The Pros and Cons of Early Retirement

The pros and cons of early retirement

For many of us, it’s taken a decade of righting the ship to regain our financial footing, but, finally, that word is back on the table: Retirement.

It’s what we’ve worked for, dreamt of and aspired to since, well… since we started working. Today retirement age is whatever works emotionally, physically and of course, financially. If you’re staring 55+ in the face and retirement is starting to look appealing, ask yourself these questions:

  • Have you historically lived within your means?
  • Can you resist the temptation to make large, impulsive purchases?
  • Do you have a stress-tested financial plan created by a certified financial planner?
  • Other than Social Security, do you have some form of certain, steady income such as a pension or annuity that will cover basic living expenses?
  • Do you have a plan to scale back income gradually with a part-time endeavor or is this an all or nothing proposition? Either way, do the numbers work?

 If your answers are yes, and contemplating early retirement is an option for you, take a moment to consider the pros and cons of retiring at 55.

PRO

Follow Your Passion

There is no time like the present to reinvent yourself and find the bliss that may have eluded you in your long-term career. More and more retirees are broadening their horizons, learning new skills and taking their professional lives in a whole new direction. This time around the goal is enrichment and accomplishment. While the extra income is helpful it is not the main attraction.

Rekindle the Family Flame

If your stars align for early retirement, all signs indicate you’ve devoted most of your energy over the years to your work, losing precious time with your spouse and the kids. Early retirement is an opportunity to reconnect with the family and play a more active role in parenting. It’s a chance to stop and smell the roses with a spouse and focus on romance instead of finance.

Check Off the Bucket List

One main advantage of early retirement is the opportunity to pursue activities and adventures that may become impractical. if not impossible, the more you age. Rock climbing, hiking, whitewater rafting, exotic biking trips and other experiential travel require the agility and stamina we are more likely to have at 55 than 75.

CON 

Too Early for Medicare

Retirement at 55 leaves you with a ten-year gap in coverage before Medicare kicks in. Few employers are providing post-retirement health care plans, and prohibitive costs of coverage make the benefits defined by the Affordable Care Act limited in scope. In short, if you have no health insurance, and a serious issue arises, your financial future is at risk. Finding medical insurance will take a bite out of your budget, but it will be a necessary expenditure.

Taking Your Money Will Cost You

Accessing tax-sheltered accounts early comes with penalties. Be sure to be fully aware of the costs associated with withdrawing money from your 401K, IRA, or ROTH IRA before making your decision to tap that resource.

Earlier is Less

If you begin receiving Social Security before the age of 67, you will receive less in monthly payments and may ultimately forgo as much as 30% of the benefits owed you. Employer paid, and private pension funds typically come with an early withdrawal reduction in benefits as well. Do your homework to make sure your lifestyle can withstand the pay cut. In this case, less is definitely not more.

If early retirement is on your horizon, one of the best ways to maximize financial health is rightsizing. Selling a home that has outlived its purpose, will not only add to your financial comfort, it will also give you an opportunity to find a community of folks in your similar situation with whom you can share this new and exciting chapter of your life.

There is no life change more major than retirement. Before you take the plunge, consult a financial expert to make sure that your numbers add up to a fabulous future.