Retirement is a big decision. Along with marriage, divorce, having children, and moving, it is one of the biggest life transitions you'll encounter. Research shows that the happiest retirees start planning at least five years before their desired retirement date. Unfortunately, too many folks wait until the last minute, such as when their company offers an early-retirement package. During retirement you'll rely on the money you saved during your working years, and so it makes sense to start saving early.
To get an idea of how much you'll need to save, and when you should start, it might help to compare retirement at various ages. What factors will you consider to project how long your money will last? If you aim to retire at 50, you'll have a different set of retirement needs and savings goals from someone who wants to retire at 70.
We'll walk you through a set of examples at various ages to reveal different expenses, assumptions, and how things change over time. Here's what it might take to retire by 50, 55, 62, 65, or 70.
How to Retire at 50
If you plan to retire by 50, you need to have enough assets to sustain your lifestyle for decades. This means you must either have saved a lot, or get by on very little, or both. People who retire early have typically worked very hard early in their career, inherited money, and/or invested wisely. Perhaps they started a successful business, worked to grow it, and sold it for a significant profit; they may have developed and sold intellectual property as well. In order to make their savings last, they also know how to live within their means.
If you are willing to live on less and don't have a lot of savings, consider a low-cost retirement lifestyle. Would you be comfortable living in an RV in a campground? Would a modest apartment or rental unit in a cheaper city suit you? Does retiring in a low-cost overseas community appeal to you? If any of these lifestyles sounds attractive, early retirement may work for you, even if you don't have a large amount of retirement savings.
Cautions on Early Retirement
Finances aside, there may be reasons to rethink retiring at age 50. If you've always been a career-oriented person, an "A type," or an over-achiever, and you have the funds to sustain an early retirement, you may want to think twice before retiring. You may find retirement enjoyable for a few months, but without a new project to work on, too much leisure time may get old for you. Business owners and working professionals are those who are most likely to get bored in retirement.
Another thing to think about is your long-term health. In middle age, you may be vibrant and healthy, but in a few decades things might change. To have a successful early retirement, you should assume that your health needs and medical expenses will increase. To retire at age 50, you need to account for the fact that your funds may need to cover 40 years (or more) of living expenses that won't look the same as your current situation.
If your retirement fund has sufficient assets, and you wish to take money out without paying an early-withdrawal penalty, you may be able to set up 72(t) payments. This option allows you to access your retirement savings at any age without paying the early-withdrawal penalty.
How to Retire at 55
If you have sufficient savings, retiring at 55 may be more feasible than you think. Why? Many people assume their retirement money is off-limits until they reach age 59 1/2, which is the age (set by the IRS) at which you can withdraw money from your retirement account without paying a 10% penalty. But there is a special rule specifically for people who leave their jobs after their 55th birthday, allowing them to withdraw funds from their employer-sponsored retirement accounts penalty-free. Taking money out of your retirement account early, while delaying the start age for Social Security to age 70, can often make an early retirement feasible.
Another thing you'll need to plan for when retiring at 55 is health insurance. You'll still have 10 years before Medicare coverage begins, and you'll no longer be covered under an employer's plan, so when you build your retirement budget, be sure to factor in the cost of buying your own health insurance.
Like all those who are considering early retirement, you'll also want to figure out how you'll spend your time. Read stories from other retirees, and see which ones you identify with. When you know what to expect, you'll be more likely to have a successful transition into retirement.
How to Retire at 62
U.S. Census Bureau data suggests that 63 is the average retirement age in the U.S. This makes sense, as 62 is the earliest age you can start collecting your own Social Security retirement benefits.
Be careful of claiming Social Security benefits right away. Many people who claim their benefits at 62 end up regretting this decision when they see how much more they could have gotten if their benefits had started later.
Even with a delayed Social Security start date, you should be able to save enough to retire at 62 and maintain a comfortable lifestyle if you follow a solid savings plan. Planning ahead means you've thought carefully about the items on your retirement wish list and created a strategy to reach the savings goal.
Your savings plan will be tailored to your specific goals and current income. Then, once you retire, your retirement spending plan kicks in. It should be tailored to your situation, but good plans have a few things in common: If you consolidate accounts, understand your Social Security claiming options, know which accounts you will withdraw from, and have estimated the taxes you'll pay in retirement, then you're doing things right.
How to Retire at 65
Most people expect to retire realistically at 65. Medicare benefits begin at 65, and after that age there are no penalties for early withdrawals from retirement accounts.
Just as with all stages of retirement, you'll have some big decisions to make. Consider your health plan: If you are enrolled in Medicare, will it cover all your needs? You might want to think about potential long-term care expenses and how to handle future cognitive declines. Look into different types of supplemental healthcare policies.
Be advised that the full retirement age for your Social Security benefits is age 66 or later, not 55. For most people, this means that even if you retire at 65, you'll be better off waiting a year or so before beginning your Social Security benefits.
At all ages of retirement, you'll need a "decumulation" plan for how you will withdraw from different accounts, in what order, and by how much. Reassess often.
How to Retire at 70
If you're still working at 70, you may be the type who never wants to retire. Plenty of people continue working in their golden years, simply because they can, and they prefer to stay active.
If you do want to retire at 70, the good news is you'll get the maximum amount of Social Security benefits by waiting until you're 70 to start payments. (Note: There is no benefit to waiting past 70.)
There's more good news: Some retirement products, like wine, get better with age. Annuities and reverse mortgages are two products that are more attractive in your later years because a reduced time frame works in your favor when calculating costs and interest rates.
From age 70, you'll also need to keep in mind the minimum distribution limits on your retirement accounts. Many plans require withdrawals at age 72 for those who turned 70 1/2 after December 31, 2019. If you miss these, there is a hefty penalty, so make sure you start them on time.
Lastly, although it applies to people of all ages, when you're in your 70s (or even sooner), you should make sure that all your affairs are in order: If you haven't done so yet, review all of your accounts and policies for beneficiary designations, create an advanced directive, and take care of estate planning.