For many years, age 65 served as the benchmark for retirement. That’s largely because it’s the age that was considered “fully retired” based on Social Security parameters for decades – the age you could access benefits penalty-free. Today, the popular view of retirement age is moving in the other direction.

A recent Harris Poll found that among working Americans who plan to retire, the average expected retirement age is 57. Some are working toward significantly younger retirement ages. It’s a trend that started in earnest during the COVID-19 pandemic, when changing life outlooks and priorities led to the Great Resignation, with millions of people retiring earlier than planned.

If early retirement is something you hope to achieve, planning ahead is essential. The six steps outlined below will help you overcome these core challenges and begin your journey to an early retirement with confidence.

Determine Your Goals.

An essential consideration often overlooked is: what are you going to do with your time? Will you travel? Are you looking to purchase a second home? What is your day-to-day lifestyle?

It’s important to think about how you’re going to fill the 40 hours per week you currently spend working. It’s common for retirees to go through a host of different stages, from jubilant at first to feeling a lack of purpose later. Think about what you want to do, how you will stay engaged, and the core reasons you want to retire early.

Start Saving Aggressively – Early.

We recommend that people looking to retire at age 65 save at least 15% of their income. If you want to retire earlier, you’ll need to save more or start saving earlier.

How much you need saved depends on many factors. There’s no right answer, because everyone has different goals. It’s important not to compare retirement dates with others: veryone’s financial situation and goals are unique.

Making the decision to retire based on your own plan is really important, but one universal need is saving as much as possible. Max out 401(k) contributions, IRAs, and contribute to taxable accounts. When you know you want to retire early, which typically occurs in your 40s and 50s, start maxing out those accounts if you’re able to.

Look At Your Discretionary & Non-Discretionary Expenses.

When you’re looking at your expenses, it’s important to distinguish between discretionary and non-discretionary expenses. Non-discretionary expenses are those that are essential and must be paid, such as:

• Mortgage payments and other housing expenses, utilities and taxes
• Vehicle payments and maintenance costs
• Healthcare
• Minimum debt payments
• Groceries

Also consider discretionary expenses, which are expenses you have more control over and can adjust as needed. These include:

• Travel and entertainment
• Hobbies and leisure activities
• Charitable giving
• Helping family members (for example, helping with the purchase of a first home or college funding for grandchildren)

When planning for retirement, it’s important to consider how your discretionary spending may change. For instance, you may want to travel more in the early years of retirement, but then scale back later.

Bridge The Gap Between Retirement & Medicare.

One of the most important considerations for early retirement is that Medicare doesn’t start until age 65. For some, that’s the determining factor in whether they can retire early.

When making decisions about healthcare, consider deductibles, co-pays, out-of-pocket costs, prescriptions for pre-existing conditions, and any major health issues. Understand the options from your employer or insurance company, get to know how the marketplace works, and determine what your income is going to look like in retirement. Have you accumulated other assets or resources that you can draw on to bridge the gap from retirement to Medicare?

A lot of people have questions about whether they should work longer and keep their workplace health insurance versus going on Medicare — it’s a gray area. We can discuss COBA coverage, searching the marketplace or private insurance, and non-qualified savings as a coverage option.

Decide When To Take Social Security.

You can start drawing Social Security at age 62, but full retirement age – 67 if you were born in 1960 or later – is when you receive 100% of your benefits. The costs associated with retiring early and drawing Social Security early may lead to a permanent reduction in your lifetime benefit. It could impact your spouse’s benefit as well.

When considering drawing Social Security, you should evaluate the assets you have available. Do you have non-qualified assets or taxable assets? Do you have ROTH or after-tax assets? What other retirement income do you have? When working with a financial planner at Trust Point, we weigh all of these factors to help you determine the optimal time to start drawing your benefits.

Work With An Expert.

The critical decisions needed to ensure a confident early retirement shouldn’t be made alone. If you’re dreaming of an early retirement, Trust Point can help make that dream a reality. Our team has the expertise, experience, and depth of resources to build and execute a custom-tailored financial plan to live out your goals. We take the stress out of planning, answer the hard questions that matter most, and guide you every step of the way, so you can retire how you want, when you want.

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Trust Point

7 S. Dewey St., Eau Claire

(715) 461-7018

TrustPointinc.com

 

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