As a 30-something small business owner, retirement seems like a far-off transition. At the magical age of 65, days become less hectic as you concentrate on hobbies and personal projects, while social security and retirement savings checks start rolling in — we hope. But this idealized, cookie-cutter view of our golden years often gets altered.
Life happens. Planning for early retirement may sound like a bonus, but you should think of it as an insurance option in case retirement at 65 isn’t in the cards for some reason. Is saving for early retirement on your radar?
An Unexpected Retirement Journey
A few weeks ago, I met with a girlfriend to chat about her retirement planning in hopes of gleaning some ideas for myself. She recently sustained a physical injury that left her disabled and in need of multiple major surgeries. Since she’s no longer employed and not old enough to receive social security payments, she dipped into her 401K. Naturally, this move came with a hefty penalty and depleted the resources she planned for later in life.
If she could do it all over again, she’d diversify her investments and start putting away money sooner. You never know what the future will bring, so having a variety of monies accessible at various ages is more ideal than waiting to crack into the golden retirement egg in your 60s.
Unless you’ve held a lengthy conversation with your accountant, “diversifying investments” may sound like a good plan, but it doesn’t necessarily mean anything until you define it. In fact, you can simplify asset allocation, rebalancing and diversifying. From stocks and bonds to just keeping all your eggs in separate baskets, the logic behind diverse investing speaks for itself.
Here’s how the U.S. Securities and Exchange Commission explains it: Imagine you pass a vendor selling both sunglasses and umbrellas. You wouldn’t typically need those items at the same time, right? That’s the point: On days when you need an umbrella, you may not buy sunglasses, and vice versa. By selling both, aka diversifying the product line, the vendor ensures lower probability of losing out on money any given day — rain or shine.
Think About the Future Now
Our conversation led me to evaluate my own planning for retirement. I have a Roth IRA in place, a savings account and hope that the social security system will still be in place when I finish working. But, in reality, those future income streams aren’t enough. I haven’t given any thought to planning for early retirement. What if I’m injured? What if I get ill? If I needed to close my business in my early 50s, could I sustain the lifestyle and financial obligations I share with my husband?
Over the weekend, I visited an employee at my credit union. We discussed a number of short-term investment options that mature over a few years and the current interest rates. Although the return on those investments seem low, I keep telling myself that tucking away money I absolutely can’t touch (without a penalty) has value.
My savings account is readily accessible, and when a bargain comes up, it’s easy to spend. Last fall, we received an unexpected, low-cost offer from a local handyman to cut down our overgrown, dying trees. Without hesitation, a few thousand dollars from savings turned into tree stumps.
Moving forward, I’m investigating the various ways I can tuck away money for the future. Whether I need it in five years or 25 years remains to be seen. Until then, I plan to make smarter investing choices and increase the diversity in my retirement planning — and you should, too!