Retirement

The following post is by ESI from ESI Money, a blog about achieving financial independence through earning, saving, and investing (ESI). Itís written by an early 50ís retiree who achieved financial independence, shares whatís worked for him, and details how others can implement those successes in their lives. He is also the author of a free ebook titled Three Steps to Financial Independence.

Early retirement is all the rage these days in personal finance circles.

And when I say “early”, I mean really early.

I retired at 52 and today’s crowd makes me feel like a slacker. People are retiring in their 30’s and 40’s these days with a handful even in their 20’s.

Of course the definition of “retire” is rather broad. Many still bring in income through side hustles or part-time work. But the common thread is that they are retired from full-time work.

If you would ever like to retire — and especially if you’d like to retire early — there are some landmines you need to avoid along the way.

Here’s my list of the top five killers of early retirement (and maybe retirement overall). I’ll also include some tips on what to do if you’re facing any of these challenges.

1. Having too much debt.

Debt is a killer in many ways.

First of all, interest costs add up, thus keeping you from saving enough to retire. Even with today’s low rates homeowners with 30-year mortgages are going to pay tens of thousands of dollars in interest.

And that’s if they actually pay off the house in 30 years. Many Americans have revolving mortgages due to moving, taking cash out of their home, and so forth that leaves them with one mortgage or another for well beyond three decades.

Second, debt’s mere presence will make it harder to reach a retirement number. For instance, if you have no or limited debt, the amount of income you’ll need to retire is going to be much lower (and thus easier to reach) than if you’re saddled with a ton of debt.

We got serious about our debt early in our marriage and paid off everything, including our house, within ten years. We then had 20+ years of hyper-savings to build up assets which allowed us to reach financial independence in our 40’s and eventually retire in our early 50’s.

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The following is a guest post by Jeannette Bajalia who is the author of Planning A Purposeful Life: Secrets of Longevity, Retirement Done Right and Wi$e Up Women and president and principal advisor of Petros Estate & Retirement Planning. If you’d like to submit a guest post to Money Q&A, be sure to check out Money Q&A’s Guest Posting Guidelines. 

The average person spends 30-40 years working, saving, investing and dreaming about the yellow brick road of retirement. I know this because I’m a baby boomer and have done the same.

After 38 years at my first career, I retired at 55. Recently I celebrated the 10^th anniversary of my second career, or the second chapter of my professional life as a retirement income planner.  

I became a retirement income planner because, after retiring from my first career, I knew I was headed out of the savings mode – which we refer to as the accumulation phase of our lives – and into the distribution phase, meaning I now needed to use my savings as income.

Talk about a huge psychological shift!

I was an expert at savings, now I needed to learn the most efficient way to use my savings to produce predictable income streams that would last a lifetime.

On my quest to get help, I interviewed five financial advisors with one goal: To get a solid retirement plan that would ensure I didn’t run out of money before I ran out of life.

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Here is the next installment in our Reader’s Questions Series, which highlight questions emailed to me by you, the readers of Money Q&A. This time we’re talking about income replacement with dividends when you retire.

Be sure to find out at the end of this article how you can receive a free copy of Dave Ramsey’s book, The Total Money Makeover. If you’re not familiar with Dave Ramsey’s book, you should run right out and get it. It is one of the best personal finance books that everyone should read. Now….on to our reader’s question. This week’s Reader Question is from Ralph who writes…

“I am 54 and planning on retiring in another 10 years. I recently read a book about income investing where you buy stocks that distribute income through dividends. And, you use that for any monthly shortfalls between what you receive in social security, 401k, etc. and what you need to live on. But, the book never said at what time to start doing this. Is it when you are retired, couple years before you retire?”

The short answer to Ralph’s question is that you should probably start investing in dividend paying stocks as early as you can in life. Like most investments, the best thing young investors have is time on their side.

I personally wouldn’t wait until you retire to start investing in dividend paying stocks, although you certainly can do that if you choose. It would take a lot of cash to buy enough shares of stock to generate the dividends needed for income replacement in one shot though. Buying a little along until retirement would be more feasible for most investors. Below are the details of what it would take.

Income Replacement with Dividend Stocks

For most people, it will take a lot of shares of stock to generate the replacement income needed in retirement from dividends. Assuming that most investors won’t have piles of cash available invest in a lot of stock when they hit retirement age, it’s best to start buying dividend paying stock as early as possible.

“Earlier is better than later to start moving money into dividend paying stocks,” says Blake, publisher and blogger at the popular personal finance site, The Dividend Pig. “Or, if you have a large amount of cash and want wait, you can purchase shares as you get closer to retirement age.”

In that case, Blake recommends at least starting to research which companies you’ll want to own, at what price per share, and exactly how much income you will need to replace with dividends.

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