Everyone dreams of retiring early. The thought of putting the years of hard work in your career behind you to live out your golden years to the fullest is wonderful. However, it is dependent on where you are financially on whether or not you can retire early. Unfortunately, not everyone is in a spot to retire early. If you’re asking yourself “is retiring early the right move for me?”, continue reading.
First off, you need to consider how much money you have saved up to live off of in retirement. You also need to consider any penalties you could incur from withdrawing funds from retirement accounts. If you retire before you’re 59 and ½, you can incur a 10% early withdrawal fee on tax-deferred accounts, including traditional IRA and 401(k) plans. You will also owe income taxes on the amount you withdraw from these traditional accounts. However, if you have a Roth IRA, you will not have to pay taxes on withdrawals.
If you are banking on income from your Social Security benefits, retiring early could jeopardize that. The earlier you take out Social Security benefits, the lower your benefit will be. The earliest eligible age for taking Social Security out is 62 years old. If you choose to take benefits as soon as you turn 62, your monthly benefits will be 30% less than if you wait until age 67. If you do wait until age 70, you can receive an additional 8% to your monthly benefit. It can be smarter financially to wait for these Social Security Benefits to maximize your earnings.
The earlier you retire, the longer your savings will have to last. If you decide to retire at 60, your savings may have to last you for 30 years. Also with retiring earlier, there are fewer years that you have to contribute to your retirement savings accounts. Time is your best friend when it comes to retirement savings. You have to allow as much time as you can to allow your retirement savings compound interest. If you work another decade, that’s another 10 years worth of contributions and your funds growing with interest.
Several questions you need to ask yourself before retiring early are:
- Can you afford to stop working?
- Will you still need some form of work (contracting, freelancing, part-time) to afford my lifestyle?
- Do you have a plan for health insurance?
- Does your partner have the same retirement plans as you?
If you are trying to figure out if you will be able to retire earlier than 65, contact us at Total Clarity Wealth Management. We will be able to sit down with you and assess your financial situation and the feasibility of retiring early. Give us a call today to get a head start!
Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.