3 Things to Consider Before You Retire at 55
Sure, you can retire at 55, if you've planned for these items.
If you want to retire at age 55, there are a few things you will need to consider that someone who retires later will not have to think about. Below I have outlined three major things to consider if you are serious about planning for an early retirement; longevity, health care costs, and your time.
If you retire at 55, assuming you will have an average life expectancy, you will need your assets to produce income for a longer period than someone who retires later. It means you need to develop an accurate projection of what you think you will spend each year. Then you can compare that to the sources of retirement income you think you'll have available to you.
Social Security won’t start until age sixty-two, at the earliest, and there are penalties and restrictions on accessing retirement account money (like from a traditional IRA) prior to age fifty-nine and a half. It means if you retire at fifty-five, you will need to have other sources you can tap into, at least for a few years. One option: you might consider using 72(t) payments to withdraw from an IRA at an early age, which will allow you to avoid the early withdrawal penalty tax of 10 percent.
And even though you can start Social Security at 62, there are many reasons you might consider a different Social Security plan that has you start benefits at a later age.
Health Care Costs
Keep in mind; Medicare coverage won’t start until age 65. If you are planning to retire at 55, make sure you will have a secure source of health insurance coverage that will provide for you until you become eligible for Medicare. Because of the Affordable Care Act, you are guaranteed to be able to acquire health insurance coverage regardless of pre-existing conditions. You cannot be rated for any health conditions you have, but despite that, coverage between the ages of 55 and 65 can be expensive (figures vary but some premiums can exceed $1,000 a month) depending on the type of plan you choose.
If your health coverage is currently through your employer, they are often subsidizing 75% or more of the cost on average. Many early-retiree-hopefuls are shocked at the cost of purchasing their coverage. The best thing you can do is plan for it, or consider part-time work that provides health insurance.
Filling Up Your Time
An extended vacation sounds nice, but some find the experience is not as fulfilling as they thought it would be. When thinking about early retirement, give careful thought as to what you want to do with your time and your money.
For example, if you have expensive hobbies, you will want to consider that extra cost when you determine how much money you will need for many years of retirement.
If you’re not the leisurely sort, you might consider starting a small business. According to the Kauffman Index, in 2016 25.5 percent of all startups were entrepreneurs in the age 55 - 65 range.
You could also use your prior experience to start a consulting business or turn a prior hobby into a money making activity.
Perhaps you won't work, but instead want to volunteer, or help raise the grandchildren. Whatever it may be, you have to find things you are looking forward to or retirement won't feel so rewarding.
If you decide retiring at 55 does not look realistic for you, consider moving your target retirement age to 62. For many, this will be more achievable.