Many people dream of making an early exit from the work-a-day routine. But making that dream a reality can be a challenge.
The reason is simple. By retiring at 55 instead of, say, 65, you not only have 10 fewer years of saving and investing to build a nest egg, that nest egg also has to support you through an extra 10 years of retirement.
While calling it a career a good decade before you reach a more traditional retirement age may be daunting, it's not impossible. But it will take some disciplined planning. Here are the four most important things you should do to improve your chances of success.
1. Ramp up your savings rate. To have a realistic chance of throwing off the shackles of your 9-to-5 in your mid-50s, you may have to have to sock away upwards of 25 percent to 30 percent a year.
To have a reasonable shot at being able to pull that amount from savings year after year without too high a risk of running out of money too soon, you'll likely need a savings stash somewhere in the neighborhood of 30 to 35 times the annual income you wish to withdraw.
2. Get a handle on your retirement expenses. Create a detailed retirement budget. There are a number of free online interactive budgeting tools out there.
Don't worry if you're not certain what your eventual retirement expenses will be. Do the best you can for now, and then make sure to update and refine your estimates as you get closer to your planned departure date.
3. Nail down health insurance. You're not eligible for Medicare until you hit 65. So if you retire before that date and don't have coverage through a former employer (or, if you're married, through a spouse's current or former employer), you'll have to buy health care coverage on your own.
4. Do some "lifestyle planning." Research shows that retirees who have a wide circle of friends tend to be happier in retirement. So in the years leading up your planned exit date, you'll want to consider a variety of ways to remain socially connected.
Think about such issues as whether you plan to travel a lot or stick close to home and whether you intend to remain in your current house or downsize to smaller, less expensive digs in an effort to free up home equity and lower housing costs.
There are other topics you'll have to address as you prepare to make your early exit. But this much is certain: The sooner you create a plan and put it into action, the better the chance your early retirement dream will become a reality.