It’s true that it is never too early to begin planning for retirement. Our family is somewhere between 6-8 years out of retirement or FIRE. We are still thinking how to actually execute the retirement process. It may be full cold turkey or a more gradual process of moving from the working class to the retired class. However, here are three things we are doing now to get ready.
We are taking small steps toward downsizing by selling stuff on EBay or giving away to charity where the tax deduction can come in handy. Each week we collect stuff around the house to sell. My wife does all the pictures, write up, and monitoring. She also seems to keep all the money as well but that ok. She will try to sell the item for two cycles. If the item doesn’t sell on EBay then she will switch to Craigslist. If it still doesn’t sell, we will move the item to the charity bin and schedule a pickup. Regardless, the item is gone from the property which in and of itself has value. While 2-3 items per week doesn’t sound like much, imagine doing that over the next 6 years. How much have we made? Last month, we made $500 which isn’t too bad for old stuff that just collects dust.
We use the bridge as an analogy between sources of income becoming available during retirement. If you are retiring early then you may not have access to your 401k, social security, or pension to just name a few. So you need a bridge to fill in the gap. For us the bridge looks more like steps as seen below.
In this situation, we are looking to retire 5 years out but we will only have access to my 401k and any Cash savings. Two years after that, the other retirement accounts become available since I will be 59.5. Two more years, and I can start taking Social Security and a Pension. You get the idea, we need bridges to bridge the gap between the steps. Our ability to pull retirement out or push it in depends on how well we create these income bridges which may include other income sources as well. The good news indicated by this diagram is that in about 14 years no bridges will be needed and we will be rolling along nicely.
The last thing we are looking at is how our allocations need to change as we get closer. Returning to the diagram, we are going to need to be much more conservative in my 401k since that account will be tapped first. We will be able to use the Rule of 55 and not have to pay the 10% penalty on the funds, just the taxes. So this account is moving toward a 20/30/50 split between cash, bonds, and stocks. For my other retirement accounts, we are moving toward a 60% stock allocation. However, on my wife’s accounts we can be much more aggressive since we have 12 years remaining before they are added to the fold. The basic idea here is to see the gaps and build bridges as needed.