Many of our clients and friends have been expressing their desire to retire “early” or before age 65.  As I mentioned in our last blog, working until 65 is what we always just “did.”

Well, pressures from COVID and general workforce stress have caused many to begin rethinking their options.  We’ve been fortunate to help bring this vision forward for many families and have learned much during the journey.

As you think about the possibility of retiring early—before age 65—there are many factors to consider, both in terms of planning and the exciting opportunities it can bring. Here’s a beginning framework to help you consider this big transition:

Key Issues to Address:

  1. Healthcare Coverage:  Without access to Medicare until age 65, securing affordable health insurance is a critical step. We can explore COBRA, private insurance, or marketplace options to ensure continuous coverage.
  2. Income Strategy:  You will need a clear plan for drawing income from your savings. We will evaluate your 401(k), IRAs, pensions, and other investments to minimize taxes and maximize sustainability. Considering the taxable impact of your new income strategy is a huge part of this work.  Having the right assets in the right accounts becomes vital.
  3. Social Security Timing: Deciding when to claim Social Security can significantly impact your long-term financial picture. Retiring early might mean delaying benefits to maximize lifetime payouts (or not !) 😊
  4. Lifestyle and Budgeting:  Without a paycheck, aligning your expenses with your retirement income is vital. This might include reviewing discretionary spending and planning for potential inflation.  We also will lay out a play for how your investments will replace your payroll.  In many cases our clients will have a monthly “paycheck” come from their investments to replace their employment income.

Steps to Make It Happen:

  1. Financial Readiness Assessment:  Together, we will review your current assets, savings rate, and any outstanding debt to ensure you’re financially prepared for early retirement.  We will determine your specific income sources, their tax impact and how to make it work for the long-term.
  2. Risk Management:  Creating a strategy for market fluctuations and unexpected expenses (e.g., healthcare or home repairs) is crucial to protecting your nest egg.  Long-term care is always front and center as well.
  3. Estate and Tax Planning:  Early retirement provides an opportunity to address long-term tax strategies, such as Roth conversions, which may reduce taxes in later years.  Wrapping in our family’s charitable intent is also good work during these conversations.

Opportunities of Retiring Early

Last week I discussed laying out your ideal week.  This can become even more important if you’re retiring early.  Time spent will definitely change!

  • Pursue New Passions: Early retirement offers a chance to focus on hobbies, volunteer work, or even starting a part-time business.
  • Travel and Experiences: With fewer time constraints, you can plan trips or experiences while you’re still in peak health and mobility.
  • Invest in Relationships and Well-being: Use your time to nurture relationships, engage in community activities, and focus on your physical and mental health.

Early retirement can be an incredibly fulfilling stage of life if approached with a thoughtful plan. These can be really fun adventures to explore and whether it’s a full stop or a downshift we can help craft a plan that works!