It’s been 3 years since I escaped from the rat race and I still can’t quite believe it sometimes. Sure, I worked hard and saved a large percentage of my income, but I was very lucky, too. Mrs. RB40 has been a great partner and she played a major role in enabling me to retire early. We live a modest lifestyle and work as a team to achieve our goals. Of course, we made some mistakes, but we overcame them by working together. I wouldn’t have been able to retire early if I didn’t have such a great partner with a similar mindset.
Now, Mrs. RB40 would like to gear down a bit, too and she plans to retire from her HR career by 2020. She likes working, but the office politics are becoming a major PITA. She will probably work part time (like me), but it will still be big transition for our household. I’m pretty sure we will be able to handle it, though. I already paved the way to early retirement and we have 5 years to prepare.
Anyway, I thought I’d put together an Early Retirement Checklist so we can work through it together. Many of our readers aspire to retire early, so this list would be useful for them as well. You can click over to the Google spreadsheet (Ultimate Early Retirement checklist) and print one out for yourself or copy it to your spreadsheet. Lastly, I don’t think you need to hit every item on this checklist. If you get the majority of the list done, you will probably be okay.
The Ultimate Early Retirement Checklist
Set a date – Setting a date is actually really important. It gives you a goal to shoot for and most of us work better with a deadline looming. We set Mrs. RB40’s goal to 2020 and this gives us a sense of urgency. 5 years really isn’t a long time and we need to give it our best push to reach this deadline.
- Negotiate severance pay and early retirement package. If you plan to work a year or two longer, then it’s the perfect time to work on your benefit package. If you need help with this, buy Financial Samurai’s book – How to Engineer Your Layoff. Here is my book review.
- Remove personal data from work – Remove your personal contact data from work directories. Also, check that your contact info is accurate on the retirement benefit webpage.
- Use up accrued benefits – If you can’t convert vacation and sick days to pay, then use them up. If you have points and other rewards, then use those up too.
- Work less – If it’s possible, go to part time. Some employers offer a phased retirement program. Working less is a great way to start separating from work.
Pay off debts – Luckily, we don’t have debt other than our mortgages. Still, our monthly cost of living would be much more affordable if we paid off our mortgage. I know there are some benefits to having a mortgage, but I think we’d be in a better mental state with no debt at all.
Make a retirement budget – You need to see what your income and expense will look like after retirement. This will be pretty easy for us because I’m already tracking our monthly cash flow. I need to remove Mrs. RB40’s salary and add a bigger health insurance budget. There will be other changes, but those 2 things will have the biggest impact to our cash flow. Oh, we can also take RB40jr out of preschool to save some money.
Passive Income – Passive income is a great way to fund your retirement. Our passive income is mainly from our dividend portfolio. Hopefully, we can increase it a bit before Mrs. RB40 retires.
Side Income – This is part time work. If your passive income isn’t quite enough to fund your early retirement, then you might need to work part time or freelance. Early retirement is a great time to try working in another field.
Rental Income – Investing in rental properties is a great way to retire early. Our rental income isn’t quite passive because I manage our rentals. Having a property manager is the way to go if you can make the numbers work.
Pension, annuity, social security benefit, and other steady income – You can put all this in the equation if you have any. I won’t be able to access my tiny pension and social security benefit until I’m 67, so I’m discounting them for now.
Budget for big lumpy expenses – Some lump sum expenses don’t show up on your monthly cash flow. If you have a car, then you will need to replace it at some point. Here are some of the items that we need to budget for – vehicles, home repair, and international travel.
Kids – We plan to help out with college as much as we can. The total cost for a 4-year degree will be around $200,000. Right now, we have about $45,000 in RB40jr’s 529, so we have a nice start. If we continue to contribute $400/month to his 529 plan, we should get pretty close to $200,000 in 14 years. We’ll see how it goes.
Build a good size cash cushion – We built a $50,000 cash cushion before I quit my job in 2012. The cash cushion gave us peace of mind and we can use it for unforeseen emergencies. My retirement went well and we found out we didn’t need that big of a cash saving. I invested some of that cash and we keep about $20,000 in cash at this time. Early retirees probably should have about 1 year of expense in cash before calling it quits. We’ll try to build up our cash position to $50,000 before Mrs. RB40 quits her job.
Check your Financial Independence – Have you reached financial independence? Your net worth should be at least 25x your annual expense to consider early retirement. If your post retirement income covers your expense, then that will work, too.
Life insurance – If you have dependents, then you should get life insurance and add the cost to your budget. I have side income and rental income. Those income streams would disappear when I’m gone. Our kid is 4 years old and life would be a lot harder as a single parent. Some extra income would help with house keeping, baby sitting, and those kind of things.
*Okay, okay. Life insurance is optional. If your kids are out of the house, then life insurance isn’t really needed.
