Society of Certified Senior Advisors: Are You Prepared to Retire Before 60?

More Americans are saying they want to retire early, but having a strategy in place is another thing.

After a bad day at the office, thoughts of retiring early are bound to run through your mind. Isn’t it time to quit the rat race, wake up whatever time you feel like, maybe even take a long vacation at the beach like you’ve always dreamed about?

The average American today intends to retire at 62, two years sooner than surveys showed just five years ago, according to MassMutual’s 2018 State of the American Family survey. And a full 40 percent want to retire before the age of 60. This may be because 401(k) and individual retirement account (IRA) balances have increased with the stock market rise in recent years. However, there’s a lot more to consider besides your current retirement nest egg before you’re ready to kiss your cubicle goodbye.

Estimate Expenses

Before you can step into retirement, you need to know exactly where you stand financially. Use a free budget tool such as Intuit’s Mint to find out where your dollars are going and how many are leaving you every month. With your current income and expenses on paper, you can address changes that will happen after you retire and see if you are financially prepared.

Start by figuring out your future income. Will you have a pension, an annuity or Social Security to count on every month? Have you figured out when you should take Social Security, which can be as early as age 62 or as late as age 70? Generally, your check increases about 8 percent per year the longer you wait, but that’s not always true. And if people in your family seldom live beyond their 70s, it could favor an earlier start. Divorced? You may find you’ll get a bigger check by claiming half of what your ex is eligible for when you reach full retirement age, but you need to meet certain guidelines. Check Social Security options for more information.

Don’t enter retirement with a load of credit card debt. Revolving debt can spiral out of control, leaving you to spend your “fun money” on interest payments. Many professionals also advise retirees to have their home paid off so that an unexpected medical or other expense doesn’t threaten their housing.

Your employer will no longer cover health care, so you’ll have to get health insurance until Medicare kicks in at age 65. The Affordable Care Act guarantees coverage even if you have pre-existing conditions, but pricing varies by location and income. Note that it doesn’t cover dental expenses, and it may come with a much bigger deductible than you’re used to.

Even when you’ve graduated to Medicare, basic care for vision, dental and hearing are not covered. You may purchase additional coverage, but you’ll have to figure in that cost and whatever services it still may not pay for.

Finally, you may want to start off your retirement in travel mode for the first few years. The restaurants you were too tired to go to when working are beckoning every day of the week. You’re ready to start that new hobby, but you’d really like to have your own boat before you join the sailing club. Oftentimes, costs go up, not down, in the first decade of retirement. As we move into our 80s, travel expenses tend to go down, but health costs rise.

Ten Reasons to Keep Working

Many older adults who thought they could quit working find that it’s not financially feasible. The good news is that many studies show a variety of benefits for older adults who remain in the workforce. Here’s a list of 10 good reasons to stick out your job a little longer:

You social Security benefits may be higher.
Health insurance may be cheaper and/or provide better coverage.
Your risk of depression goes down.
You may live longer.
Your cognition may resist decline.
You may be more emotionally stable.
You may avoid having to return to work for financial reasons very late in life.
Your social network is expanded.
You are at less risk for suicide.
You may not like time on your hands as much as you thought you would.

Get Your Portfolio in Shape

In 2017, you could practically throw money at the market and walk away with a 30 percent gain. In fact, it’s been a good ten years and they may have lulled you into thinking that you can ignore your portfolio. Nothing could be further from the truth. Take a look at your asset allocations now, and make sure they’re diversified so that a market downturn won’t devastate your savings. Also, remember that any money you withdraw from a traditional IRA is going to be taxed at your normal rate, not the lower capital gains rate.

It could make sense to make withdrawals from a taxable IRA before required minimum withdrawals go into effect at age 70 1/2. It all depends on your marginal tax bracket and other sources of income. You may even want to roll over some of that money to a Roth IRA, where withdrawals are not required, but are always tax-free.

Finally, make it easier on yourself (and your heirs) by moving all of your retirement accounts to a single brokerage. Some people think back to 2008 and figure it’s safer to spread their money out with a variety of firms in case one fails. Actually, the underlying assets belong to you. If you invest with a trustworthy brokerage firm, there’s very little safety to be gained by having some assets elsewhere. You may also find a bigger balance with one firm increases your access to free services.

Know Your Numbers

More than half of Americans, or 61 percent, don’t know how much money they need to save for retirement, according to a 2018 Bankrate survey. That number includes 56 percent of Gen Xers and 58 percent of baby boomers. Don’t be in that group!

Run your numbers through a robust retirement calculator such as Firecalc. One of the best available, it can analyze permanent or temporary bumps or reductions in income as you age. It also makes available several spending methods, and allows you to input how your portfolio is allocated. The free tool then produces a graph of how your portfolio would have fared over every 30-year (or whatever you choose) period since the stock market opened.

You may find that you need to continue working part time, perhaps as a consultant. You might start a little side business or choose a field completely unrelated to your previous line of work. In addition to contributing to your financial health, studies show this may give a boost to your mental health as well. Working keeps you connected to other people and has been shown to increase self-esteem.