Planning for early retirement

Marketplace Staff Jan 19, 2007

TESS VIGELAND: All right, raise your hand if you’ve dreamed of retiring early. Yeah, me too. Leaving behind the cubicle for maybe a camper, a road trip across America, or a life of leisure tending to the roses, maybe volunteering for a good cause. It may sound like a fantasy, but with some planning it could be reality. Ellen McGirt of Money magazine is here to tell us how to make it happen. Hi again, Ellen.

ELLEN MCGIRT: Thank you for having me.

VIGELAND: I have to say, you know, that all we hear these days is that no one is prepared for retirement. That no one has saved enough money to retire at 65, much less early.

MCGIRT: Right.

VIGELAND: Is this really possible for people?

MCGIRT: The answer is yes. If you just look on paper and you think, if I’m just going to sit on my porch or go golfing all day or open a vineyard, then my 401k might not be enough. But if you think about, perhaps, working a little bit in retirement, or

VIGELAND: Opening a vineyard sounds pretty good to me actually.

MCGIRT: I know. It’s in all the financial advertising these days, which ends the bed and breakfast reign of terror. So I have no idea what next year’s going to bring us, but right now we’re all vineyard oriented.

VIGELAND: Well, when you talk about creative ideas for retiring, what do you mean? Do you mean thinking about how you could manage to live on less than what you expected to?

MCGIRT: That’s part of it. Thinking about what life could be like when you don’t have those big bills, like college costs or a house that you really don’t need to be knocking around in. Can you live in a smaller home and be happy? And do you need to work part time or do you want to work part time?

And what we’re seeing from the boomers who are facing retirement, all these retirement questions, is that they’re finally be excited about part time flexible work that reflects who they really are that can bring in some income that will allow them to do some important financial things like delay taking Social Security for as long as possible. That’s very important. And they end up being actually happier. So figuring out who you are and what you want to do when you grow up is a big part of the early retirement planning process.

VIGELAND: What’s the best way to start making those plans and to figure out exactly how much money you’re going to need? Because I’ve got to tell you, I have visited so many retirement calculators, both on the net and in different magazines, and I still can’t figure out exactly what I’m going to need to have the kind of lifestyle that I’m going to want.

MCGIRT: I know. The rule of thumb is always 70 percent to 85 percent of your current income. And it’s certainly a good place to start, especially when you’re younger. The way to figure out how you want to. . . how you’re able to afford how you want to live is to know how you want to live. And that’s a lifestyle gut check. What’s important to you. . . travel, kids, legacy. . . you can back into you saving and spending that way and right across the board we’re all going to need to be more aggressive in our portfolios. And that means loading up on stocks, index funds, low-cost index funds. It doesn’t have to be risky stocks. Your stock to bond ratio should be higher and more aggressive because you really need to, especially if you need to make up lost ground. But you’ve got a long way to go and you’ve got to live on that money in retirement. So you need to plan for the long haul.

VIGELAND: But the bottom line is, it can be done.

MCGIRT: It absolutely can be done. You can always get there from here. Creative thinking and not giving up. It’s a really important part of the process.

VIGELAND: All right. Ellen McGirt of Money magazine, thanks so much for coming in again and giving us a little hope.

MCGIRT: My pleasure.

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