Thinking About Early Retirement? A Few Things to Consider:
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Early retirement isn’t for everyone. But for those who do dream of it, it’s an idea that sounds very enticing. If you’re thinking that you’d rather not spend your sunset years toiling away at a 9-5 job, you have options. Just don’t give your notice until you’ve considered some of the following factors involved in granting yourself an early release from the workforce.
You can’t begin to claim Social Security benefits until you’re at least 62
This means is that if you decide to retire from your career at the age of 59, you’ll have three potentially long years to wait before you can begin to receive monthly Social Security checks. Unless you’re in line to receive a generous pension from your employer or have a lot of money saved up from years of penny-pinching, coupon-clipping and resisting impulse shopping, you may have no choice but to keep working until you are 62 — or even older.
If you retire before 66, you won’t get your full social security retirement benefit
In other words, the monthly check you’ll get from the Social Security Administration won’t be as high if you retire before 66 as you’d receive if you wait until reaching the full retirement age, which is determined by the year in which you were born. Although the checks will begin to increase in value the closer you get to 66, it’s an incremental process. For example, if you retire at the age of 62, you’ll only receive 75 percent of the full value of your Social Security earnings. If you retire at 63, that amount rises to 80 percent. At 64, you’ll get about 87 percent, and at 65, around 93 percent. There are plenty of retirement age and income calculators available online, include this one from Allstate Financial, which takes a snapshot of what you have and helps you make the most of it.
Give careful consideration to health care
Medicare doesn’t kick in until you’ve turned 65 – but what are your options if you choose to retire early and are still years away from that age? If your current employer’s pension plan offers medical coverage, this is likely going to be your best option, as long as it’s affordable. But, if health care isn’t offered, or if it’s too expensive or is only offered for a short period of time, that’ll leave you uninsured until you’re eligible for Medicare. You may be eligible to get group health insurance as a paying member of the American Association Retired Persons (AARP). There’s also this: If you’re retiring within 18 months of your 65th birthday and your employer isn’t offering a retirement health care package, you could always pay for COBRA benefits to bridge the gap to Medicare coverage. Needless to say, this is expensive, but it may be a better option than crossing your fingers and hoping you won’t get sick between now and then.
Keep in mind the reality of inflation
If you decide to retire at the age of 55 and have a nest egg of a $250,000, you may want to consider: How far will that money get you in another 20 years, when inflation has its way with the cost of living, and what’s affordable now may be downright expensive then? As a rule, whenever you’re planning your retirement – early or not – it’s critical that you take into consideration what inflation will do to your savings much further down the line. Check out this inflation calculator from the Bureau of Labor Statistics to get an idea of what you may be looking at and how far your dollar will take you in a couple of decades.
Early retirement may be doable, as long as you’re willing to do the math and plan far in advance. Whether you’re 25 or 55, it’s never too early to start planning ahead. The sooner you do, the better chance you’ll have at spending your sunset years enjoying yourself instead of losing sleep over money.
Recommended by the Editor:
- Should I Wait Until I’m Out of Debt to Save for Retirement?
- Retirement Snapshot
- Things to Know About Social Security
- Average Retirement Income Calculator
Are you ready for retirement? Head over to Allstate.com to find out.
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anybody who is in the middle income bracket (the two middle quartiles of income) can pretty much forget retiring early, unless they don’t mind not going anywhere. You can not afford health insurance, and maintaining any level of lifestyle even that of someone in poverty, without a substantial amount of money that is normally unavailable to the middle class. This retire early stuff is fantasy but all for a small percentage of people.
Stop being so negative and instead work on a plan that may help you retire whenever that is, with enough money to sustain your retirement
You can thanks mobama and everyone who raised your taxes for that
Worked at USPS until early retirement offered August 2004 at age 47. Took it, along with percentage penalties. Worked as contractor at USPS until 2011. Saved retirement money and some of salary during work period. Wife laid off in Sept 2012. She was able to access her 401k without penalty. We paid our house off last week. Now we can live on my reduced retirement until she can qualify for her SSA. I am fortunate to have health insurance as part of retirement package for now.
I retired in June, which was earlier than I had planned, (long story), but had already worked longer than most. My health insurance is reasonable and my pension will allow me to live better than I had been living while working. That is because I was putting away so much money for retirement. Now that I am retired, I still intend to save money from my pension each month, but not as much as I had been saving. The tough part is learning to relax and stop worrying about someone mucking it up!
There’s a difference between “retiring” and “applying for Social Security” This author used the first term to mean the latter.
You can retire whenever you want, but if you apply for SS, the age at which you apply, and your highest 35 earning years determine your SS payments.
Thanks for the clarification. I was about to go plowing through the Social Security website to check on this.
Have you read the latest evidence? Baby Boomers are not likely to live as long as their parents or grandparents did. We should all be advocating to retire at 59 and a half and not let the wealthy politicians raise the age, just because lawyers do tend to outlive the rest of us! All it would probably take, judging from this article and the comments, is Medicare for all, and Social Security to begin at age 60 at the current age 62 rate.
This article is fundamentally inadequate, as it is addressed only to those who have chosen to claim “Social Security” and Medicare benefits.
What about those of us who have decided not to file claims for “Social Security” and Medicare?