“If I want to retire early, I should just focus on saving as much money as possible right now. I’ll figure out everything else later!”
It’s a common way of thinking, especially for young people who want to retire earlier.
But as a former portfolio manager and head of retirement solutions for JPMorgan Chase’s asset management group, I’ve seen how this popular belief – that you have to save money first, so plan your retirement lifestyle – keeps people from experiencing retirement without financial stress.
Figure out what your early retirement lifestyle will look like
Many young people say they want to retire early and plan a savings goal based on their current expenses and lifestyle. But they don’t realize how different their expenses might be in retirement.
Holding back from making decisions about your retirement lifestyle can mean spending years questioning your decision to leave the workforce, as well as wasting money figuring out how you will spend your time or where you will be happy to live.
In fact, deciding how you want to live as a retiree will take the pressure off your initial retirement savings goal. Who knows? Maybe you want to take on a meaningful part-time job or a side hustle. Or you may want to move to a location with a lower cost of living.
My point is, you can’t know how much you need to save or when you can retire until you have an idea of how you plan to spend that money.
How to plan your retirement lifestyle
I’ve spoken with many people who are considering moving when they retire, whether to another city, another state, or even another country.
If you are planning to move, make sure you spend plenty of time there as a local and not as a tourist. A trial during the “off season” – or better yet, several seasons – is essential.
For example, my husband and I packed up and moved to Italy shortly after our wedding. We imagined spending most of our days wandering around beautiful villages and eating fabulous food at sidewalk cafes.
It wasn’t reality. We spent the weekends doing household chores like everyone else. We missed being close to our friends and family. Activities were not easily accessible. Also, we didn’t have a car, so we had to walk to the grocery store. In the end, we realized that living in Italy was not the fantasy we had imagined and moved back to the United States.
It’s always a good idea to test your retirement goals before leaving the workforce. If you plan to dedicate your time to giving back to the community, get to know the organizations and people you will be working with to ensure your vision and goals align with theirs.
Likewise, if you plan to spend a lot of time at a club or play a sport, decide if you enjoy the hobby and the people associated with it before committing your lifestyle to it.
Finally, side hustles are very common among young retirees, so it’s important to get that in order as well. If you plan to earn extra income by working part-time or starting your own business, lay the groundwork before quitting your full-time job to make sure your plan is feasible.
How much money do you need for early retirement
It is impossible to predict exactly how much money you will need. The age at which you retire, your ability to earn additional income, the markets, your health and your longevity are all uncertain.
The key to doing this is to be as informed as possible about how you are going to spend your money and time, and to save more than you think you need.
I generally tell people to aim to replace at least 70% of their annual pre-retirement income. But if you plan to take expensive vacations every year or live in an area with a higher cost of living, you might want to increase this percentage.
To find out when you’ll have “enough” money to retire, use an online retirement calculator based on your lifestyle and budget. Consider factors such as additional income, including side businesses and social security. The Social Security Administration has a wealth of resources to help you calculate your expected benefits.
Anne-Lestre is the former Head of Retirement Solutions for JPMorgan Asset Management’s Solutions Group, where she advanced the firm’s market-leading retirement investment services and developed investment products that integrated data and insights from behavioral economics. Follow Anna on Instagram @savesmartwanne.