Many people think of retiring early as something that would be nice, but isn’t realistic. However, more and more professionals are leaving work sooner and getting a jump on retirement. A common phrase you might have heard about this is the FIRE movement – also known as “financial independence, retire early.” It packs a lot of appeal, but there are some serious considerations you should make before committing to an early retirement.
What counts as early retirement?
Retiring early means different things to different people. Some people retire to a Carribean island at 35, others plan to pull back at 55, and others still are looking at 62 as their time to leave work.
The full retirement age by 2019 standards is 66 or 67, depending on when you were born. Technically, anything before that age falls under the umbrella of early retirement.
Why do you want to retire early?
There are legitimate reasons to pursue early retirement. Maybe you accrued plenty of money in your younger years, and you can comfortably pull back now. Maybe you’ve spent decades in a high-stress, demanding field, and you’d like to live with less stress.
Sometimes a “grass is always greener” frame of mind is to blame if you’ve been thinking of retiring early. You might be sick of your work and looking for an out. If that’s the case, getting out of work entirely might not be the fix you’re looking for.
What do you give up by retiring early?
If you choose to retire early, there is a lot at stake.
First of all, you’ll be giving up your income. That’s not to say you won’t have money coming in from the earnings of your investments and savings. In fact, you might be making enough off of those alone to retire comfortably.
But for most people, losing the income from a career can be jarring. And because most people can expect to survive into their 80s, it takes a lot of money and planning to ensure you can have the retirement lifestyle you want for decades to come.
Also know that you can’t access certain retirement accounts, like social security, 401(k)s and Medicare, until you hit their designated age limit. To receive each of those benefits, you’d have to be about 66 for social security, 59 and a half for a 401(k) and 65 for Medicare. If you withdraw from those accounts before those ages, you’re likely to get hit with some pretty steep penalties.
You might also underestimate how important the social interaction and mental stimulation aspects of a career are to you, so make sure you’re well prepared for that change, too.
If your health insurance is provided through work, and you haven’t hit the age to receive Medicare (currently 65), you’ll probably need to purchase an individual or family health insurance plan.
The cost of individual health insurance can vary greatly, but can be about $400 to $900 per individual, per month.
Early retirement for doctors and other professionals
So, you think you’ve got the money and the continuing income from investments and savings to sustain you in retirement. Should you make the leap and retire early?
Some professionals in high-stress careers, like physicians, may decide to step back due to burnout or just being ready for a change.
Whatever your reasoning, choosing to retire early is a highly personal one. It requires a lot of planning and foresight to make sure you and your family can withstand your loss of career income.
Whichever route you choose to go, planning is the key to a comfortable, fulfilling retirement.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes everyone should have access to financial resources and coaching. For more information on the services offered, contact Katie today.