When you are still younger than 65, when you become eligible for Medicare benefits, that is considered early retirement. Men typically retire at an average age of 64, while women generally retire at around 62 years of age. Retiring before the usual retirement age of 65 can be thrilling and provide you with something to look forward to. However, whether you want to travel, try new activities, or simply start a new chapter in your life, you’ll need a strategy for early retirement. Knowing what’s possible as you approach retirement age is essential, so let’s talk about the specifics to consider.
Considerations for Early Retirement
While there is evidence that working longer makes you healthier and happier, there is also evidence that suggests the opposite. The National Bureau of Economic Research has determined that “retirement enhances both health and life satisfaction,” in part due to the number of persons compelled to retire due to health problems.
The biggest problem, though, is ensuring that you have enough assets to provide a sufficient level of money coming in that will last for the rest of your life so that you’re prepared to live comfortably without a wage. In the United States, the average lifetime is just under 79 years. If you retire at 55, you’ll need to put up at least 24 years’ worth of salary, and if you live to be 79, you’ll need an even larger nest egg.
What Happens with Your Social Security When You Opt for Early Retirement?
While you’ll be eligible for Social Security at the age of 62, you won’t be eligible for your maximum monthly benefit amount for another few years—for those born between 1943 and 1954, it’ll be at the age of 66. If you claim your benefits by the age of 62, you will only receive about 75% of the full amount, which has been modified to account for the fact that you will be receiving checks for a longer length of time. If you collect your benefit early, your spousal benefits may be reduced as well. Spousal benefits are lowered to 35 percent of your entire retirement amount if you wait until you’re at least 66, compared to 50 percent if you wait until you’re at least 66. Waiting until age 70 for Social Security can help you get the most out of the system you’ve paid into during your working years if and when that’s possible.
The Impact on Medicare of Early Retirement
Medicare coverage begins on the first day of the month following your 65th birthday. If you retire before this age, you’ll need to look into alternative health insurance choices, such as checking to see if your previous insurance plan will keep you in the active workforce as a retiree (a typically rare yet lucrative benefit these days). COBRA, Health-Share, or joining your spouse’s plan if they are still working are other alternatives. Until your Medicare coverage begins, weigh your health insurance alternatives to discover which one is best for you.
How Do Your Savings Affect Your Chances of Early Retirement?
Early retirement may be more feasible than you think if you have enough resources. Why? Many individuals believe that their retirement funds are locked up until they reach the age of 59 1/2, but most 401k plans have a special rule that enables penalty-free withdrawals from the age of 55 to 59 12–but only if you retire after your 55th birthday. If you still have money in a 401k plan from a previous company, and you weren’t at least 55 when you left, you’ll have to wait until you’re 5912 to take withdrawals without penalty. Additionally, if you have prior 401(k)s rolled into your current 401(k) before you retire from your present work, you will enjoy penalty-free access to these funds when you retire.
It’s critical to diversify your retirement savings as you prepare for retirement. Most people focus on increasing their 401k contributions but don’t forget about taxable and Roth (where possible) savings. Investing in several account kinds (pre-tax, taxable, and post-tax) can help you retire before you reach the age of 59.5. If you can be selective about the account types you remove from in retirement, it will also provide flexibility and maybe tax savings.
Suggestions for Your Next Steps
Many people look forward to the day when they can finally retire from their jobs. Still, worrying about money all of the time isn’t the best way to spend your golden years.
Thorough knowledge of where you are currently with your finances is a good place to start when determining whether or not you can consider early retirement.
Discuss your retirement strategy with a fiduciary financial advisor.