Many Americans dream of early retirement. It’s even the basis for movements like FIRE, which stands for Financial Independence, Retire Early. But if you want to retire as soon as 52, you need a solid strategy to help you get there. Retiring in your 50s leaves you with less time than the average worker, making it a challenge. Despite this, it’s not impossible. The crux of your plan should come down to saving, managing money efficiently and investing wisely. You can also consider working with a financial advisor on a plan for your early retirement.
Considerations When Retiring at 52
Before you settle on 52 as your goal retirement age, you should review your situation. Here are some of the most important questions you can ask yourself to help you evaluate:
- What kind of lifestyle do I want to have in retirement?
- How much money do I need to afford my desired lifestyle on an annual and monthly basis?
- What types of monthly expenses do I expect?
- How many sources of income will I have and how much can I expect overall?
- Will I keep working, either as a side hustle or part-time?
- What do I expect my health to look like long-term?
- What is my anticipated life expectancy?
- How will I pay for medical expenses before I am eligible for Medicare?
- Do I have or need a plan to cover long-term care?
Maximizing Your Retirement Savings
You are automatically on the fast track if you want to retire at age 52. Because of that, you need to step up your savings more than the standard retirement advice recommends. The actual rate will depend on the exact age you begin saving and how much you start with, though. So, consider how much you will need to cross the finish line based on those factors.
Unfortunately, there isn’t a magic way to double your savings rate. For most, enhancing your savings depends on finding the right combination of tools and contributing to each one.
One of the first places to start is your employer-sponsored retirement plan. Some financial experts claim that you should save between 10% to 15% of your annual income in your 401(k). For an early retiree, you may need to increase that amount if you want to stay on target. You also want to take advantage of employer matching programs. The most common version match 50% of your contributions up to 6% of your salary.
If you don’t have a 401(k), you may have an individual retirement account (IRA). People who think they will fall in a lower tax bracket during retirement may prefer a traditional IRA over a Roth version. That way, you can pay a lower income tax on any withdrawals made during retirement.
But both 401(k)s and IRAs come with annual contribution limits. If you want to find alternative ways to stockpile funds, consider a brokerage account or health savings account (HSA). The latter allows you to store money for medical expenses, while the former gives you a way to grow your funds.
Remember: you will also have Social Security benefits when you retire. The estimated average monthly Social Security benefit for 2022 is $1,657. While this may not be enough to live on – unless you are unusually frugal – it’s an important supplement to senior income. However, you cannot qualify for SS benefits until 62. So, if you retire at 52, you will have to wait 10 years before you can qualify. Also, if you’re not earning an income for 10 years, your benefits will be less. You may want to wait to retire until full retirement age, or even 70, so your SS benefits will be greater than if you started collecting at 62.
Decide How You Want to Spend Your Golden Years
You can’t plan for retirement aimlessly; you won’t know when you have enough. That’s why every person should think about what kind of retirement lifestyle they want. Without work, you have a brand new and completely open schedule. How do you think you will fill that time? You need to plan for the cost of any hobbies, events or trips you hope to make during your golden years.
In addition, you also need to budget for your day-to-day life. Some retirees pay off their mortgage before they leave the workforce, but there are other monthly expenses to consider. For instance, you still need to pay utilities and buy food.
Knowing your expectations will help you determine how much you need for both necessary and unnecessary costs. Of course, you also should plan based on your projected lifespan. Someone retiring in their 50’s probably expects to live another three to four decades. In that case, you need enough savings to allow you to live out your desired lifestyle for that term.
Make a Plan for Taxes and Withdrawals
Taxes don’t go away just because you stop actively working. And retirees have to be particularly mindful of them, especially if they retire early.
When you retire, you probably want to start dipping into your employer-sponsored retirement plan. But while accounts like IRAs and 401(k)s grow tax-free, they still require taxation during withdrawals. And retiring early can come with its financial drawbacks in this regard. In some circumstances, individuals aged 55 can withdraw from their 401(k) savings without penalty, thanks to the Rule of 55. But most of the time, you have to wait until age 59.5. Retiring earlier than 55, however, means you must pay a 10% penalty tax on any withdrawal amount.
That’s why some retirees consider Roth IRAs. You contribute to them on an after-tax basis, so you don’t have to pay taxes upon withdrawal. Creating a mix of retirement accounts may allow you to enjoy a mix of tax benefits and avoid the bulk of them in retirement.
Something to keep in mind as well is relocation. Some retirees think about moving during retirement, whether to downsize or be closer to family. Certain states are more retirement tax-friendly, which can help the financially concerned retiree. The most tax-friendly states include Alaska, Florida, Georgia, Mississippi, Nevada, South Dakota and Wyoming. These states either have a significant tax deduction on retirement income, no retirement income tax or no state income tax.
Other states come with tax benefits as well, though. Because of this, it may be worthwhile to research the tax laws in the state you may spend your retirement in.
Figure Out Your Health Insurance Options
For many, you receive your healthcare through your workplace. While incredibly convenient, it only lasts through your career. Once you retire, navigating health insurance comes with a few extra hurdles, particularly if you retire early. The age of eligibility for Medicare, a federal health insurance plan, is 65, which means you have a gap of 13 years without coverage if you retire at 52.
Living without health insurance is a major financial and potential health risk. Many retirees do not realize how much their medical costs actually total up to while on health insurance. In other words, going without it can leave you vulnerable financially and medically.
The good news is that there are a couple of options to help in the meantime. For instance, COBRA allows workers and their families to extend their group health insurance benefits for a limited period. However, the cost is usually high compared to insurance as an employee.
You can also join your spouse’s health insurance plan if they still work. This will likely be lower cost than securing your own coverage.
But, again, situations vary. If a spouse has a chronic condition, it may be cheaper to pursue a plan independently. You can purchase a private health insurance policy in that case – HealthCare.gov offers a plan finder tool. Or, you can search the public Health Insurance Marketplace.
There is no one-size-fits-all retirement plan because everyone’s resources, needs and wants are different. Some may be able to save less, while others need to save more. What matters is how well your plan supports your retirement vision. The key to any strong retirement plan is careful investing, saving and contingency plans. Give yourself multiple opportunities to adapt as you go along. If you need help navigating changes in your life and how they affect your retirement, consider speaking with a financial advisor. They can help you evaluate your current situation and guide you through your next steps.
Tips for Retiring Early
- There is an entire subsection of financial advisors who specialize in retirement planning. Professional guidance may be key if you want to fast-track yourself to retirement by age 52. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If there is anything a hopeful early retiree should know, it’s “the earlier, the better.” The sooner you start saving and investing, the more secure your finances will be. So, begin planning as soon as possible to maximize your retirement funds.
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