Who doesn't want to ditch their morning commute for a long walk along the beach?
While retiring early is enticing, there is much to consider when deciding on a retirement age that makes sense for your finances. Below are some of the advantages and disadvantages of early retirement and a few ways to begin planning for that tremendous goal.
The Advantages
1. More Time for Loved Ones You can't put a price tag on time. Especially if you have led a demanding career, the value of having more time with loved ones is invaluable.
2. Opportunities to Change Careers or Take Up a New Hobby Having the extra time to do the things you love is a clear advantage to early retirement. This is an excellent opportunity to take up a new hobby, travel, or even start a new career choice. 3. Reduced Stress Retiring early may even improve your mental health by reducing your stress. If your job has been physically demanding, calling it quits sooner rather than later may increase your physical health and prevent more wear and tear on your body. The Disadvantages 1. Health Insurance Costs Individuals often overlook the high cost of health insurance during retirement. Medicare does not go into effect until age 65, so if you plan to retire before then, you will need to budget for private health care until you are eligible for Medicare. Private insurance adds a considerable expense to a budget without employer-sponsored health insurance. 2. 401k Penalties Most retirement plans come with a hefty tax for withdrawing money before age 59 1/2. While there are a few exceptions for certain professions, hardships, and life events, most people will have to pay an additional 10% penalty tax on the money they draw early. 3. Reduced Social Security Income Your social security benefits largely depend on your age when you begin utilizing this source of income. Individuals that retire early will receive a reduced social security income. This is certainly something to consider as you are subject to losing as much as 30% of your investment due to drawing early. 4. Outliving Your Savings Another scenario to consider is outliving your savings. As life expectancies go up, there could be a real fear that you may live longer than your saved money, not leaving enough for the care needed as you age. 5. Lack of Structure While the gift of time is considered an advantage, people often don't plan what they will do with all the extra time they have. Without the structure of a job shaping your day, some people may get overwhelmed into nothingness, becoming less active during retirement leading to health issues, depression, and loneliness. If you cannot afford to do everything you'd planned, you may be forced to live a more sedentary and isolated lifestyle. If you are considering retiring early or have that goal, it is always best to consult with an advisor sooner rather than later. The earlier you can lay out your expectations for retirement, the sooner a professional can help you customize a savings plan to attain your retirement goals.
Contact us for more information. Stevie@swainconsultingllc.com