Hopefully you don't hate your job and are counting the days until you can retire, but even if you love what you do, chances are you do not plan to do it forever.  Either way, it is important to plan for a happy, healthy and financially secure retirement.

For those planning an early exit from the workforce, the complications of retirement planning can get even more intense.  If you are dreaming of an early retirement, you cannot trust that it will simply happen.  If your dreams of an early retirement are to come true, you need to take a proactive approach to retirement planning, starting with the five essential steps listed below.

 

1. Set a Mental Quit Date, But Build in Some Flexibility

If you want to work toward an early retirement, you need to put a timeline in place.  Think about when you want to retire, then set a mental quit date in your mind.

A number of things will factor into this decision, and it is important to give in the consideration it deserves.  From your length of service and pension vesting to the value of your portfolio, there are plenty of things to consider, so it pays to stay flexible. Your mental quit date is important, but it should not be set in stone.

2. Assess Your Health Insurance Options

Depending on your situation, health insurance premiums could be your number one expense as you enter your retirement years.  The cost of health insurance premiums is enough to give even well prepared early retirees sticker shock, and if you are unprepared, these expenses could send your post-retirement budget into a tailspin.

If your spouse is still working, you may be able to sign on to his or her health insurance plan - and save some money in the process.  Do not assume this will be a possibility, however - take the time to check it out and make sure.

Things could get considerably more complicated if you are not eligible for group health insurance through your spouse.  Shopping on the individual health insurance marketplace can be a complicated and sometimes expensive endeavor, and it pays to be well prepared.

3. Revise Your Current Budget for Your Post-Retirement Realities

Hopefully, you already have a comprehensive household budget in place.  If not, now is the time to make one.  But even if you do have a budget in place, it may not reflect the realities of your post-work life.

Take a hard look at the budget you have in place, then think about the way your expenses are likely to change once you stop working.  Some expenses, like the cost of the daily commute and those business lunches, will go down or disappear entirely, while others expenses, like the cost of health insurance and money spent on hobbies, are likely to rise precipitously.

Do not simply assume that your expenses will go down once you retire.  Many retirement calculators rely on a figure of 70-80% of pre-retirement expenses, but that is just a guideline - not a hard and fast rule.  If you want to be prepared for retirement, you need to look at your own situation.

4. Reconfigure Your Portfolio to Build an Income Stream

Even if you have been saving and investing for retirement for decades, your current portfolio may not meet your post-work needs.  Now is the time to review your portfolio and assess your holdings, putting a new emphasis on protection of principal and the generation of income.

If you are working with a financial planner or other professional, you can seek help to restructure your portfolio and build an income stream.  Even if you have historically been a DIY investor, sitting down and paying for a few hours of time with a professional can make a lot of sense.

5. Plan for Your Newfound Free Time

Planning for your future finances is a big part of the early retirement picture, but it is not the only one.  Once you retire, you will have plenty of free time on your hands, and it is important to think about how you will fill all those hours.

Think about what you plan to do, from new hobbies you hope to explore to catching up with old friends.  If you want your early retirement to be a happy one, you need to plan for your mental as well as your financial well being.

 

Many workers dream of an early exit from the workforce, but making it happen is another story altogether.  If you are dreaming of an early retirement, it is important to be prepared, and that starts with the five steps listed above.