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Budget Analysis for Early Retirement

February 19, 2012 | Comments: 0 | Views: 131

Budget planning is important for both younger and older workers. The young need to set a baseline for future growth of savings for the next 30 or 40 years. After these busy years, the next critical time for planning is 5 to 10 years before retirement. This article evaluates a hypothetical couple in their mid to late 50s. Can they retire early or should they wait a few more years. They moved up to a new house, raised the kids, bought more insurance, and ran their budget numbers about 8 times (every 4 years) as major "events" caused a reassessment of their lifestyle. Now they are around 58 years old and considering early retirement.

So this is a hypothetical budget for the next 4 years (age 58 to 62) and also for 5 post-social security years. It may help stir your own thoughts about the possibility of early retirement, future costs, and ways to "cut back", if needed. Is the income growth stabilized enough to make retirement or semi-retirement an option?

Study the inputs below to see a typical budget life of a pre-retiree. It's interesting to note that the budget of this hypothetical couple went from growth in their early years, to decline in their child rearing years, and back to growth in their later years.

Now, they can retire IF they are back in stable growth mode. It shows one spouse taking retirement checks offered by his/her current employer. The other spouse decides to continue working for another couple years. A description of the 15 inputs is given below.

Budgeting Event No. 2

A couple in their mid to late 50s, pondering early retirement:


2. 401K(S) PRESENT BALANCES = $195,000


4. TOTAL "NET MONTHLY" SPOUSE INCOME (work or pension) + YOUR WORK INCOME (part time?) + ANNUITY + MUTUAL FUND INCOME + OTHERS JOB MONTHLY NET INCOME? - Average next 5 to 9 years = $2150


6. MONTHLY MEDICARE PART B? (starts around age 66) = $300






12. IRA VALUES = $20,000




And the following shows their calculated liquid savings balance for each of the next 4 years:

Age 58 to 62 extra savings balance = +$42,209, +$43,917, +45,826, +47,734

The effect of $1800 monthly Social Security payments starting at age 62, is also added below:

Post age 62- extra savings including Social Security = +58,409, +$78,084, +101,358, +$124,633, +$144,307

Unless the above numbers change, this couple can live comfortably for the next 4 years with a small positive savings growth that accelerates when social security kicks in. The key to the early retirement decision is the replacement of ALL your costs with your pension check(s) and personal investment withdrawals (less than 4% per year recommended). In many cases, the spouse needs to continue working until his/her pension and investment withdrawals replaces remaining costs of living with extra growth to cover future inflation.

So, IF they both decide to take social security at age 62, the extra savings grows by approximately $20,000 per year in this example. Now the debate can begin about taking S.S. at age 62 or waiting a few more years (8% more income for every year you wait). Do you need an extra $20K per year at age 62? Is a trip to Europe beckoning? What if only one of you retires and the other continues to work? Can you forego taking S.S. checks until you are both retired? Many factors enter into the equation. The calculation these numbers came from assumes $75,000 in liquid savings as a proper "cushion" before saying you are at "break even" (in the black). What are your numbers?

To run your budget numbers, email me at I'll send you the spreadsheet. I have no affiliation with any financial planners.

Source: EzineArticles
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Article Tags:

Early Retirement


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Budget Analysis

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