The 60s are probably the most common age that Americans retire during. Retiring at age 59 is a possibility, though, with some proper planning. For most people, once they’ve turned 59.5, they can begin withdrawing from their tax-advantaged retirement accounts without penalty. However, under certain circumstances, you can even withdraw penalty-free from these accounts at age 55 using the rule of 55. Preparing to retire by age 59 calls for evaluating the amount of income you can produce in retirement, estimating the expenses you expect to incur and how you can make up for any shortfalls.
Consider working with a financial advisor as you create or modify your retirement plans.
How to Retire at 59: Projecting Your Income Potential
Start your earlier retirement planning effort by projecting how much income you can generate in retirement. By beginning here, you’ll have an idea of what kinds of decisions you can make regarding your retirement. For instance, let’s say you have family in New Jersey that you’d like to retire near. New Jersey is a notoriously high-cost state, so it would be helpful to understand your income before you choose to move there.
Here are the major sources of income you might use in retirement:
- Social Security benefits: You cannot claim these benefits before age 62, so you’ll need other sources of income for the interim.
- Tax-advantaged retirement savings accounts: IRAs, 401(k)s and other retirement accounts can be tapped without a 10% IRS penalty after age 59.5. However, you may also qualify for penalty-free withdrawals at age 55 if you leave your job during or after the year you turn 55. It also doesn’t matter whether you were fired, laid off or quit.
- Pensions: Pensions are less common than they once were, but some workers still receive them. Depending on the pension plan’s rules, you may be able to start receiving benefits by age 59.
- Savings accounts and CDs: You can use these to fund your retirement without any tax restrictions. They’re also some of the most reliable, low-growth investments you can make.
- Taxable investments: Stocks, bonds, ETFs and other securities can be sold to earn you capital gains. These are taxed much more favorably if they qualify as “long term” gains.
- Home equity: Home equity loans and reverse mortgages allow retirees to tap the value in their homes to generate income to cover retirement expenses.
- Wages from part-time employment: Working limited hours at a job you enjoy can be a pleasant way to boost your income and emotions during retirement.
- Inheritances: Each year, about $350 billion is transferred from one generation to the next, according to the Federal Reserve. If you anticipate an inheritance, the assets could be used to produce retirement income.
- Annuities and cash-value life insurance: These insurance-based tools can provide guaranteed income for a set number of years, or as long as you live.
- Rental income: If you own real estate, the income you receive from rent can also help with your retirement expenses.
How to Retire at 59: Budgeting Your Expenses
After assessing your income-producing potential, estimate your post-retirement expenses. This is where many of your retirement decisions will be made, as it should be quite obvious what areas and types of homes you’ll be able to afford when accounting for these costs.
Here are some common expenses retirees face:
- Housing: Rent, mortgage, utilities, insurance, homeowner’s association fees, repairs and maintenance are all potentially part of post-retirement housing costs.
- Healthcare: The older you get, the more you’ll typically spend on healthcare.
- Taxes: Some states are more tax-friendly than others, in terms of income taxes, property taxes and sales taxes. The key is to try and balance where you can afford to live with where your heart is.
- Food: Groceries are unavoidable costs, while dining out is an optional expense.
- Transportation: The costs of car ownership or using public transit are hard to avoid, and traveling by air or other means for recreation can be a significant optional cost.
- Miscellaneous: The small necessary costs of running a household along with options like cable TV, streaming subscriptions, magazines, newspapers and theater tickets could all be part of this.
- Other costs: If you have children who need help with college, or you want to contribute to charity, these expenses need to be added to your retirement budget.
Rather than preparing a detailed budget, you can take a percentage of your pre-retirement income and use that as a rough-and-ready estimation of post-retirement spending. Many advisors recommend using 60% to 80% of your income before retirement as a guide to how much you’ll spend after leaving the workforce.
How to Retire at 59: Major Considerations
Retiring at age 59 isn’t like retiring at other ages. Particularly because of Social Security, it’s often more challenging than retiring at 62 or older. Of course, each person’s own situation is unique to what feels like a near-impossibility to one can seem like a breeze to another. Here are some major factors to consider:
- Social Security: You can’t claim Social Security benefits before age 62 unless you qualify as “disabled.” The average monthly benefit in 2022 is $1,657 and the maximum is $4,194. The biggest benefits go to high earners who delay claiming benefits until age 70. Whether you claim early or late, you’ll need to come up with the money some other way for at least the first three years, until you reach 62. This Social Security benefits calculator can help you decide when to claim.
- Medicare: This will cover your healthcare costs once you reach age 65. Before then, you’ll need to find insurance in the private sector. You may be able to pay to keep coverage for a limited time under your previous employer’s plan. After that, options include paying for one of the plans offered under the Affordable Care Act.
- Retirement account withdrawals: After 59.5, you can withdraw from tax-advantaged retirement plans without penalty. Again, if you quit, are laid off or are fired from your job during the year you turn 55 or later, you can make penalty-free withdrawals.
- Life expectancy: One of the most important factors in retirement planning is how long you expect to live after retiring. You can use Social Security’s basic life expectancy calculator to get an idea.
How to Retire at 59: Ways to Increase Your Income & Reduce Your Expenses
If your income and expense figures aren’t matching up, you’ll need to either increase income or reduce expenses to fill the gap. Here are ways to do that.
- Save more. The bigger your retirement nest egg, the more income it can produce. To take advantage of compound interest, start saving earlier. Max out tax-advantaged retirement plans, especially those that feature an employer match. Then start a taxable investment program.
- Take more chances. Adopting a more aggressive investment strategy potentially can increase the size of your assets at retirement as well as their ability to generate income.
- Work part-time. Many retirees choose to work part-time to generate more income.
- Where you retire can affect your ability to retire. The cost of living in Mississippi, for instance, is half the cost of living in Hawaii.
- Pay off debt. If you pay off your mortgage, you can probably retire sooner because housing costs are a major expense for everyone, including retirees. The same goes, to a lesser extent, for auto, student and other loans.
Retiring at age 59 is (sometimes) possible if you plan and prepare for it. Start by knowing how much income you can generate after leaving work. Then prepare a post-retirement budget. Fill any shortfalls by saving more, changing your investment style or considering part-time work. Check out how people who want to retire earlier than 59 are going about it.
Retirement Planning Tips
- The decision about when to retire is one of the most important of our entire lives. It only makes sense to approach this decision with the help of an experienced financial advisor. 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.
- Use SmartAsset’s free retirement calculator to gauge your progress toward the retirement goals you have set for yourself.
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