Should I Retire Young?

July 28, 2011 - Laura
Even if you can retire young because your finances are in order, a good question to ask yourself is “Should I retire young?”
 
I wrote an article that asked the question “Is it possible to retire young?” and many readers wrote in to say it is possible, particularly if you have a pension and have saved in your employer’s retirement plan and other savings options for several years. Other readers said it is not a good idea to retire young or that it would not be possible for them, especially since the market downturn of 2008 and its residual effects on retirement savings and the overall economy.
 
So, just because you have saved and feel that you can retire young, does it mean that you should? If you maintain relatively good health and start saving early and consistently, then maybe you can “semi-retire” and land your dream job pursuing your passion (whatever it may be). On the flip side, retiring young could mean outliving your savings and then what do you do? Going back to work, perhaps on a part-time basis, is an option; but the opportunities to do so are not guaranteed and health could be an issue (see the fourth bullet point below).
 
One of the best starting points to determining the “right” time to retire is to figure out just how much you will need to save in order to retire. While you don’t have a crystal ball to see many years into the future, you can certainly develop a plan. Here are a few things to consider as you decide how much you’ll need to retire, when you might want to retire and which factors can impact your plan:
  • Calculate how much money you’ll potentially need in retirement, taking into account your future income and expenses. Consider how inflation can impact the value of your savings. For example, three percent inflation over 24 years would cut the purchasing power of your dollars in half..
  • Pay down debt. The older you get, the less debt you want to have because in retirement you’ll most likely have less income to cover debts. Aim to retire debt-free for maximum flexibility.
  • Factor in health care costs. Health care is one of the largest expenses in retirement and it can pinch into your savings, even if you are healthy. “At age 80, people in healthy households have a remaining life expectancy that is 29 percent longer than people in unhealthy households, and, therefore, are at risk of incurring health care costs over more years,” according to a report by the Center for Retirement Research at Boston College.
  • Look into guaranteed income streams that can be stretched over your retirement years, no matter how long you live. Speak with your financial advisor to choose the right option for you.
  • Keep up with Social Security’s rules. If applicable, the age at which you choose to retire could have a negative or positive impact on the benefits you receive. Younger individuals should prepare for the possibility that Congress pushes back the age at which you can begin benefits.
  • Consult with your financial advisor. This is always a good move, especially as you sort out your savings strategies and retirement goals.

After weighing all of these factors, perhaps a better question to ask yourself is “Have I planned (well) to retire ‘young’?”

3 Comments:

  1. February 4, 2012 - Josephine Lindquist

    Is age 70 the retirement age?

  2. February 24, 2012 - mel swafford

    I retired at age 56 with no debt and about 600,00 cash, a home worth around 1.5M when times were good, property in Hawii worth about 300,00 ( again, when times were good) I recieve a pension of 2000.00 per month and 1,500 plus my wife social security of 800.00.
    right know we are taking 3000.00 from the cash amount each month to go as we please, but i would like to invest in something, but how do you trust investment firms after all has happen ?
    What is a good safe investment that a simple person as myself can understand?

  3. January 30, 2013 - Nathan

    This is a great checklist that can be used to get one's priority's straight when considering the option of retiring young. I personally think that everyone should plan on retiring young. The goal being not to stop working, but more so to get to a point to where one can work for joy instead of necessity. If a person retires young from their career, they can then pursuit something they are passionate about... which typically has proven to be a very rewarding and lucrative pursuit post-retirement.

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