Key Takeaways
- Whether by intention, opportunity, or unexpected shift, you may consider retiring early.
- There are many factors to evaluate to determine if retiring early or staying employed is right for you, such as income sources, healthcare, and emotional readiness.
- If you’re considering retiring early, there are proactive actions you can take to help inform your decision, such as evaluating your expenses, job security, and other financial trade-offs.
- Blankinship & Foster specializes in helping clients transition into retirement with confidence. Learn more in our four-part retirement planning guide.
Retirement planning in the traditional sense has evolved significantly over the years. For example, some individuals may prefer to spend their retirement years traveling, while others may wish to consult or return to work part time. The age at which people retire is also changing from the standard age of 65. While some clients may plan for an early retirement, others may get an unexpected proposal to retire early through their work.
While early retirement may seem idyllic, when you can retire, whether earlier or later than expected, highly depends on how much you’ve saved, income sources, and lifestyle considerations. While it’s certainly possible to retire early, in this blog post, we’ll discuss how to retire comfortably and with peace of mind.
How Much Money in Retirement is Really Enough?
The amount needed for an early retirement is unique to each individual and typically depends on income and desired lifestyle. In addition to the amount needed to maintain their current standard of living, there are some additional retirement planning costs to consider including:
- Life expectancy: Estimating longevity, based on your current and family medical history, is crucial in determining how long your savings will need to sustain you, as well as planning for future medical costs.
- Healthcare: If you retire before 65, you will not yet be eligible for Medicare. You should factor in insurance premiums and other costs you’ll be responsible for before you can sign up for Medicare.
- Long-Term Goals: How do you envision your retirement? If you plan to downsize or eliminate expenses, you may need less income each year; on the other hand, you may need more if you plan to travel frequently, enjoy more entertainment, or move to a higher-cost area.
Key Considerations Before Retirement
Other factors that may affect your decision to retire early include:
- Social Security: Many people factor Social Security payments into their long-term retirement income; however, if you retire before you’re fully eligible, you will not get the full amount of your benefit. Conversely, your benefit will incrementally increase every year between ages 62 and 70 if you wait to retire closer to or after your full retirement age. Evaluate if you can bridge the income gap if you receive less than you expected.
- Emotional Readiness: A non-financial factor to consider is how retiring early may affect you emotionally. Does the thought of leaving a stressful or demanding job early give you relief? Or does thinking of leaving your leadership role make you feel anxious about what’s next? Are you uncertain about your ability to support your family through a longer-than-average retirement? We’ve observed how discussing these concerns with a financial planning advisor can help better inform your decision, so you can walk away or wait to retire with more clarity.
Considering an Early Retirement? What You Can Do Now
When planning for a potential early retirement, it’s essential to evaluate your options based on factors such as job security, financial trade-offs, and more.
- Employer’s Financial Stability: If your employer is offering you an early retirement, explore what it may mean for your future. For example, is the company facing instability, and will it affect your future job security if you plan to stay?
- Financial Trade-offs: As we’ve mentioned, retiring early may come with additional expenses, such as healthcare and supplementing income before Social Security kicks in. We recommend consulting with an advisor who can provide projections based on your current and future financial situation, including the long-term impacts on your savings by leaving early or staying and allowing your income and investments to grow.
- Pension Impact: Your pension may be affected if you retire early, depending on whether you have a defined benefit or a defined contribution plan. Discuss your options with your plan provider or advisor to learn how you can manage any potential benefit reductions.
- Healthcare Coverage: How will you pay for healthcare if you retire early? Now is the time to research the costs and durations of COBRA coverage, employer-provided retiree healthcare, or private options until you’re eligible for Medicare.
- Lifestyle and Emotional Adjustments: While many clients focus on the financial aspects of retirement, it can be easy to overlook the significant transition that retiring early entails. We often guide clients through exercises to mentally and emotionally prepare, such as outlining how they can find purpose, maintain social connections, and use their time meaningfully. We recommend writing down what retirement will look like for you, from volunteer work to pursuing new hobbies.
Take the Next Step Toward Your Retirement Goals
Whether by intention, opportunity, or unexpected shift, deciding whether to retire early requires thoughtful planning that spans both financial and emotional aspects. These are the kinds of conversations we have often. We’ve been helping clients successfully transition into retirement and navigate life’s events for over 30 years. In our guide, The Essential Guide to Retirement Planning, we explore the key steps you can take ahead of retirement to enter your next chapter with confidence. Download it today to get started, or contact our team to learn more about how we may assist you in your decision-making.