Early Retirement

Idolizing people we admire is the wrong approach. The best compliment is to learn what role models share and to apply it in your situation. By being the best you.

Wealth is often defined as having to do with money or finances. Such a narrow definition limits us to income, spending, investing, retirement and taxes. While these are important issues, this narrow definition is wrong.

Wealth involves mental, physical, spiritual, health and financial aspects. Money is the least important on the list as we will shortly see.

Inflation is the greatest enemy of retirees. Explore 4 ways to beat inflation back in retirement.

Even before the Affordable Care Act people were looking for alternatives to traditional health insurance. The biggest desire to change was insurance premiums that were getting out of control. Some also wanted to cut a middleman out of the equation. Payment of claims is an even more important consideration, however.

Personal factors, your tax bracket, expected future income and when you plan on retiring all play a role. The answer isn’t as simple as playing the tax bracket game (convert be low a certain tax bracket only).

Other considerations can affect you taxes down the road. Even Medicare premiums are an issue. A high required minimum distribution (RMD)(currently starts at age 72, but pending legislation will gradually raise that to 75, if passed) can cost more than just a tax bill. It can also increase your cost for Medicare.

The best way to handle a Roth conversion discussion is to break it into two parts: the conversion phase and the retirement phase.

The most overlooked trick to growing wealth is right before your eyes. You can literally get rich doing anything.

It has been a long time since developed nations have tasted serious inflation. Unless you are near 60 or older you will not have experienced the last time inflation was a serious issue in the 1970s into the early 1980s. 

Coupled with low inflation is low interest rates. It is hard to miss the pattern of interest rates since 1982. Each increase in interest rates was followed by a new low in interest rates until we bumped against zero and stayed there for much of the past decade. 

The stock market loves low interest rates. The constantly declining interest rates gave us a stock market that has relentlessly climbed. In the early 1980s the price/earnings (p/e) ratio for large capitalization stocks was in the single digits and the dividend yield was in the 6% vicinity. Now the p/e multiple is closer to 30 and the dividend yield is below 2%. 

Assumptions abound. Planning for retirement has more what-ifs than you can shake a fist at. If you begin your wealth building journey as assets bounce from a low, advancing for years, you have an advantage.