security withdraws can mean you have more financial security throughout your retirement.
Early retirement can be a blessing, especially when you plan your finances wisely. Take time today to begin a financial assessment. Keep these early retirement pitfalls in mind as you make the most of your early retirement.