Want to retire early? You’re not alone. For many Americans, the ultimate dream is to retire young, when they’re in good health and still able to enjoy a long and fulfilling retirement. Retiring early can be rewarding, but it’s not for everyone.
Unfortunately, retiring too early can bring very real risks. If you don’t have enough saved, you may not be able to stretch your savings through the rest of your life. Investment losses, especially in the early years of retirement, could limit your ability to generate income. And, you also may not have access to programs like Social Security and Medicare in the first several years of an early retirement.
Before you retire early, you should make sure you’re able to overcome all of these challenges. Far too many people retire early, then discover after the fact they weren’t really ready, and, as a result, have to go back to work, which is likely not part of their retirement goals.
Not sure if you’re ready? Below are five signs early retirement may be a good idea for you. Do any of these signs sound familiar? If so, you may want to consider early retirement.
1. You have lived on your retirement budget for at least six months.
It’s one thing to have a budget; it’s a whole other thing to actually implement your budget and live within it. You’ll need a budget in retirement to make sure you don’t overspend and drain your savings. However, how can you be sure your budget is accurate for your lifestyle?
One way is to take your budget for a test drive. Try living on your retirement budget while you’re still working to see whether it’s realistic. You may find that you need to make some alterations. Perhaps you’ll find you need to budget more for travel and dining out. Or, maybe you will learn you should allocate more budget for health care costs.
You may even find that your budget is spot-on, and your estimated expenses are sufficient to support your lifestyle. If so, early retirement may be an option for you.
2. You have health coverage.
Health care costs are a major expense for retirees. In fact, according to a Fidelity study, the average 65-year-old couple in 2016 can expect to spend $245,000 out-of-pocket on health care during retirement.1 if you retire early and don’t have Medicare, you could face even higher costs.
Before you retire early, make sure you have adequate health insurance in place. Perhaps you have a spouse who is still working and has health care coverage. If not, explore your options in the individual-insurance marketplace. Without sufficient coverage, health care costs could sink your early retirement plans.
3. You know where your income will come from.
Income is a top concern for many retirees, regardless of whether you retire early or at a traditional retirement age. When you retire, it shouldn’t be a mystery as to where your income will come from. Take some time to inventory your income sources, such as pension plans, 401(k) s and IRAs. Estimate how much income you can safely take from each source and project how sustainable those withdrawals may be.
Also, remember if you retire before age 59 ½, you may not be able to take income from qualified retirement plans, like your 401(k) or IRA, without paying a penalty. You’ll want to consider inflation, too. How will you increase your income to cover rising prices?
Don’t retire early without answering these questions. A financial professional can help you inventory your income sources and project their sustainability in retirement.
4. You are debt free or will be in the next year.
Being successful in retirement is all about making your income last as long as possible. That’s tough to do if a large portion of your income is being used to service debt. Payments for things like cars, mortgages, student loans and credit cards can place a drag on your budget and your lifestyle in retirement.
If you still have debt, consider a plan for paying it off as soon as possible. Can you downsize your home or refinance your mortgage? Could you share a car with your spouse and eliminate a car payment? If you have debt and it won’t be paid off for several years, early retirement may not be a good idea.
5. You know what you will do after retirement.
Finally, retirement may not be a great idea if you don’t know what you will do after you retire. When you’re retired, you have a great deal of free time on your hands, possibly more free time than you’ve ever had in your life. It can be tempting to fill that free time traveling, shopping and enjoying expensive new hobbies.
Think about what you will do after retirement and how you can fill your free time in ways that don’t drain your savings accounts. You may take up a new hobby or pursue an unfulfilled passion. If you’re not sure what you will do, you may want to rethink early retirement.
Still not sure whether it’s time to retire? Talk to your financial professional. They can help you develop a retirement income plan and determine the perfect time for you to start your retirement journey.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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