How to Retire at 55: A Step-by-Step Plan

Retiring at an age as young as 55 is a dream of many Americans. However, turning this vision into reality involves some significant financial planning and maneuvering. For example, you’ll need to build significant savings, invest your money, account for early withdrawal taxes and take a lot more into consideration. All of this can be complicated but working with a financial advisor can help you plan your early retirement, regardless of whether you’re looking to travel the world, spend more time with your family or relax in the sun.

Boosting Your Retirement Savings

Listening to the conventional wisdom on retirement savings can only get you so far. However, you’ll have to step it up a notch to reach your retirement goals by 55. Of course, the rate at which you can start saving will vary depending on how much you already have saved, your age and how much you think you’ll need in retirement.

You don’t have to double your savings rate, necessarily. For many, that’s simply an unrealistic possibility. It’s important to build your savings by estimating how much you’ll need, and determining an appropriate savings rate to get there.

Plus, don’t forget that you’ll have access to Social Security benefits when during retirement.

Investments are important for the other side of retirement, too. When it comes to investing, make sure your investments are suitable for your risk tolerance and where you are in life. For example, the younger you are, the more aggressive you can be with your investments. An aggressive portfolio might include a majority of stocks at various market capitalizations, as well as a handful of fixed-income securities and cash allocations.

As people near retirement, their portfolio typically evolves into one that’s heavier in fixed income and cash, while stock allocations shrink. But if you’re planning on retiring early and relying on those investments, you might have to be aggressive for a longer period of time. However, only take on these risks if you can. You don’t want all of your retirement funds to go down the drain because of a downturn in the market.

Plan Out Your Retirement Lifestyle

A big part of your retirement and your savings is rooted in how you’re going to spend those years. Without the need to clock in or commit to the “9-to-5” grind, you end up with a lot of free time! You’ll need to figure out what hobbies you’ll continue with in retirement to keep yourself busy.

Not only that, but you have to figure out how much money you’ll need to live. You may have already planned to finish paying off your mortgage before you retire, but what about food? Clothes? Are you planning to travel once you retire? Answering these kinds of questions will help you figure out your budget.

You’ll also have to figure out how many years you’re saving for. If you and your neighbor retire at 55, you might expect to save for three or four decades while your neighbor only plans for two. It’s important to be honest with yourself so you can save and budget responsibly.

Accounting for Retirement Taxes

It’s often been said that the two things you can never escape are death and taxes. So while retirement involves plenty of rest, you’ll also have to stay mindful of taxes. This is especially true if you plan on retiring at 55, as withdrawals from retirement accounts before age 59.5 typically come with a 10% income tax penalty, courtesy of the IRS. Accounts like a 401(k) or traditional IRA may grow tax-deferred, but your withdrawals are subject to taxation.

This is where having a Roth IRA can come in handy, as you can contribute to one on an after-tax basis. That means you won’t have to pay taxes when you make withdrawals since you would’ve paid taxes upon the deposit of your money. It can help to have a mix of Roth and traditional retirement accounts to ensure you don’t get hit too hard with taxes in retirement.

Get Your Health Insurance in Order

It can be easy to take workplace healthcare coverage for granted after having it for decades. But when you retire, especially when you retire early, it involves a bit more work on your part. If you want to retire at 55, you have another 10 years before you reach the Medicare eligibility age.

Without Medicare, you could be taking a huge risk by going uninsured. You should check whether your employer can cover you for retirement. You may also be covered by your spouse’s insurance. There are a few possible routes you can take, but it’s important to have it laid out before you retire. That way you can correctly budget for the costs of healthcare.

Bottom Line

Retiring early can seem ideal after working for so many years. But it’s not as easy as simply quitting your job 10 years ahead of schedule. It will take a lot of careful planning to get your income, taxes and health insurance in order. Perhaps most importantly, you need to ensure you have enough savings stashed away for that extra decade or so of income-less retirement. If meeting these goals starts to seem unrealistic at any point, there’s also no harm in pushing back your retirement a couple of years.

Tips for Retiring on Time

Many financial advisors specialize in retirement planning and investing, which are two areas where you’ll need to excel if you want to retire by the time you turn 55. 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.
One of the most important pieces of retirement advice is that it’s never too early to start saving and investing. When you retire, you obviously won’t have the same stream of income as you might be used to. In turn, make sure you start socking away money for retirement early and often so you can live out your golden years in complete financial comfort.