Retiring at 61 means stepping away from work before reaching full Social Security retirement age, which can affect income streams, healthcare access and tax considerations. Those aiming to retire at 61 often rely on a mix of personal savings, investment income and possibly part-time work. Planning around Medicare eligibility, which begins at 65, and understanding how early retirement affects Social Security benefits are key. With the right strategy, retiring at 61 can be financially feasible. Consider working with a financial advisor as you financially prepare for retirement.
1. Plan Around Your Social Security Benefits
Although you have to wait until age 62 to start claiming early Social Security benefits, should you? There’s a big debate on this topic in the financial community, but it boils down to a personal decision. The government defines full retirement age as 67. If you start benefits at 62, your monthly income will be reduced by as much as 30% for the rest of your life. However, delaying your benefit has the opposite effect. Your payments increases by 8% for every year you delay them beyond your full retirement age until age 70.
Every year that you can delay your benefits, your monthly benefit will increase by 8% until age 70.
2. Max Out Your Retirement Accounts
In order to retire a few years ahead of schedule, you should be maxing out your company-sponsored and personal retirement accounts. This means contributing the maximum to your 401(k) and to your IRA—$23,500 and $7,000, respectively. Many investors contribute pre-tax dollars to a 401(k) and post-tax dollars to a Roth IRA to manage taxes in retirement.
When you turn 50, consider making catch-up contributions of $7,500 to your 401(k) and $1,000 to your IRA each year. These additional contributions allow you to take advantage of your peak earning years and boost your retirement savings. In 2025 and beyond, workers ages 60 to 63 can contribute up to $11,250 in catch-up funds to a 401(k) or similar workplace account, raising the limit to $34,750.
3. Maintain a Diversified Portfolio
Diversification and rebalancing are two of the biggest factors in the success of your financial strategy. Diversifying your portfolio spreads your investments in a variety of niches. That way you can benefit when any go up and minimize the downside of any investment going down. Rebalancing periodically resets your portfolio to prevent overconcentration in any one investment type to reduce your risk. Many accounts offer automatic rebalancing, otherwise this is something you or your advisor can do each year.
4. Invest Extra Money in a Taxable Account
To reach your goal of retiring early, you may need to open a brokerage account to sock away extra money beyond your 401(k) and IRA contribution limits. With a brokerage account, you have more flexibility in what you can invest in. Plus, there are no annual contribution limits like there are with tax-deferred retirement accounts.
Brokerage accounts are considered taxable, so all dividends and capital gains must be reported on your yearly tax returns. However, these investments also offer the tax advantage of a stepped-up cost basis if you pass them on to your beneficiaries.
5. Explore Guaranteed Income Via Annuities
When you think about how to retire at 61, realize that you have a long life ahead of you. The Social Security Administration estimates the average 61-year-old will live for another 20 to 23 years. Stocks and bonds often make up the core of a retirement plan. An annuity can add lifetime income to the mix. It can be a good idea to consider an inflation rider on your annuity to maintain your buying power.
6. Make a Plan for Healthcare
One of the biggest questions when thinking about how to retire at 61 is how will you pay for healthcare? Americans cannot apply for Medicare until age 65, so this means that you’ll have four years of healthcare premiums that are not subsidized by the workplace. You can lower your premiums by raising your deductible, switching plans annually or paying cash for some care. In some cases, your doctor may charge less if you pay cash than use insurance.
7. Build Other Income Streams
In addition to stocks, bonds and annuities, many retirees have other accounts that provide additional income. If you have a pension, you may be able to choose between a lump-sum payout or lifetime income. Speak with an advisor to discuss which option works best for you.
Some investors have rental properties, limited partnerships, private equity, collectibles and other investments that may grow and provide income in retirement. They offer another way to diversify your investment portfolio. However, remember that many of these investments are not very liquid if you need to withdraw money.
You may even consider working part-time in retirement. Part-time work or consulting can supplement your income and potentially provide health insurance.
8. Create an Estate Plan
While you are expected to live for 20-plus years, accidents and illnesses can cause your lifespan to shorten. A thorough estate plan can reduce taxes, reflect your wishes and let loved ones step in if needed. In addition to a living trust and will, you should also consider other estate planning documents. These include a healthcare proxy and a durable power of attorney
It also helps to have discussions with your beneficiaries to explain your wishes. This allows them time to process your decision and ask questions. Regular conversations can minimize fighting and legal squabbles among your beneficiaries.
Bottom Line
Retiring early at the age of 61 is possible if you have a solid financial plan. It all starts with maxing out your retirement accounts every year. Then, potentially adding extra sources of income from annuities, real estate and other investments. When you retire at 61, you don’t yet qualify for Social Security or Medicare. This means that you need to factor in the delay of being able to apply for those retiree benefits. And while the average 61-year-old lives for 20-plus years, you can’t forget to develop a complete estate plan to minimize taxes and control the distribution of your assets.
Retirement Planning Tips
- You can reach your goal of retiring early at age 61. But, you’ll need to take steps to hit your “nest egg” number quicker than normal. Our investment calculator forecasts the growth of your portfolio as you change additional contributions, rates of return and the number of years to grow.
- There are many decisions that need to be made when planning to retire at 61. A financial advisor can provide valuable advice, help you evaluate investment options and set goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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