3 Things to Consider 3 Years Before Early Retirement

You start moving into active early retirement transition around 3 years before your retirement date. 

Personalising your early retirement transition is like building a bridge for yourself.

A bridge from your current life stage to the future life stage of early retirement you are getting ready for. 

The important thing is to ensure a smooth transition to the other side of this bridge. 

A good transition plan into early retirement is just as important as the journey to get there.  

Your plan may look similar or different from others on the same path. 

There are 3 major things you need to think about around 3 years before your early retirement.

The better you plan for these, the easier your transition into retirement will be. 

3 Things to Think About 3 Years Before Early Retirement 

Your Glide Path Into Early Retirement

How do you intend to transition into your early retirement?  

Will it involve a sudden stop to your corporate job and doing something completely new the next day? 

Or will it be a slower glide into early retirement?  

You could move to a part-time position with your current employer working lesser number of hours each month.

This could make the transition into retirement a bit easier. 

On the other hand, a sudden stop will involve greater planning around what exactly will occupy all the free time that you will now have at your disposal. 

This planning needs to go beyond the initial 3-6 months where you may just wish to chill or travel.  

Unlike a glide into semi-retirement, a dramatic transition needs much better planning on what your new routine will look like.  

New Daily Routine 

There are many things that are not fun about a corporate job.

You may dislike the office politics, the daily commute, the pantry snacks and so on. 

Your job does however provide you a benefit that is easy to pass unnoticed.

And that benefit is a personal routine. 

A routine and structure to your daily life.  

From the moment you wake up and till you go back to bed your job broadly outlines what a typical day looks like. 

Structure is important since it takes away ambiguity and helps you maintain a level of sanity in your daily life.  

It allows you to minimise decision fatigue. 

On the other hand, early retirement takes away this structure with a job no longer tying you down to a set routine.  

You are suddenly free to do whatever you want to do with your time. 

Although the idea is appealing, it is best not to change too many things as you transition into early retirement.  

A preferable way is to gradually change parts of your daily routine as you go along. 

Big changes in all aspects of your daily routine at the same time can be overwhelming.  

It can also strain your relationships as those around you may not be ready to make changes at their end. 

There could be any number of things that you may have planned for early retirement. 

This could include getting fitter, investing in your relationships, or pursuing meaningful work. 

While all of these are great but trying to launch into all of them at the same time could result in undue stress and fatigue.  

Prioritise the things you have planned for and make changes in your routine sequentially rather than all at once.  

Taxes & Deferred Benefits 

The date you leave your corporate job may impact your tax planning.  

You may have things like stock options or other deferred benefits which may be vesting on specific dates. 

You can discuss with your employer if there is any flexibility in the vesting schedule to align with your retirement date. 

Adjusting your last day at the job for taxes or other benefits is worth considering.  

Be open to prepone / postpone your last working day by a few weeks or months, depending on your specific situation. 

This is also relevant if you have been working outside India and intend to move back to India for your retirement.  

Your NRI status and the taxes you must pay in India will be decided based on the day you return to India for good.  

The period when you are a RNOR (Resident not Ordinarily Resident) in India offers some opportunity to optimise your taxes.  

Do some DIY research or talk to a tax advisor on capital gains in the country you are based in.  

Depending on the tax regulations, it may be beneficial to sell and re-purchase certain older investments to capture any unrealised capital gains. 

This is especially relevant if you are planning early retirement in India as your statutory retirement pay-outs could be age linked. 

Relocation 

Will you stay in the same city post your early retirement or will you relocate?  

In case you are planning to relocate to another city, then some planning is warranted. 

You may choose to relocate to move closer to your family and friends.  

Or it could be because a new city offers better opportunities to design your post-retirement life to your liking. 

Some factors to consider if you are planning to relocate in retirement: 

Lease Renewals

With 2-3 years to go till your early retirement, be wary of signing any long-term contracts for your rental house, car, utilities, or other obligations. 

This will avoid costs or issues associated with early termination of contracts.  

Plan your various contracts / obligations to end around your retirement date with a little overlap. 

If you are planning to sell your existing house contact a realtor to figure out how long will the sale process take. 

Your Early Retirement City

Unless you have been travelling frequently to your chosen retirement city it may feel quite different from what you have in mind.

Online research will not reveal the full picture.  

Make a familiarisation trip to the city you intend to live in after retirement at least 2-3 years before your retirement date.  

Talk to people locally and see if your assumptions about the place are valid.  

If possible, try to visit in different seasons to get a first-hand feel for the place. 

Schooling

If you have kids in school, their academic year may not align perfectly with your retirement date.  

Making them relocate to a new city in the middle of an academic session may be disruptive.  

Therefore, your early retirement transition should also cater for a smooth academic transition for your kids.  

Conclusion 

Planning in advance is the bedrock of a successful transition to retirement. 

As you start nearing your early retirement date, you need to stagger your planning as the milestones keep getting closer. 

Your glide path, tax planning and relocation are 3 things to consider 3 years before early retirement as part of your transition planning.