Back in the day, people used to retire with a pension at 65. Now, many Americans are working longer.
One woman I know is bucking that trend. Sibyl Bogardus, an attorney and chief compliance officer for an employee benefits consulting firm, learned the ins-and-outs of Obamacare and made herself invaluable to her company and the clients they served. After working her way up the ladder, Sibyl up and retired at the age of 52.
Since Sibyl is my neighbor, I invited her over for a cup of coffee with the prompt, “Dish, my friend! We all want to know how you did it.”
Spoiler alert: It took a lot of hard work and many years of planning. Even if you feel like it’s too late to follow in her footsteps, you can still improve your financial situation by imitating some of her money moves.
Here are some of the steps she took:
1. Choose a well-paying profession. It’s easier to save money when you have a higher income (as long as you don’t have “lifestyle creep”). Sibyl chose law and became a consultant and compliance officer.
Financial planner take: If you are going to spend time and money on a college education or trade school, you might as well choose a top-paying profession.
2. Work with a financial planner. In her early 30s, Sibyl sought out good advice and followed it. Her original reason for working with a financial planner was to obtain life insurance to protect her young son. When the planner steered the conversation toward her life goals, Sibyl said, “Retire early!” Sibyl and her financial planner created a plan for her to retire in her early 50s — and it worked.
Financial planner take: The earlier you start planning and investing for retirement, the better. Look for a Certified Financial Planner(™) Professional or fee-based financial planner with the Fiduciary Standard of Care.
3. Save a high percentage of what you make. Sibyl was a “super saver.” While financial planners recommend saving a minimum of 10% of your income for retirement and another 10% for near-term expenses and emergencies, Sibyl, at times, saved as much as 70% of what she was making. Over the course of her career, she saved well above 20% of her income consistently.
Financial planner take: Follow the 20% rule: Save and invest a minimum of 20% of your income — in other words, keep 20% of what you make.
4. Make your home purchase a strategic one. Real estate agents say there are three things to consider when purchasing real estate: location, location, and location. While the saying may be trite, the lesson rings true when it comes to selling your home. Desirable neighborhoods in a good school district will likely spend fewer days on the market.
Sibyl made her first home purchase in a prestigious (and expensive) neighborhood. For her and her son, the small home was plenty big enough — and a smart financial move. Her son went to a great school, and when she sold, she got top dollar for the property and the transaction was quick.
Financial planner take: School district boundaries make a difference. According to a 2013 survey by Realtor.com, 3 out of 5 of prospective buyers surveyed said that school boundaries would affect their search for a new home. Choose the house with the best location in a good school district versus a home with higher square footage and amenities.
5. Plan and save for your kids’ college. One challenge with retiring early is that your retirement date may coincide with your kids’ college years. Sibyl planned ahead: She saved for retirement and her son’s college early on. In fact, she saved so much she was often strapped for cash.
Recently her college age son asked her, “Mom, remember that Mark McGwire baseball bat I always wanted? You always told me we’d get it ‘later.’ You couldn’t afford it, could you?”
The short answer is no, but it was really about choices. Based on Sibyl’s plan, she couldn’t afford it, because she saved such a high percentage of her income for her son’s college and her retirement.
Financial planner take: Save for retirement first and your children’s college second. If you can do both at the same time, even better.
6. Know the salary range for your position and negotiate to the top. Sibyl knew she did quality work, so for her salary negotiation, she would ask for the top percentile.
Financial planner take: Negotiation skills are vital. Armed with information, your position is stronger. Take a course such as, Negotiating the Best Deal from The Great Courses.
7. Skip the new car purchase. The more money you make, the better your ability to own an older vehicle. You have the cash to make repairs.
Financial planner take: Hold on to your vehicle as long as you can. The longer you own, the more cost efficient it can be, because the cost to maintain a vehicle is lower than the cost to buy new.
8. Downsize to a less expensive home and/or a state with a lower cost of living. Sibyl made a conscious decision to downsize at retirement. The new house she shares with her husband has gorgeous views of the Wasatch Mountains and carried a lower price tag due to being a little further away from the resort town of Park City, Utah.
Financial planner take: Downsizing can have tax benefits. When you sell your primary residence (if you have lived there 2 out of the last 5 years,) you can exclude gains from your federal income taxes (up to $250,000 if you are single and $500,000 if you are married.) Talk with your financial planner and/or accountant to discuss this strategy.
9. Practice living on a lower income before you retire. Sibyl and her husband saved all of her income the year before she retired. They practiced living on less and found they could do it.
Financial planner take: If you can’t live on less now, how are you going to do it in retirement? Live on your reduced retirement income for at least one year to get a feel for that cash flow and save the difference.
10. Stagger retirement dates with your spouse. If you and your partner are both working, consider retiring at different times. This way, you can ease into retirement while one of you still has a salary and benefits.
Financial planner take: Take advantage of company sponsored health, dental and life insurance as long as possible.
11. Keep your options open. Sibyl still keeps a part-time consulting gig with her former firm, not because she has to, but because she wants to. She limits her fees and hours so she won’t get “dragged into working more.”
As you can see from the long list of actions Sibyl took to amass the wealth needed to retire early, it wasn’t easy. She sacrificed to do it and now is retired in style. I see her driving around the neighborhood in her bright blue Maserati with a big smile on her face.
You can bet the car is paid for.
