Retiring Early Doesn't Have to Be Just for Wealthy
By: Brian O'Connell

NEW YORK (sbup) — Want to retire early? Many Americans are already planning on it, especially affluent ones.

BMO Private Bank's Changing Face of Wealth study study finds that one in five Americans with more than $1 million in investable assets plan to retire before 40 (although the average retirement age is 56), with 81% planning to spend their retirement traveling but 53% planning to keep bringing in an income by working part time, starting a new career or their own business.

"It's great to see that high-net-worth Americans have a positive outlook on retirement and plan to retire young and stay active during their golden years," says Darrel Hackett, president of BMO Private Bank. "Regardless of your income level, it's important to plan for your retirement future and have a wealth plan in place that includes a retirement component tailored to your specific situation and lifestyle."

As Hackett says, hooray for the wealthy, but is it possible for the rest of us to retire early too? Affluent Americans are expected to need $2.3 million to fund their entire retirement, BMO says — a figure that is probably out of the grasp of the American lower- and middle-classes.

But some say getting out of the workforce early is not only doable, but easier than you might think — if you follow a good wealth creation script and think creatively.

"I'm a single woman who retired last September right after my 60th birthday," says Joe Stewart, a Salt Lake City resident. "Even though I earned an MBA, my highest annual salary was only $60,000."

How did Stewart get out early? Good planning, for starters. "I opened my first individual retirement account in 1983, and I always participated in 401(k)s when they were available," she says. "I also paid off mortgages — included extra principal every month, and paid off my credit cards monthly." Stewart now enjoys her retirement as a part-time travel writer, which allows her to see the world and get paid for writing about it.

Kali Hawlk, a 20-something marketing manager in Bozeman, Mont., has an ambitious plan to reach financial independence by age 35.

"I don't know if I'll retire and just quit working, but I do want to be free of the need to have to earn a paycheck," she says. Hawlk's model is to earn extra income to reach her goal. "My plan is to pick up something you can do on the side and turn it into a solid income stream," she says. "I work as a full-time marketing manager, and on the side I do freelance writing, career coaching and marketing consulting. This side-business has allowed me to accelerate my savings rate — I save and invest about 50% of my income each month."

Investment professionals say just a few simple concepts are needed to retire early. "Being able to retire early depends on accumulating enough wealth to support you for the rest of your life, from the time you retire to the time you die," says Eric Meermann, a certified financial planner with Palisades Hudson Financial Group in Scarsdale, N.Y. "There are only a few levers you can push to accomplish this. You can try to make more money, spend less money or earn a higher rate of return on the money you have. While the third factor is important, expecting to hit it rich on some amazing stock pick is unlikely and not prudent. The best strategy is to invest your wealth for growth in a diversified global portfolio of stocks and bonds."

Meermann also says to forget about the maxim of saving 10% of your income. "If you don't make a ton of money, retiring early is going to take extreme discipline during your working life," he says. "Depending on the lifestyle you expect to lead in retirement, you may have to save 25%, 30% or even 50% of your income … Also, to retire early you will have to have very reasonable expectations for the amount of annual spending you will be able to draw out of whatever portfolio you are able to amass."

When you get to retirement, make sure you maximize all sources of income.

For example, Hagen Pruemm, president of Senior Insurance Solutions, advises making the most out of your Social Security benefit. "To find out what your benefit will be, Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most," he says. "Be aware that if you plan on retiring before you reach 35 years, the years you are short will count as zeros and therefore will lower your benefit."

"Also, know that delaying your Social Security benefit will increase payouts," Pruemm adds. "Additionally, know there are up to 567 ways for a married couple to claim Social Security benefits, so make sure you do your homework."

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