In This Video:

Thinking about retiring early?  Looking to get a jumpstart on that “bucket list”?  Maybe you are just tired of the workforce and ready for independence.  We’ve helped others, just like you, towards that same goal and there are 5 areas that you will want to make sure you have covered if retiring before age 65.

Things To Consider:

Whether it’s to vacation, take a break from the workforce, doing as much as you can while you are young and healthy or all of the above and more, with proper planning early retirement can be an achievable goal.  Before scheduling that retirement party, here are 5 areas that you want to have covered if retiring before age 65.

First, making sure your financial bucket is big enough.  While it may seem obvious, it’s still important to review and discuss.  When shifting into retirement, you no longer have your company paychecks coming in.  Do you really understand your spending and the personal paycheck (withdrawals) that you will need to cut from your bucket of money (portfolio)?  Have you tallied up all of the potential “extras” that might come up:  vacations, winter home, new cars, new roof, home maintenance, medical, long-term care.  Plus, don’t forget about inflation and the cost of goods going up over time.  If you are active, be prepared that you could potentially spend the same or more in retirement than you did prior to retirement.

Run a stress test to show that your bucket could sustain your withdrawal needs in good market conditions as well as poor market conditions.  This can help provide the confidence you need to move forward with your early retirement plan.

Second, having a plan for Social Security.  Finding the balance between your guaranteed stream of income with cost-of-living adjustments (Social Security) and your fluctuating stream of income (portfolio withdrawals) for your specific situation.  In general, letting the former grow as much as possible takes the stress off the latter.  You can take Social Security as early as age 62, but taking it prior to your full retirement age will provide you a reduced amount for the rest of your life. This decision can have a huge impact on your retirement as it partly determines how much you will need to withdrawal each month from your portfolio to meet your lifestyle needs.  Taking Social Security too early could mean that you have to take more out of your portfolio than what it may be able to sustain over a longer retirement.  You may wish to create a plan to “bridge the gap”.  Meaning retire early, holding off on taking Social Security, and taking larger portfolio withdrawals between your retirement and your Social Security start date.

Third, having a plan for health insurance.  This can be easily forgotten and one of the biggest expenses.  Medicare coverage starts at age 65.  Prior to that you will be responsible for your own healthcare and depending on your age this could be $100’s to $1,000’s per month.  Get a few quotes and make sure to account for it in your plan

Fourth, keeping active.  When working, our minds are constantly challenged.  What are you going to do to keep your mind and body active when you retire?  Volunteer?  Travel?  Hobbies?  Think about what you are going to do with your time to help maintain a long healthy life.

Fifth, having money in non-retirement accounts if retiring before age 59.5.  There is a 10% early withdrawal penalty for taking money out of your 401(k), 457, 403(b), or IRA prior to age 59.5 (there are some exceptions to this rule).  Be sure to have enough in your savings or in a portfolio in a non-retirement account to be able to bridge the gap to age 59.5.

While this list may seem like an overwhelming task, putting together a retirement income plan can help you determine if you are on track towards your early retirement goals.  A retirement income plan takes into account all of your retirement income sources, your expenses, “extras”, inflation, and taxes to help determine each year how much you will need to withdrawal from your portfolio.  Pairing this with the proper portfolio balance and health care plan can have you on track to your early retirement.