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Early Retirement is possibleThe Star Online - Tapping the 50 Plus Market by Carol Yip

COMMENT By Carol Yip
Saturday November 28, 2009

ANYONE contemplating an early exit from the rat race faces just as many rewards as they do risks. The most obvious reward: Early retirement means more time to live life instead of working. On the other hand, there is always the risk of running out of money needed to survive the later years of life.

If the purpose of early retirement is simply ceasing to work because you are tired of working, this in itself may not lead to a fulfilling retirement lifestyle. Be sure you have something to do that occupies your time, interests and takes advantage of your talents. It will be even better if you know your life goals and purpose for your early retirement because doing something meaningful will keep you mentally healthy. You don’t want to be waking up everyday wondering what to do with your life.

You may experience these different stages if you decide to retire early:

Stage 1. The active years: This phase may be typified by a “very active self-indulgent behavior”. You start doing things now that you were constrained from doing before. These new opportunities can require spending of your financial reserves.

Stage 2. The legacy years: In this period, you may to be less self-indulgent and more concerned with legacy or relationship building with people. This can also be a time of “giving service to others,” either to the community, family and friends. Otherwise, you may experience loneliness or mental depression, which can affect your physical health.

During this legacy phase, you also need to plan for a permanent dwelling including a support system and medical assistance for old age. You have to review your financial situation to ensure that your financial nest egg continues to generate growth for stage 3.

Stage 3. The golden years: This is when life’s endgame is played out. You may look back on life and feel a sense of fulfillment. Success at this stage leads to feelings of wisdom, while failure can result in regret, bitterness, despair and financial depression.

The risks of not having enough

You need to be “in the driver seat” of your investment portfolio to ensure constant growth because your retirement lifestyle will depend on what your investment portfolio can generate for you. Your investment profits must replace your career income. Hence, you cannot second guess in making financial decisions. You must know the answers to the following important questions about your financial reserves:

● What kind of retirement life do you want for yourself so that your financial reserves can last a lifetime?

● If you are presently single, would you want a family, children or companion during your retirement? Be aware that this may deplete your financial reserves.

● If you have a family now, what kind of lifestyle does your family want that can affect your financial reserves?

● How good are you in your investment skills and choosing the right investment products for your financial reserves?

● When your financial reserves run out, what is your contingency plan?

Actions speak louder than words

To the early retirement wannabes, realising your early retirement dream means investing your money and getting into a debt-free situation as soon as possible. It is about making sensible decisions about your life and financial matters.

You can begin by creating a process of gradual change with plenty of mental planning and making adjustments to fit an early retirement mindset and life expectations.

Mastering your investment skills and getting good advice will become your retirement priority. So, start your investment process today by considering the following:

● Can a bad economy and financial markets destroy the value of your financial nest egg?

You need to be cautious of being lulled into investment products that project average returns. An average doesn’t take into account the possibility that there may be several years of below-average returns that could force you to dip into your investment principal.

● Will inflation cut down your purchasing power? Watch out for the ravages of inflation.

A portfolio can earn handsome returns, but if the cost of living increases at a faster clip, retirement can be jeopardised.

So you will need assets that will grow over time and provide a hedge against inflation.

● How reliable is your investment income? Weigh this carefully when you need a continuous stream of income to pay your daily expenses.

When there is a need to cash out your investment principal during retirement, you will need to review your lifestyle and practice frugal living.

● What kind of investment choices will fit your financial needs? Take your time to understand the types of investment products in the marketplace because a choice of investments that are risky or not easily converted into cash can affect your retirement living. Unless you can quickly find a job, you can be caught in a cashless situation.

At the end of the day, only if you are proficient in your investment skills and can build sufficient wealth, will you be in control your retirement destiny. But a poorly planned and executed transition into retirement can mean you may end up living dangerously!

Yip is a personal financial coach and also founder and CEO of Abacus for Money

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