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On The Money –
A Financial Wellness Series
On The Money –
A Financial Wellness Series
Early retirement offers the benefit of increased personal time and the freedom to pursue your passions and enjoy life sooner. While the drawback is the financial challenge of ensuring you have enough long-term savings and potentially facing reduced Social Security benefits and healthcare costs before Medicare. Figuring out how – or if – to retire early isn’t easy but it’s doable.
If you’ve decided early retirement is right for you, then keep reading! Keep these things in mind as you make your plan, and let’s discover some of the ways you can make your dream a reality.
If you’re not eligible for a workplace retirement plan or one isn’t offered by your employer, there are other ways to save (IRA, Roth IRA, SEP, etc.) for retirement. Speak with a financial advisor to determine the best option for your situation. However, if expenses like paying off student loans or raising a family has held your savings back during a portion of your career, don’t worry. Taking advantage of catch-up contributions can help you build your retirement accounts during your 50s and beyond, so you can get back on track.
Review our article about The Basics of Investing to learn more about different ways to save money: from low-risk savings and certificates to riskier options like stocks, EFTs, even cryptocurrency. If you have discretionary income after paying your fixed expenses, consider automatically directing a portion to an investment account for savings and retirement. Use the power of compounding to your benefit!
Each long-term loan that you have jeopardizes the money that could be used for retirement. That loan payment plus interest…well, it can negatively impact to your saving goals. Make sure you're budgeting properly and keeping your spending in check. Refer to our Basics of Personal Finance article for a refresher on managing your money.
Knowing how much you spend each year now and how your expenses might change in the future can help you decide on a retirement budget. If you’re not sure, estimating your potential expenses can work too.
Of course, it makes sense to see how you can reduce expenses now to save more now. It’s also a good idea to think about ways you can spend less in retirement, which could reduce the amount you need to save or let you move up your retirement date. Try out this retirement calculator to estimate if you’re on track for early retirement.
One option is to purchase insurance on the federal marketplace at Healthcare.gov. If you currently have a high-deductible health insurance plan, contributing to a Health Savings Account (HSA) can help you cover healthcare expenses even into retirement.
As for taxes, you’ll want to plan how and when you pull income from your investment accounts to keep taxes at a minimum. Many tax-advantaged retirement accounts have rules for when you can take qualified distributions, typically age of 59 ½. You may want to work with a financial pro to develop a strategy for accessing your investments to avoid taxes and penalties where possible.
If you plan to retire early, you can claim Social Security as early as age 62, but claiming early could result in a permanently reduced benefit. Social Security offers an inflation-adjusted guaranteed source of income throughout retirement for those who are eligible. It’s a good idea to maximize your monthly retirement income by waiting to claim until full retirement age or even age 70. Use this Social Security calculator to estimate your benefits.
People are living longer than ever, and you may spend more years in retirement than you ever expected! The emotional aspect of early retirement deserves as much attention as preparing your finances. Plan for “what’s next” so you don’t end up bored or unproductive.
Although you may have planned and saved, unfortunately it may be necessary to have an active income source beyond retirement accounts and social security. The good news is that it may not have to be a 40-hour week commitment. Find a second career with what interests you, allows you to keep stress low, and is fun!
Focus on maximizing savings, paying down debt, and developing a broad financial plan.
Refine your retirement goals, get more specific with your budget, and review your investment strategy. Research healthcare options.
Make concrete plans for housing, healthcare, and your desired lifestyle. Meet with a financial advisor to finalize your strategy.
Finalize paperwork, understand withdrawal rules for your accounts, and create a detailed budget for your first few years of retirement.
Next month in our Financial Wellness Series: The Lowdown on Loans
Return to our Financial Wellness webpage to learn and discover more on your own through our partnerships with Zogo and BALANCE
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Please consult with a qualified tax advisor before opening an IRA and to ask specific questions. RFCU does not offer tax advice.
RFCU does not warrant, guarantee, or insure any product or service offered by Zogo.
Any information provided by BALANCE is the property of the BALANCE Financial Fitness Program. The BALANCE Financial Fitness Program is offered to RFCU members through a partnership between RFCU and BALANCE. RFCU does not warrant, guarantee, or insure any information, products, or services offered by or through BALANCE or any third party.
Zogo, BALANCE and RFCU are not affiliated and are separate entities.
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