50, 62, 70: strategies for early and late retirement
Retirement looks different for everyone, and there’s no single “right” age to retire.
- Retirement looks different for everyone, and there’s no single “right” age to retire.
- Retiring early can be difficult and expensive, since you need to cover health insurance costs and have a source of income.
- Typically, the longer you wait, the more confidence you’ll have in your assets and sources of income.
Retirement means something different to everyone. For some, it might mean stopping work entirely and relying on Social Security and savings. For others, it might mean moving to part-time work to free up time for family and personal passions. How you envision retirement can have a major impact on deciding when you retire, one of the most important personal and financial decisions you’ll ever make.
In this article, we’ll look at what retirement means at various points between ages 50 and 70, and what to consider when it comes to Social Security benefits, Medicare and health insurance, savings, and debt.
Retiring at 50
Retiring as early as age 50 is one of the more difficult things you could do, though it’s not impossible. One way that people retire early is by living on very little and saving most of their income. Another way is to build and sell a profitable business, or to get passive income through real estate holdings. Other people receive large inheritances that help them retire early. No matter how you slice it, however, retiring early means having a lot of money or assets.
If you do think you’re ready to retire at age 50, here are a few things to keep in mind:
First, remember to account for your health insurance expenses. You don’t qualify for Medicare coverage until you reach age 65, so you’ll have to pay for health insurance for 15 years. Your savings will also miss out on many years of compound interest. While this isn’t exactly an “expense” on your balance sheet, this is money that you’re missing out on in the long-run.
You’ll also want to make sure that you’ve paid off any outstanding debts. Making payments on loans or credit cards can be a major expense that reduces how much money you have to spend on more enjoyable pursuits. Think about how much confidence you have in your assets and savings – remember, you’re likely going to have to cover expenses for another 30 or 40 years.
Before you make the plunge, think about what your retirement is going to look like. Are you going to stop working entirely, or move into part-time work? How are you going to spend your free time? The last thing you want to do is retire early and then figure out that retirement is boring!
Retiring at 55
Retiring at 55 looks a lot like retiring at 50. You’ll still want to ensure that you have no debt and can afford paying for your own health insurance, and that you have confidence in your savings. But there is one major difference – while you usually can’t take money out of retirement accounts until you turn 59 ½, a special rule in most 401(k) plans allows you take money out between the ages of 55 and 59 ½ as long as you retire after your 55th birthday. Using money from your 401(k) and other retirement accounts while delaying taking Social Security benefits can be a great strategy for early retirement, assuming you have enough in savings to cover your expenses for 10 to 15 years.
Retiring at 62
Age 62 is the earliest that you can start receiving Social Security benefits, so on the surface, it might seem like the best age to retire. However, it’s also when your Social Security benefits are smallest – benefits increase every year until you turn 70, so the longer you can hold out, the larger your Social Security benefit check will be.
Social Security is guaranteed, inflation-proof income that will last the rest of your life, regardless of your other assets. Your retirement will likely last two to three decades, and you’ll want to ensure that you get the largest possible Social Security benefit so that you can cover your fixed expenses for that entire period of time.
You can retire without taking your Social Security benefits, though – a common strategy is to cover your expenses with your retirement accounts, or a combination of savings and working part-time, and delay taking Social Security. Because Social Security benefits are guaranteed no matter how long you live, and savings are either volatile or insufficient, this is often seen as a good trade-off.
Don’t forget that if you retire before you turn 65, you’ll have to pay for your own health insurance coverage, as Medicare hasn’t kicked in yet.
Retiring at 70
While you don’t have to quit working when you hit 70 if you don’t want to, there’s no point in waiting much longer to retire. At age 70, your Social Security benefits are the highest they’ll ever get so it's sensible to make sure you start receiving those benefits. For retirees born before July 1, 1949, IRA and 401(k) funds are subject to Required Minimum Distributions (RMD) and must be withdrawn by April 1 of the year following the calendar year in which you reach age 70 ½. For retirees born after July 1, 1949, the first required withdrawal of IRA or 401(k) funds must happen by April 1 of the year following the calendar year in which you reach age 72.
No two retirements are alike, and no matter when you’re planning on retire, you should chat with a Certified Financial Planner® who can help you assess your entire financial plan before you make any major decisions.