For decades, people living in the United States have thought of the age of 65 as the minimum age of retirement. In fact, many financial plans and policies are centered around that assumption. Of course, if someone is in good health and has no desire to quit their job, they can continue working long past that age. But what about those who would much rather have an early retirement?
The Most Overlooked Hurdles in Early Retirement
People have many reasons to think about retiring early. The most common reasons are poor health, a desire to retire alongside an older spouse, or an excess of work-related stress and burnout. For people facing these scenarios, an early retirement is certainly an option. In fact, it can seem like such a compelling one that they find themselves glossing over potential complications. These are some of the most often overlooked hurdles in early retirement:
One of the most important factors to consider is the cost of healthcare. Leaving a group plan before becoming eligible for Medicare often leaves a costly individual policy as the only option. Be sure to research health insurance costs before making a retirement decision. The price tag may be higher than you think.
The cost of healthcare is very closely related to another factor that is often overlooked. The issue of longevity. Many retirement income projections use insurance actuary tables to estimate lifespan. These indicate what the expected life expectancy is for an average American male or female, which, in turn, serves as a helpful benchmark when planning for your future. That said, these numbers are just that, benchmarks, not certainties. If you are in very good health and have a history of long lifespans in your family, you might live for far longer than the number on the table. The longer you live, the more funds you’ll need to finance your post-retirement life.
The earlier you shift from earning an income to withdrawing income from investments, the more compound interest you’ll be missing out on. Before making the decision to retire early, be sure to have a Financial Advisor run income and earnings projections so that you can clearly see the impact of your decision.
Early Withdrawal Penalties
Because retirement accounts are designed to provide you with a place for your money to grow untouched until you’ve reached retirement age, withdrawals made prior to the age of 59 1/2 often come with hefty tax penalties.
The Challenges of Early Retirement
In addition to all the monetary factors, there are non-monetary ones as well. We get a lot more out of our careers than a living wage. Marie Gooch, Financial Advisor and VP of the Hopman Group, has extensive experience helping clients look at retirement holistically, not just financially. She helps clients think through how they will replace the four P’s of work: Paycheck, People, Places to go, and a Purpose.
Regarding people contemplating early retirement, she states, “They may be economically ready, they may be able to replace their paycheck, but they often haven’t really thought about it. What am I going to do for a social structure? What am I going to do to give my day some structure? Where am I going to go? What’s going to be my new purpose in life?”
Prior to retirement, it can be difficult to fully understand the non-monetary value of work. Still, many people end up coming back out of retirement because they find they are missing something crucial from their lives. In many ways, our careers become a part of our identity. We must find a healthy way to transition to a new identity when entering retirement.
If you’ve considered these factors and believe early retirement is the right choice for you, you might be wondering what step to take next. Even if you’re relatively young and aren’t planning to retire for several decades, it’s never a bad time to start discussing your future with a financial advisor. The sooner you begin having the conversation, the more likely it will be that your advisor can help you hit your early retirement goal.
Your advisor can help you look at more than just the money. She can help you identify your vision for the future. A good advisor looks at the big picture. She will ask prompting questions to help you establish your priorities. Do you want to travel? Do you want to save an amount of money for your grandkids? Maybe you want to move to a different country? The answers to these questions give them the insight necessary to then come up with concrete goals.
When to Start Retirement Planning
As a rule of thumb, it’s a good idea to discuss your plans for early retirement with a financial advisor at least five years ahead of time. This gives you the ability to ensure your finances are in order when you hit your ideal retirement age. Maybe you don’t have quite as much time at your disposal. Try to speak to your advisor a minimum of one year in advance.
When engaging in these discussions, keep in mind that the goal of your advisor is to assess your options. They want to help you plan out your future so that you have the best likelihood of achieving your goals. Unfortunately, some of those goals may not always be achievable. At the end of the day, if you don’t have enough money saved to retire early, it’s much better to know that now.
Contact the Hopman Group today if you are interested in discussing early retirement with a skilled financial services professional. Whatever your dreams may be, our team of advisors has a wealth of knowledge and experience that can help you outline your future. We can get you on track for retirement. For more tips on financial planning, you can listen to our weekly podcasts here.