What to Consider Before Taking Early Retirement
Early retirement sounds like a dream—more time for travel, hobbies, and family. But leaving the workforce before age 65 also comes with serious financial considerations. Before you hand in your resignation, make sure you’ve examined the full picture: your savings, income sources, and lifestyle expectations.
1. Know Your Numbers
Start by calculating your annual spending needs. Include essentials like housing, food, and healthcare, plus discretionary expenses such as travel and entertainment. Then multiply that number by 25 to estimate how much you’d need in savings to sustain a 4% annual withdrawal rate—a common rule of thumb for retirees.
Example:
If you plan to spend $60,000 per year, you’ll need about $1.5 million in savings to retire comfortably.
2. Understand Healthcare Costs
If you retire before 65, you won’t yet qualify for Medicare. Private health insurance or marketplace coverage can be costly. Review options early, as healthcare may become one of your largest expenses until Medicare eligibility kicks in.
3. Factor in Social Security Timing
The earliest you can claim Social Security is age 62, but doing so permanently reduces your benefit—by up to 30%. Waiting until full retirement age (67 for most people) or even age 70 can increase monthly benefits significantly.
4. Consider Inflation and Longevity
Your retirement could last 30 years or more. Inflation gradually reduces purchasing power, so your portfolio needs to grow enough to keep pace. A mix of income-producing and growth investments helps maintain stability and long-term sustainability.
5. Plan for Purpose, Not Just Finances
Early retirement isn’t just a financial decision—it’s a lifestyle one. Many retirees struggle with the sudden loss of structure and purpose. Think about how you’ll spend your time and stay socially engaged once work is no longer part of your daily routine.
Final Thoughts
Early retirement can be rewarding if approached with preparation and realism. Evaluate your savings, healthcare, and income streams, and work with a financial planner to stress-test your plan under different scenarios. Freedom comes from knowing your future is not only exciting—but financially secure.