A comfortable retirement can mean many things. Perhaps you want to simplify or just maintain your current lifestyle. Maybe you have a grander vision for this chapter of your life. Either way, you’ll need a sufficient nest egg to enjoy retirement the way you want, especially if you’re hoping to retire sooner rather than later. Roughly one in six U.S. households with primary breadwinners who are under 55 say they want to retire by the time they reach that age, according to a recent Hearts & Wallets report.

So how much money do you need to retire at age 50? There isn’t one right or wrong answer, but folks planning on leaving the workforce this early face a few challenges that don’t apply to those who retire at the more traditional age of 65.

YOU’LL HAVE TO PLAN FOR HIGHER HEALTH CARE COSTS

Medicare begins at age 65, so 50-year-old retirees will need to plan for 15 years’ worth of health care costs. This includes everything from health insurance premiums and deductibles to prescriptions and other out-of-pocket costs. With that said, the national average health insurance premium for individuals in 2020 for a health plan purchased through the Affordable Care Act marketplace was $5,472 per year, according to an eHealth study. The average annual deductible for individual coverage came in at $4,364. Without inflation, this cost alone will add up to nearly $150,000 for a single person over 15 years.

So how much money do you need to retire at age 50? Well, consider that your health care costs can represent a significant chunk of your retirement expenses. Having a health savings account (HSA) can help. It allows you to put away pre-tax dollars during your working years that can be used to pay for qualified medical expenses in retirement. Withdrawals are also tax-free if used for health care expenses. Your contributions are tax-deductible, and you can choose to invest your HSA balance and enjoy tax-free growth along the way.

Just keep in mind that you must be enrolled in a high-deductible health plan to qualify for an HSA, and there are contribution limits.

YOU’LL BE PENALIZED IF YOU TAP YOUR 401(K) OR TRADITIONAL IRA BEFORE 59½

Retirement income you have in tax-friendly accounts like a 401(k) or traditional IRA are somewhat off limits for younger retirees. Technically, you can take distributions at any time — but doing so before 59½ will trigger a 10 percent IRS penalty. That’s on top of having to pay ordinary income tax on that money. When taken together, this can seriously deplete your nest egg if you aren’t prepared for it. Please consult with a tax professional for your planning needs.

To avoid this, folks who retire in their early 50s need to lean heavily on other sources of income until they’re older. This can include more robust cash savings, traditional investments or a Roth IRA, which allows you to withdraw what you put into the account (but not the growth) whenever you like without penalty. The accumulated cash value of a whole life insurance policy can be another source of retirement income for early retirees.

It may also be worth considering an immediate income annuity. You pay an upfront lump sum to an insurance company, then get predetermined monthly payments in return. The payments will continue for the duration of your life. Think of it as a low-risk way to get monthly income if you retire early.

YOU CAN’T COLLECT SOCIAL SECURITY UNTIL YOU’RE 62

Many folks depend on their monthly Social Security benefit as a guaranteed income source in retirement. The hurdle for those who retire early is that the soonest you can begin collecting it is age 62, though even this is considered young. Taking Social Security before reaching your full retirement age (FRA) will result in a significantly reduced benefit. If you’re hoping to retire at 50, can your retirement income plan sustain you through at least your FRA? If not, it could cost you in the long run.

How much money do you need to retire at age 50? The truth is that there are many other moving parts that can influence your retirement savings target. Ultimately, you’re missing out on as many as 15 years that you could be saving and earning compound interest instead of drawing down savings during that time. While it’s certainly achievable, every person’s number will be different based on the lifestyle they want once they retire. But it will be a significantly larger number than you would need if you wait. And planning is key, as many traditional retirement supplements like Social Security and Medicare won’t be available.

MAKE A PLAN FOR YOUR DEBT

If you still have a mortgage or other debts, factor the cost into your plan. In many cases, once your debts are paid off, your monthly expenses will drop by a significant amount. This means you will need to generate less income to live.

While it can be tempting to use savings to pay your debts immediately when you retire, this isn’t always the best course of action. For instance, if you have a mortgage with a low interest rate, it may be beneficial to hang on to more of your nest egg and continue making your monthly payments. On the other hand, it’s typically a good idea to pay off high-interest credit card debt as soon as possible.

A financial advisor or representative can work with you to understand your financial goals and help you create a customized plan that meets your unique needs.

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