We wrote previously about our Early Retirement Goals, implying an invisible delineation between pre-60 and post-60 retirement years. Why would age 60 be such an important age? As if we believe that 60 is the new 40 or something? Why not 62 when we can first file for Social Security, or age 65 when we can file for Medicare? Or even Age 67, our so called ‘Normal Retirement Age’? What’s normal anyway?
Mainly because between the rough ages of 60 and 70, there are so many decisions to face that we have dubbed it the Decade of Big Decisions (DBD).
This decade is so important because it’s when you lock-in some key benefits for the rest of your lives. By retiring much earlier than 60, we have distinct issues facing us during our Gap Years (non-working years prior to age 60) from your more traditional retirement years (60+).
Let’s back up a little to explain….
How the Majority of People View Retirement:
Work, work, work…then play, play, play. Is that all there is to it?
Early Retirees have to think about pre and post-working years through a different lens. It’s more than just, “my situation is X while I’m still working and it’s going to be Y when I retire.” You have more than 2 phases to consider.
How Early Retirees View Retirement:
Obviously, the length of time in each phase will be unique to you because we all have different goals and different resources.
Sure, you have to be flexible to adjust. Some things are completely in your control (like where you live or how much you travel) but some are not. For example, there are clear limits to when you can draw on Social Security or when you have to file for Medicare. (physical disability aside)
One of our key principles is planning after all. So knowing ahead of time that our 50’s, 60’s, and 70’s will all look quite different from one another is important to recognize in advance. It shapes our road map to make optimal decisions in each phase while looking ahead to what’s coming next.
It may also help us prioritize what we want to focus on at certain ages. For example, we really want to focus on travel a lot in our 50’s and probably into our 60’s somewhat as well. We imagine that our lust for wandering may fade somewhat over time and this may reduce our need for a travel budget in our late retirement years at a time when our health care spending may be going up.
The Accumulation Phase (Your Primary Working Years):
The accumulation phase doesn’t need much explanation. Like us, it might be where you are right now. You are working your regular job, saving like mad and looking forward to all the good-times coming your way real, real soon. You may be 24 or 44 (or even 54 if you got a late start)!
Here is where you are careful to make the right decisions with investing and saving, you are minimizing your taxes, and you are looking for ways to reduce your spending to reach your goals sooner. You know: reduce expenses, supercharge your savings, and resist debt and life-style inflation.
Don’t forget to have some fun!
The Gap Years (Your Early Retirement Years)
Compared to all the decisions we are going to face in the DBD – our early retirement years seem like a cake walk. (for you young whipper-snappers, yes – cake walks were actually a thing!) Before age 60, we are probably the most mobile, most flexible, and the most willing to try new activities and communities on for size. The world is our oyster right?
We are more likely to take on major projects like building a new home or moving across the country.
We will have to make plans for health care once we leave our cushy careers and adjust to spending money instead of earning it (in the traditional sense).
Also, we will still have to monitor our spending to make sure our assets will last, but things should be pretty much on auto-pilot. We are free to make choices about how to spend our time and with whom.
In comparison to the DBD, our Early Retirement years will be pretty carefree!
We are pretty eager to get to this phase, but we haven’t quite filled up all our ‘buckets’ or checked off our 3 primary Early Retirement goals yet.
The DBD (the Decade of Big Decisions)
Sounds scary? Big decisions don’t have to be feared. If you apply the same energy and diligence to what got you to early retirement in the first place, you’ll be just fine.
Why age 60?
To begin with, at age 59.5 we have more flexibility with respect to our pre-tax retirement savings. We will no longer be subject to the 10% penalty for 401(k) and traditional IRA withdrawals. (Yes, we know there are ways to access prior to 59.5 but we are not planning to use those methods). In fact, before we are subject to Required Minimum Distributions (RMDs) at age 70.5, we will want to carefully plan withdrawals from our retirement funds during the DBD to manage income taxes during these years and also after we hit 70.
It’s closer to ‘Traditional Retirement’ age in the U.S. (although this is slowly evolving as more people live and work longer).
We’ll transition into an time where more of our friends and peers also start to retire.
Biggest of all, even though you face plenty of decision making in your pre-60 years, in this decade Social Security and Medicare decisions are no longer abstract future events. You need to start preparing in earnest to make important decisions about these benefits. Filing for Social Security and Medicare are long-lasting decisions. It’s going to take us some time to weed through current options before reaching informed decisions on Social Security and Medicare – oh what fun! I don’t want to be weighed down too much in my early retirement years about these choices until they are closer to affecting us.
Late Retirement (generally age 70+)
We are not saying that everything cools down magically at the end of the decade at age 70, but by then we’ll be past major decisions like when to start collecting Social Security and some of the decision making around making RMDs, for example, will be out of our control. We’ll be on Medicare and our kids will be in their mid-40’s.
We certainly hope that at age 70 we will still be in good health and still want to travel to new destinations (maybe not as often). Overall, there will be less uncertainty to life, right?
We think about the people in our life now that are in their 70’s and how much energy they have as a glimpse into what it could be like for us.
We plan to do some RV traveling, for example, in our 50’s and I just can’t see doing that in our 70’s for extended periods of time. Maybe we will need to be closer to health care amenities? Will we have grandchildren that we want to live near? Will we still have the energy and ability to do gardening and yard maintenance, etc?
Early Retirement is only going to be a reality for us if we feel confident that we have prepared for what lies ahead of us. We can delay some pretty significant decisions for a while even after we stop working to focus on having some serious fun! Being mindful of them, however, is a prudent part of the planning process throughout our entire retirement – however long that turns out to be. We certainly don’t fear the DBD. It’s another phase we will navigate through. We’ll devote a little bit of our energy to strategies as our Gap Years come to a close, but overall it won’t be a major distraction for us. Our primary focus right now is just fighting our way to the starting line of Early Retirement Gap Years. The ultimate finish line will be decades away (we hope!).
Are there certain decisions you are comfortable not even thinking about at this stage in your life because they are so far in the distance?
Or do they keep you up at night even though they may be years or even decades away?