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Can You Retire After Working for 20 Years?


Retirement is a significant milestone that many people spend years working toward. Yet, deciding when to retire entails complex decisions influenced by an assortment of personal and financial considerations. The question of whether one can retire after just 20 years of work isn’t as straightforward as it may seem. Understanding one’s financial readiness, life expectancy and lifestyle preferences through detailed analysis is crucial. A financial advisor can help you sort through these considerations and decide whether retiring after just 20 years is a viable option. 

What to Consider for Early Retirement

Early retirement is a dream many people aspire to achieve, but it requires careful planning and an honest assessment of your life. Here are key factors to think about when considering retirement after just 20 years of work.

  • Longevity planning: Estimate how long your retirement savings need to last. With increasing life expectancy, plan for a retirement that could span several decades – especially if you’re retiring after just 20 years of work. Part of this is estimating how long you’ll live. It’s obviously guesswork but your underlying health can help you project your life expectancy. 
  • Savings and investments: Build a robust retirement fund. Be sure to contribute to your workplace retirement plan, especially if your employer offers a match. If your job doesn’t provide a retirement plan, open an IRA and contribute to it yourself. Diversify the investments in these accounts to manage risk.
  • Debt management: Prioritize paying off high-interest debts before retiring. A debt-free retirement provides more financial flexibility.
  • Healthcare coverage: Ensure you have adequate healthcare coverage. Medicare typically kicks in at age 65, so plan for health insurance options before that.
  • Budgeting: Create a post-retirement budget. Account for potential changes in expenses and income sources, including pensions, Social Security, and part-time work.
  • Retirement lifestyle: Define your retirement goals. Will you travel, volunteer or start a new career? Your lifestyle choices will impact your financial needs.
  • Build an emergency fund: Maintain an emergency fund to cover unexpected expenses during retirement, reducing the need to dip into retirement savings.

How Social Security Is Calculated

A middle-age couple meets with their financial advisor about retiring early.

Social Security plays a pivotal role in most Americans’ retirement plans, providing inflation-adjusted income as early as age 62. However, it’s vital to understand how your benefits are calculated. 

The Social Security Administration (SSA) typically calculates benefits using a formula that considers your 35 highest-earning years. The SSA then adjusts these earnings for inflation to determine your average indexed monthly earnings (AIME). Since you’ll only have 20 years of work history, the calculation will incorporate 15 years in which your income will be counted as $0, resulting in a lower benefit. 

Next, the AIME is used to calculate your primary insurance amount (PIA). The PIA is the amount you’re eligible to receive at your full retirement age (FRA) – between 66 and 67, depending on your birth year. If you claim benefits before your FRA, your monthly payment will be reduced by as much as 30%. On the flip side, delaying Social Security until age 70 can increase your payments by up to 24%.

It’s also crucial to note that the SSA applies a bend point formula to your AIME, which means higher earners receive a lower replacement rate on their income when compared with lower earners. This is designed to provide more substantial benefits to those with lower lifetime earnings, relative to what they paid in Social Security taxes.

Estimating Your Retirement Income

To ensure you have a clear picture of what your retirement might look like, it’s important to estimate your retirement income accurately. These six common steps can help you get started: 

  • List your sources of income: Identify all of the sources of income you’ll have during retirement. These may include Social Security, retirement accounts like 401(k)s and IRAs, annuities, taxable investment accounts, rental properties, cash savings and part-time work. Understanding where your money will come from is vital.
  • Calculate your expenses: Assess your expected retirement expenses. Consider factors such as housing, healthcare, daily living costs and any outstanding debts. This will help you gauge how much income you’ll need. Experts recommend replacing between 55% and 80% of your pre-retirement income. 
  • Plan for inflation: Account for inflation, which can erode the purchasing power of your money over time. Adjust your estimated expenses and income by at least 3% per year to maintain your standard of living.
  • Investment projections: If you have investments, use conservative estimates for their future returns. This will help you avoid overestimating your income and falling short in retirement. Also, be sure to factor in how much you’ll be withdrawing from your investment accounts since those withdrawals will impact your long-term returns as well. 
  • Consult a financial advisor: Seeking advice from a financial advisor can provide valuable insights into your retirement planning. They can help you make informed decisions and optimize your retirement income.
  • Regularly review and adjust: As your life circumstances change, revisit your retirement income estimates regularly. This will ensure your plan remains aligned with your goals.

Strategies to Increase Retirement Income

A married couple reviews their expected sources of retirement income.

Maximizing your contributions to retirement accounts like a 401(k) or an IRA can be immensely beneficial for increasing your eventual income in retirement. These tax-advantaged accounts not only help you save but can also lower your current taxable income. Additionally, some employers offer matching contributions to your 401(k), which is essentially free money. 

In 2023, the IRS allows you to contribute up to $22,500 to a 401(k) or similar workplace account, and up to $6,500 to an IRA. Thanks to catch-up contributions, people ages 50 and over can save an extra $7,500 in a 401(k) and $1,000 in an IRA. 

You may also consider delaying Social Security benefits if possible. As mentioned earlier, the longer you wait (up to age 70), the higher your monthly benefit will be. 

Meanwhile, annuities can be another valuable financial tool for those looking to boost their retirement income. These insurance products offer a stream of payments, typically monthly or annually, in exchange for an initial lump-sum investment or a series of payments. Annuities provide a predictable source of income during retirement, which can help you cover essential expenses, such as housing, healthcare and daily living costs.

Real estate can also play a significant role in boosting retirement income. Owning rental properties can provide a consistent source of income. Real estate often appreciates over time, offering potential for long-term growth.

Lastly, consider exploring part-time work or freelancing during retirement. It not only provides extra income but can also keep you engaged and active.

Bottom Line

Whether one can comfortably retire after 20 years of work depends on individual circumstances such as age, income, savings and debt. It requires you to take a close and honest look at your finances and consider the type of lifestyle you want in retirement. From there, you’ll need to build a comprehensive and reliable retirement income plan so you can meet your expenses and live comfortably.

Retirement Planning Tips

  • A financial advisor can help you sort through the often complicated process of retirement planning. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three 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.
  • When you choose to claim Social Security can have a significant impact on your retirement plan. SmartAsset’s Social Security calculator can help you estimate how much your benefits will be worth based on when you plan to collect them.

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