5 Things to Consider if You Want to Retire Early
March 28, 2016 | Enjoying Retirement
Whether you want to watch the waves crashing at the beach, take part in a favorite hobby, volunteer with a cause you’re passionate about or just sit back and relax, retirement never seems close enough while you’re working. And if you’re thinking about trying to retire early (age 62 or younger), there are a few things you should consider to help ensure your retirement will be all you’re hoping for.
Angela DiCastri, director—Retirement Market for Northwestern Mutual, suggests that if you want to retire early, you should consider these five things:
1. What’s the impact to my Social Security? There are two things to consider here. First, when you claim Social Security will affect how much you get every month for the rest of your life. The earlier you claim, the less you get each month. Second, the amount you get each month is based on your highest 35 years of earnings. “So when you retire early, you tend to be taking out high income-earning years that typically come at the end of a career, when you have greater seniority, and replacing them with years in which your salary was at its lowest point,” says DiCastri. Click here to learn more about how your Social Security benefit is calculated.
2. How will I get health care? Bridging the gap between employer-provided care and Medicare has changed in recent years with the adoption of the Affordable Care Act. Your monthly coverage premiums may be higher than they had been while you were working, but you can use your state’s health care exchange to search for options that fit your price range and needs. Keep in mind that the price point listed is only a starting point and that subsidies are available to those who qualify. COBRA coverage may also be a viable option.
Here’s one other thing to consider when it comes to health needs and your hopes of retiring early. Of those who said they had retired early, 66 percent commented in a 2012 survey conducted by the Life Insurance Marketing Research Association that they did so because of things like health concerns or because they were laid off … meaning that even if you haven’t thought about retiring early, it may not be a bad idea to familiarize yourself with what it would take to make it happen should it become medically necessary.
3. What are my new rules of engagement? You need to carefully weigh whether you are leaving your current employment status because you have developed a passion and a desire to do something else or are just tired of your job. If it’s the latter, DiCastri says you need to determine this: “What’s going to get you out of bed in the morning? What are you actually going to be doing every day?” She suggests researching volunteer, charity and part-time working options prior to retirement to make sure the option really exists and that any groups you may want to partner with do indeed need your help. If you’re planning to work in retirement, DiCastri says, you should ask yourself how many hours you intend to work and whether you need that money to live on; and if you plan to start a new business, whether you need to line up clients prior to making the decision to retire.
4. How will this affect my relationship with my spouse and family? DiCastri says the dynamics of your household can change very quickly once you retire. Is your spouse retired, too? That may mean needing to find ways to give each other space now that you are both home more. Is your spouse still working? If so, any changes to your social schedule may create stumbling blocks to consider and work through together.
If you live close to your adult children and grandchildren, there can be other issues to consider. How much do you see yourself being involved with them? Are your adult children under the assumption you will be a caregiver? DiCastri recommends to “have the conversation about the demands on your time before retiring, if possible. You will want to set as clear expectations as you can with your family with regards to your time.”
5. How much will I need for my active retirement years? The early years of retirement tend to be the ones in which you spend the most freely because you have the health, time and energy to travel, take up hobbies, eat out and generally do the things you’ve wanted to do. When you retire early, you may be looking at even more years of life at that higher spending rate, says DiCastri. “Be very thoughtful about the activities you plan on doing and the money associated with each item on your list. Ask yourself where the money will come from and what the tax implications are. Then consider how long you anticipate doing each of those activities.” Your answer to this broader question can determine if you have enough money saved to retire and what your budget looks like once you are in retirement.
Retiring early can seem like a far-off dream for many, but with careful planning and consideration, it can be a great reality. If retiring early sounds wonderful but you aren’t sure where to begin, a financial professional can help you assess whether the idea is something that could become an option for you. Carefully considering these early retirement questions now will likely lead to a happier and less-stressed experience once you are in your early retirement.