Is early retirement worth it? | Learn more
Ask anyone if they want to retire sooner and they’ll likely answer with a resounding âyesâ! But is early retirement worth it? Not if you don’t have a plan. In fact, retiring prematurely without a well-orchestrated plan for the future could end in disaster. The last thing you want to do is retire at 45, only to have to go back to work at 55. Early retirement is as good as your plan for it.
Surprisingly, money isn’t the only thing you need to consider when it comes to early retirement. For most of us, work is a central part of life. Giving up that means filling eight or more hours of your day with something else. Then there is the health care perspective to consider – something that is generally related to your job.
The factors really start to add up when you start planning for early retirement. To make it worth it, it takes a lot of forethought for the future – and the discipline to plan.
Is early retirement worth it? Consider these factors
There are more factors involved in early retirement than most people realize. The first and most important are your finances, but this is just the start. Here are the pillars of a strong early retirement strategy:
- Finances: You need enough money to live comfortably until the end of your life. It means maintaining your lifestyle longer if you retire early. It’s best to coordinate early with a financial planner to put in place a solid savings strategy that relies on getting out of the job market early.
- Health care: In the United States, most health care programs are managed by an employer. While there are options in the private health insurance market, they are often more expensive and, unfortunately, not as robust. You will need a plan to maintain health coverage until you eligible for Medicare benefits at age 65.
- Way of life: There is no sense in retiring early if you can’t live the life you want. You need to figure out what you are going to do without a job to occupy your time and how much your lifestyle is going to cost you. Travel, leisure, sport and leisure don’t come cheap! It is also worth considering how you will look after your retirement.
- Estate planning: Getting things in order is part of retirement at any age. Retiring early means there are more details to work out. Make sure you have a will, power of attorney and other documents signed and notarized, in case of an emergency. It can also prevent your assets from being arbitrated, which is costly for survivors.
- Emergency room: The more years you live without gainful employment, the more rigorous you need to be in emergency planning. The last thing you want is a massive unexpected expense to cut down on your retirement time. Plan for emergencies to deal with them with minimum financial hardship.
These are far from the only the things you will need to plan for. However, they are among the most important variables to consider if you plan to hang up your work boots before age 65.
How to Avoid Big Early Retirement Mistakes
There are some big hurdles that can make early retirement a headache if you haven’t planned for them. For example, how will you get income if you retire at age 56? You are too young to dive into your 401 (k) without incurring a penalty (59Â½) and you are too young for social security (65). This is something that a lot of people don’t anticipate. Failure to plan for such a situation can derail your early retirement from the start.
To avoid succumbing to costly issues like this, start planning diligently. Speak with a certified financial planner and start looking for strategies to deal with certain situations. For example, your financial planner may recommend a Substantially Equal Periodic Payments (SEPP) plan to avoid early withdrawal penalties from your 401 (k). Better yet, they could show you that you are able to add $ 5,000 more per year to your annual income by only working two more years.
Planning and professional insight will put you on the right track to avoiding the big mistakes that can make early retirement a mistake.
When is early retirement not worth it?
There are times when early retirement is not worth it. Most often it’s when the numbers don’t add up. If a financial planner tells you that retiring at age 60 isn’t an option because you don’t have enough savings, you need to face the facts. Trying to “operate” on a shoestring budget or taking the chance to retire early is sure to put you in a toll later.
Another situation that might cause you to reconsider is that of health care. If you and your family rely on health care offered as part of your work, taking early retirement could put you at huge medical costs. Sometimes it’s best to stick with a quality health care plan for as long as possible. Many employers are even understanding enough to craft a part-time semi-retirement arrangement with long-tenured employees.
Finally, there is no reason to retire early if you like what you do! If your job is less of a job and more of a labor of love, don’t cut back on your earning years. The more time you spend generating active income, the more time you will have when you decide to put it on hold for good.
Have a plan and follow it
Is early retirement worth it? If you can afford to retire early and the disciple to create and follow a plan, this is a great opportunity. But only if you can retire and stay in retirement. Early retirement shouldn’t look like a gamble between life expectancy and remaining funds. Instead, it should be a carefree, relaxing, and rock solid business.
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Should you take early retirement? If you can maintain your lifestyle for the rest of your life, why not? Just make sure you’ve taken all of the angles into account.