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How to Retire at 61: Step-by-Step Plan


After a lifetime of work, you may be considering retiring a few years before the traditional retirement age of 65. The stock market has performed well, your home has a lot of equity and you want to spend more time with family and friends while you’re still in good health. Here are some key considerations to help you decide if you can retire at 61. Consider working with a financial advisor to maximize your opportunity for a financially successful retirement.

How to Retire at 61

Many people are working until age 65 and beyond, but not everyone wants to continue working longer than they have to. If you’ve hit your “magic number” a few years early, there’s no reason why you should continue working if your financial plan is already set. The following considerations may be more applicable to some than to others who are considering an early retirement.

When to apply for 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. Full retirement age is considered age 67 for everyone born in 1960 or later. If you start benefits at 62, your monthly income will be reduced for the rest of your life. Every year that you can delay claiming Social Security benefits, your monthly benefit will increase by 8%.

Max out retirement accounts every year

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 every year. Many investors choose to do pre-tax contributions in their 401(k) and post-tax contributions to their Roth IRA as part of their retirement tax planning.

When you turn 50, you’ll also do the “catch-up” contributions of $6,500 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.

Maintain a diversified portfolio and rebalance annually

Diversification and rebalancing are two of the biggest factors in the success of your financial strategy. A diversified portfolio ensures that you have 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 is the periodic reset that prevents you from becoming too concentrated 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.

Invest through a brokerage account

Couple analyzing their financial condition

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.

Guaranteed income from an annuity

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  21 to 24 years. While many investors focus on stocks and bonds for retirement income, an annuity can provide guaranteed income for the rest of your life. It is a good idea to consider an inflation rider on your annuity to maintain your buying power.

Pensions, rental properties and other income sources

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. These can be a valuable way to diversify your investment portfolio. However, remember that many of these investments are not very liquid if you need to withdraw money.

Health insurance until you qualify for Medicare

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. To minimize your insurance premiums, consider increasing your deductible, shopping your plan every year and paying cash for some procedures or prescriptions. In some cases, your doctor may charge less if you pay cash than use insurance.

Estate planning to control assets and minimize taxes

While you are expected to live for 20-plus years, accidents and illnesses can cause your lifespan to shorten. It makes sense to have a thorough estate plan that minimizes taxes, carries out your wishes and enables loved ones to make decisions for you. In addition to a living trust and will, you should also consider other estate planning documents. These documents include a healthcare power of attorney 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.

The Bottom Line

lots of spare change and scraps of paperRetiring 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.

Tips on Retirement

  • 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 provides valuable advice, offers investment options you may not have considered and shares the pros and cons of your decisions along the way. 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.

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