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An article presented by the Business Insider, an American financial and business news, discussed the story of Dirk Cotton, a man who was able to retire at the age of 52 from his job as an engineer and executive in AOL last 2005. Since his retirement, Cotton has spent his time researching and writing about retirement finances and sharing it in his blog, the Retirement Cafe.
Although his retirement experience included surpassing the dot com bubble and a recession, the key to retirement is to start early, because sometimes retirement can happen before you know it, and here are seven of his takeaways
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1. Create a mock retirement budget
Before retirement, you have to determine what you think you’ll do during retirement, whether it is to travel the world that requires a bigger budget, open a business, which requires reserve capitals, or just do volunteer work that needs the bare minimum funds to prosper. With this, you’ll need to work backward and identify how much you think you’ll need in order to manage every month.
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2. Evaluate your financial situation
You must know how much you have in your account, and how much you are saving for retirement. You must also be able to identify and be familiar with each item in your retirement portfolio, including investments, real estate, liquid cash, and other assets. This way, you are aware and informed of your funds and you will be able to gauge how you will spend retirement. This helps determine how much more you need to work before that day comes.
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3. Focus on your strengths
Earning potential is crucial before retirement, and it is more likely that you would earn more given an activity that you are most familiar and comfortable with. Invest in yourself, continue to learn, and recognize the areas wherein you would need to seek guidance.
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4. Find a financial planner
Retirement is complex, and receiving advice from a financial planner, who specializes in retirement, can make a huge difference. They would help identify sources of income, expenses, and establish a retirement budget. Finding a financial planner is worth the investment, so start seeking one out even before retirement.
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5. Reduce risks in retirement investments
Ten years before retirement, Cotton reduced the percentage of his assets in equities or those tied up in the stock market. Before saving up for retirement, and before the 10 years begin, the situation of an individual invested in stocks over bonds and liquid savings should probably be at 70 to 80 percent. This number is suggested to be reduced before retirement to around 40 to 50 percent in order to become less affected by major events approaching retirement. A lot of people have experienced investing 100 percent of equities, worth millions of dollars, and losing it all at once. Reducing risk in assets would allow an individual to be positioned to handle and manage through it.
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6. Get serious about lifestyle changes
In order to close the gap and reach your goal for retirement, you must commit fully to get out of debt before retirement and pay out loans. You must decide to live less as work and its steady paycheck will no longer be an option. In order to retire early, you must be serious, as much as committing to get an extra job to save enough for retirement.
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7. Play it smart
When you think you’re ready to retire from your job, revisit your retirement goals, whether you are on par with your spouse, and imagine your daily routines. Reconsider retirement location, think about the place you will retire in, and weigh the benefits and costs to living close to family, retiring in higher cost estate, and many more. Determine how to manage income streams and check your government and healthcare benefits.