Review your risk tolerance and asset allocation – If you are going to draw down your retirement portfolio, then you will need to review your risk tolerance and asset allocation. The stock market volatility can be harder to swallow if you don’t have the income to smooth out the crashes. You probably don’t want to be 100% invested in stock because your portfolio can deplete pretty quickly in the bear years.
Figure out your withdrawal strategy – My original withdrawal strategy is to only use the income from our dividend portfolio. I wanted to leave my retirement accounts alone so they could grow. We will need to review our withdrawal strategy to account for Mrs. RB40’s retirement. When Mrs. RB40 retires we will have very little earned income and it will be a good time to build our Roth IRA ladder. Using rule 72(t) to draw down our retirement account would be a good option at some point too.
Figure out health insurance – We are all on Mrs. RB40’s health insurance right now and we need to figure out what to do when she retires. We’ll investigate Obamacare more and see how much we’d have to budget for health insurance.
Run your number through some retirement calculators – I like Personal Capital’s Retirement Planner and FireCalc. They won’t be 100% accurate, but you should get an idea of where you’re standing.
Take a test drive – We saved all of my paychecks for a year before I quit my job. We should do the same for Mrs. RB40. It will show us that we can function without her salary. This will give us a chance to practice living with the post retirement budget.
Complete health checkup – Go have a total health checkup before you lose your coverage. My dentist was keeping an eye on 2 caps and I told him to get them done ASAP. If you have been putting off the colonoscopy, now is the time to do it.
Relocate – Should we relocate? Portland is an expensive city and we could live much cheaper elsewhere. Even moving 15 miles south would be a lot more affordable. Of course, most of the higher cost of living comes from housing. If we paid off our mortgage by 2020, then Portland might be affordable after all.
Build a social life outside of work – One of the things retiree miss most about work is the social interaction. Most of your friends will be busy working and they won’t have much time for you. Both of us are introverts, so this one is especially difficult for us. Mrs. RB40 is involved in a local Toastmasters club, so that will help. We also meet new friends through our kid. There are all kinds of hobby groups and that’s one good way to meet new people. Portland has board game clubs, ukulele players, and all sort of interesting groups. Check on the internet.
Spouse’s retirement – If you are retiring, but your spouse isn’t, then you need to talk about it. I thought Mrs. RB40 likes working so we didn’t talk about it enough when I retired. In 2012, she still planned to work at least 10 more years, but it didn’t turn out like she planned. She still likes working, but she wants to work a bit less. She is interested in having Portland as her ‘home base’ but having the opportunity to fill short-term needs elsewhere, or to do more temporary HR work for a variety of companies instead of just staying at one place permanently. While she is an expert in her sub-field, she is starting to feel stagnant and a little pigeon-holed.
Travel – Do you plan to travel after retirement? I want to take an around the world trip, but I’d probably wait until RB40jr is at least 10 years old. I also want to take a few years to explore SE Asia and South America each. Mrs. RB40 wants to travel, too, but not as extensively. She likes having a home base to come back to. We need to work out something here, since she doesn’t want to pull up roots completely. Also, you should also read up on travel hacking if you don’t know much about it.
Make a bucket list – Here is a fun activity while you’re still stuck in a cubicle. Make a bucket list and put all the things you want to do on it. This list will give you something to look forward to and it will keep you occupied for many years to come.
Have a backup plan – Work on your plan B and plan C. If your finance heads downhill, what would you do? You can go back to work, cut your expenses, relocate to a cheaper town, or get a roommate. There are a lot of options, but you need to work it out with your partner.
Discuss the plan with your partner – Don’t spring early retirement on your husband. You need to approach the subject slowly and present him with this checklist. If you put in some preparation, your partner might be more receptive to the idea. Of course, every family is different, so you may have to spend more time to convince your partner.
What to do after retirement? – This is probably the biggest problem for early retirees. I’m pretty busy with my kid and this blog. I’m sure Mrs. RB40 will be pretty busy, too. She can join the RB40 team full time and work more here. There are a bunch of projects she’s put off as well and I know that she would like to tackle them. Set a few big goals like writing a book, start a blog, rehab a house, or travel around the world.
Make an exercise program – You have to keep healthy so you can enjoy early retirement. One of the best things you can do is to exercise regularly. Take up some physical activities that you enjoy.
Make a will/real estate plan – Okay, some readers pointed out that you might not need life insurance. You definitely need a will, though. If you have a child, you need to appoint a legal guardian you can trust. My brother will be our kid’s legal guardian if something happens to us. I trust him to administer our estate and be a good parent to RB40jr.
Plan for early retirement
Anyone can call it quits today, but if you’re not prepared, you might have to go back to work in a few years. (That’s my worst nightmare…) You don’t have to check off every line item on this list, but I recommend getting most of them done. This will give you a great shot at retiring early and staying retired.
Okay, did I miss anything? What do you think I should add to this checklist? Help me make this the ultimate early retirement checklist.
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.