Can You Afford to Retire Early?

Rob Glownia |

When you get to a certain age, you may find yourself daydreaming about retiring early, or at least before the “traditional” age of 65. It’s only natural—the COVID-19 pandemic has caused many people to rethink their priorities and work/life balance. Perhaps you want the freedom and flexibility to pursue other opportunities and adventures that life has to offer. Or maybe you just want to cut back and do something else on a part-time basis. If so, here are some things to think about before deciding to retire early.

You’ll likely be around for a long time

Life expectancy is increasing, so retirement may last longer than you expect. According to the Social Security Administration, the average life expectancy for a 60 year-old man is about 83 (86 for a woman). Individuals should consider their health, family history and other personal factors such as stress levels, to roughly estimate their life expectancy.

You’ll need to fund that long retirement

These days, people expect more in retirement. They want to be comfortable and enjoy traveling, visiting family, pursuing hobbies and volunteer opportunities, as well as completing their “bucket list.” How much do you need to fund a long retirement? The rule of thumb is that you’ll need to replace about 75%-80% of your pre-retirement income.

Social Security will help fund part of your income needs. However, the earliest you can take it is age 62, and that benefit will be reduced versus if you wait until your full retirement age to start taking your benefit (currently age 67 for those born in 1960 or later). Your personal savings and retirement account will have to make up the difference. You can begin taking retirement plan distributions without an early withdrawal penalty starting at age 59½. However, we typically advise against taking more than a 4%-5% annual withdrawal from your account if you want it to last 20 years or more.

Don’t forget about healthcare

For most people, employer-sponsored healthcare benefits end when you leave work. Most companies provide COBRA coverage for a limited period of time after workers leave, but that tends to be expensive and often more costly than individual plans. Most people may sign up for and begin to receive Medicare benefits at age 65. If you retire sooner, you will have to secure healthcare on your own. That means choosing COBRA coverage or shopping around on the state healthcare exchanges and paying the high costs of healthcare for yourself and your spouse or partner.

How will you spend your days?

Having worked every day for the past 30 or more years, some people don’t know what to do with their free time. Will you pursue a hobby like painting, horticulture or yoga? How do you know you’ll really enjoy it? At Glownia Financial group, we advise our clients to pursue activities that they think they might like while they’re still working. If you plan to volunteer, take language classes or become an artist, consider setting time aside to pursue these activities during your working years to help you determine if they are true passions you want to continue doing in retirement.

Retiring early may seem challenging, but it isn’t impossible.

If you're serious about an early retirement, you need to be realistic about the trade-offs. And save as much as you can right now!

At Glownia Financial Group, we help people who are ready to clarify, simplify, and organize their financial lives. If you’re preparing for retirement and have questions, please contact us! We’d love to help: