The 2021 Global Retirement Index1 found that younger employees have the desire to retire younger than their boomer parents and grandparents. The study found that the average age of expected retirement for Baby Boomers is 68 – for Gen X, the age is 60, and for Gen Y, the age is just 59.
The hope for these employees is to leave employment with enough money for retirement. While retired, they hope to travel, pursue other passions and hobbies, and spend time with family.
If these employees are successful at early retirement, companies can benefit as well. When employees retire early, companies can:
- Save on payroll costs
- Hire employees with more up-to-date skills and more recent education
- Eliminate jobs that can be automated
- Allow younger employees to progress within the company rather than lose them to competitors
Despite the win-win nature of early retirement, it is not easy for many employees to achieve without understanding the right steps and making an appropriate plan.
Here are ten things you can do to help younger employees who would like to retire early.
1. Help Employees Define Retirement Goals
Before determining how much they need to save for retirement, your employee will have to understand what they mean by retirement.
For some people, it means downsizing and spending time with family. For others, it may mean traveling. In some cases, it might even mean starting a business.
2. Consider Their Retirement Location
Where your employee plans to retire will dictate how much retirement will cost. They need to consider possibilities like:
- Staying in their current home
- Downsizing in the same general area
- Moving to a different area – If they choose to move, is the location more or less expensive than where they live now?
- Being near family
Planning the move before retirement is less expensive than an unplanned move after retirement.
3. Create a Target
Once an employee understands what they plan to do in retirement, they need to determine how much they will spend each month.
This budget will look similar to their current budget but will also take into account their new lifestyle. For example, they may have no mortgage payments but higher healthcare costs.
From their monthly budget, they can calculate their yearly expenditures.
Finally, they will multiply that yearly number by the number of years they expect to be in retirement. This is their target number for retirement.
One of the best ways to get to the target number is to use a tool such as Enrich’s Retirement Analyzer, which can help employees answer three important questions:
- Am I saving enough?
- How long will my money last?
- When can I afford to retire?
4. Change Their Lifestyle
For most people, retiring early means living more frugally now. This means creating a budget and sticking to it. It also means looking hard at expenses and finding ways to cut back.
Employees who want to retire early may need to:
- Cut expenses
- Get out of debt
- Pay off their home
- Pay off student debt
- Forgo new cars
- Get a second job
Essentially, someone who wants to retire early will have to ask themselves this question: What am I willing to do now to retire early?
Employers can help by providing employees with a financial wellness program that offers education, tips, and tools for making and keeping a budget and paying down debt.
Keep Reading: Millennials and the Daunting Task of Saving For Retirement
5. Invest, Invest, Invest
To retire early, your employees will need to save money and then invest that money wisely. Some money may be in retirement accounts, while other money may be in non-retirement investment accounts.
- Pay the maximum amount of money into employer-sponsored retirement accounts
- Take advantage of the employee match
- Open up a ROTH IRA or personal brokerage account to use as income before turning 59 ½ (when it is possible to remove money from a 401(k) without a penalty)
- Invest every extra dollar to build your nest egg faster
- Start saving as early as possible to take advantage of compounding interest
A tool like Enrich’s “How much do your daily expenses cost over time?” can help employees see how much money they can invest by doing something as simple as cutting out their stop for coffee on the way to work each morning.
In 10 years, making coffee rather than buying it saves $10,000. That’s a lot of extra investment.
6. Remember Health Insurance
An easily overlooked extra expense of early retirement is health insurance.
As an early retiree, the employee will no longer be eligible for an employer-sponsored health plan. However, they will not yet be eligible for Medicare.
This means that they will have to find healthcare insurance through:
- ACA marketplace
- Private insurance
- Through a part-time employer offering this benefit
These plans are likely to be more expensive, so it will be important to plan for this extra cost.
7. Plan for Social Security
Once again, employees retiring early will not be eligible for Social Security, so they will need a plan for income in the interim.
Employees may also want to consider holding off on taking Social Security until they turn 70 – that's when they will be able to take the maximum benefit.
Keep Reading: How Financial Wellness Can Help Employees Understand the Top 3 Social Security Myths
Encourage your employees to look at the planning tools on the official Social Security Website. This will help them determine the best time to start drawing benefits based on their situation.
8. Have Yearly Checkups
Once a plan is in place, it is a good idea for employees to check in to see how the plan is going.
- Are they on track with savings?
- Has their definition of retirement changed?
- Have they noted any additional costs, such as costs associated with a new medical condition?
- Do they understand their investments? The investment mix? The amount of investment risk?
9. Have a Second Plan
Because so many things can change – health, economy, family circumstances – it is a good idea for employees to have a backup plan.
What would change, for instance, if inflation increased? A spouse died young? They were diagnosed with a long-term disease?
If your employees know what they would do to handle a major change in financial needs, then such a scenario won’t completely derail their plans.
10. Understand Different Income Streams
Once your employee retires, they will need to understand how different income streams will provide them with money for daily living. They will need to manage money coming from:
- Real estate
- Retirement employment
- Investment portfolios
- And, eventually, Social Security
They will need to understand when they can or should take money from these accounts. Otherwise, they will be hit with fines and high taxes.
These steps are beneficial even for employees who want to retire on time.
Learn how the Enrich financial wellness platform can help all employees save for retirement and create strong financial habits.
1 - https://www.im.natixis.com/us/research/2021-global-retirement-index