Tanja Hester's Tips on Planning for Early Retirement

Mon, Apr 8, 2019 - 10:24am

Retiring at 65 is entrenched in the American mindset, but what if you could retire in your 40s?

Tanja Hester, author of Work Optional: Retire Early the Non-Penny-Pinching Way, retired at 38 along with her husband. She’s developed a roadmap to help others be able to do the same.

The Early Retirement Mindset

Hester had a demanding job as a consultant where she typically worked 60 and 80-hour weeks constantly filled with exhausting work travel. She and her husband hit a point where they realized they couldn’t keep this pace up forever. Together, they made the decision to figure out how to retire early.

Hester encourages those considering early retirement to envision what kind of life they want to live and then plan accordingly.

“For me, a big motivator through this whole journey of saving for early retirement was picturing the life that we want to live,” Hester said. “That's significant because I was never naturally frugal. I was not a good saver.”

Thinking about early retirement means answering many questions. What do you want your day-to-day life to be like? What do you want to contribute to society? It’s necessary to think about how you will derive meaning, identity and purpose without a conventional career title, Hester stated.

There are different ways of going about retiring early. Full early retirement worked best for Hester. Semi-retirement involves working part time, and career intermission is planning to take an extended break from work but returning at a later date.

“Those are things that require some thought,” Hester said. “I want people to think about, not retirement, if that word hangs you up, but what would your life look like if you could make work optional? It's fine if it's still includes some work or if it includes work sometimes, if that's what it takes for you to get there financially, or if you just like work and you still want to do some, that's great.”

Financial Planning

Arriving at a point in life where you are ready to retire early requires careful financial planning and discipline. Hester suggests creating a money mission statement that can guide you in your financial journey. Having a written declaration helps to keep you focused and hold yourself accountable.

Reaching financial goals also requires a change in thinking about spending by tracking where money is going and eliminating spending on non-essentials. One of Hester’s spending triggers was going to Target, she noted. So to enact her plan, she cut Target out of her life.

“I don't miss it,” Hester said. “Life without Target goes on. It's creating things like that so you know what is it that you want your money to do. What are the things that cause you to make bad choices with your money that you later regret? And how does that tie into your bigger life vision?”

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Early retirement is really any retirement before you are eligible to either tap a 401k or IRA funds, or before you're eligible to take Social Security, Hester noted, and as a result, you will need other sources of income to sustain yourself.

There are a range of options available, and Hester prefers not to set specific guidelines. Some people choose to invest in rental properties, or index fund investing with low fee-to-return ratios.

To help save, Hester recommends the following four approaches: under spend on housing, underspend on transportation, focus on increasing your earnings, and bank your raises.

“If you want to build a multifaceted super complicated financial plan because you just geek out on that stuff, you're absolutely able to,” Hester said. “And if you want to keep it really simple and just stick with one thing, I talk about how to do that [in my book] too… I urge folks to look at your own numbers, really do the math on it, and to look at the overall landscape.”

Psychological Readiness

Many people don’t spend enough time thinking about or planning for the transition to retirement, Hester stated. Leaving work entirely can take a mental toll, but preparing for the impact of retirement can help many overcome transitional difficulties.

The first step is making sure you have access to health insurance, Hester advised, because you won’t be able to access Medicare and Medicaid in most cases.

Next, plan to celebrate your transition to retirement, in whatever form it may take. Robert S. Weiss, a researcher cited by Hester, found that retirees who celebrate the transition and who mark it as a life moment are happier in retirement. The emotional side of the transition is huge. Think about how much notice you want to give. Create rituals for yourself to transition to life without traditional work.

The dream of early retirement takes planning, but if you can be honest with yourself about your financial, social and psychological needs, you can likely make it work for you.

“I spent all these years dreaming about not having to work anymore,” Hester said. “Now, for me, the real gift is that everything I work on is something for myself. I write a blog, I have a podcast, I wrote the book. Nobody made me do any of those things. No one said you have to do this by X date. I didn't feel like there was any financial incentive to do any of them.”

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