Most active adults on a retirement-planning journey have considered the option to retire at an early age, but the implications of this choice often seem unclear. Early retirement can provide an ideal option for some active adults, though the decision requires a comprehensive understanding of financial readiness, health considerations, and personal goals.
It’s easy to understand why more and more people consider early retirement. An early retirement allows active adults to stop working and start enjoying the freedom of retirement much sooner. Early retirees tend to prioritize enjoying their golden years as soon and for as long as possible.
For those interested in early retirement, we’ve created an overview detailing what it is, what to expect, and how to prepare for starting your retirement sooner rather than later.
What is Early Retirement?
Many believe the standard age for retirement in the United States is determined by Social Security, when in truth, it’s established according to eligibility for Medicare benefits. Currently, 65+ active adults can access Medicare benefits. Anyone who retires before turning 65 technically enjoys what is considered an early retirement age.
The Appeal of Early Retirement
Active adults decide to retire early for a number of reasons, chief among them that they have the financial means to do so. Some early retirees do not feel the need to work anymore if they already consider themselves financially independent. For those with retirement savings accounts that have matured enough to perpetually support a desired lifestyle, active adults may feel that it is no longer financially necessary to continue working.
Another common reason for early retirement is that active adults do not wish to spend any more of their healthy years on work. Instead, active adults with this mindset choose to live out their lives in retirement doing the things they want to do. Early retirees would rather spend their time traveling, playing sports, and staying active while they feel physically and socially fit enough to do so.
Partial Retirement
Some consider partial or phased retirement instead of committing fully to an early retirement. Partial retirement can come in many different forms, including going part-time at your current job, transitioning to a less-strenuous and time-consuming role within your field such as consulting or freelancing, or perhaps even accepting a remote or hybrid job that requires less time at the office and more time at home. Partial retirement helps ease the financial and emotional challenges of retirement.
Financial Considerations
Navigating retirement finances can be complex, overwhelming, and intimidating. This is why we always recommend that active adults consult a trusted financial advisor far ahead of time. Those nearing early retirement age should consider creating a sample monthly budget. This is a good way to determine how much they will need during retirement to support their desired lifestyle. A long-term plan with a clear budget and attainable financial goals can ensure retirees can sustain their lifestyle into retirement.
Many active adults choose to utilize well-known financial strategies like the Financial Independence, Retire Early (FIRE) movement. The FIRE movement includes rigorous savings requirements that suggest that those who want to retire early should live a frugal lifestyle, save a large portion of their yearly income, and enact aggressive investment strategies to maximize retirement income.
Social Security and Retirement Income
One of the most important considerations for securing financial independence in retirement is Social Security. Many myths surround Social Security, one of the most common is that you cannot receive benefits before 65. Early retirees can actually begin collecting Social Security benefits at 62, though they will not qualify for 100% of their benefits until 66.
Those who begin collecting Social Security benefits as early as possible at 62 will receive about 75% of their total benefits. This reduced amount may be worth it if retirees have other means to compensate for their income. Another Social Security consideration is that one can receive up to 132% of their monthly payment by deferring benefits until age 70. If early retirees can live off of other income before opting into Social Security, their patience will be rewarded.
Social Security benefits should not be a retiree’s only source of income. Social Security benefits should be combined with savings accounts, 401(k)s, pensions, and IRAs as well as income from post-retirement employment or investments. Savings, investments, and passive income should be utilized in harmony to ensure retirees receive the maximum amount of financial support.
Consider Tax-Friendly States and Downsizing
Many early retirees choose to keep earning income through post-retirement employment like advising, teaching, babysitting, or part-time work. Making investments in stocks or the real estate market is another way to try to earn some extra cash. However keep in mind that market fluctuations can make this method of income risky. Early age retirees interested in entrepreneurship can start a franchise, fund a small business or even sell hobby crafts they create. Keep in mind that retirees can only make so much extra income before their Social Security benefits begin to decrease.
Where retirees live also greatly impacts finances, with some states offering considerable tax breaks for active adults. Active adults may also consider downsizing when they retire, saving money by living in a smaller, more efficient, low-maintenance home. Living in an age-restricted community can help save money, with many communities offering affordable homes as well as low-maintenance lifestyles.
Lifestyle Changes and Adjustments
Retirement often comes with a stark lifestyle change for active adults, especially those accustomed to working full-time jobs. The break from a routine work schedule can leave retirees feeling uncertain and directionless. On the other hand, openness comes with the freedom to pursue new opportunities and passions. After some time to adjust, retirees can quickly find a new groove that centers around what they want to do.
Staying Social and Connected
Many people feel the best way to enjoy retirement is to spend as much time with loved ones as possible. Without the constraints of working, retirees are free to visit family and meet with friends who don’t live nearby. The time spent with loved ones can be a priceless commodity that retirement offers in abundance.
Volunteer Opportunities and New Careers
Active adults who crave the sense of purpose they had before retirement can get involved in their local community by volunteering. Organizations always need volunteers to help those in need, work with kids, or foster animals waiting for a new home.
Many retirees pursue part-time jobs, an ideal way to enjoy a new career and make some extra cash. Retirees interested in part-time jobs can work a job they enjoy rather than one that simply makes the most money. Just another freedom that comes with the golden years.
Exploring Hobbies and Activities
Many retirees, especially those living in age-restricted communities with amenities, will find ample opportunities to explore new hobbies. Whether it’s playing pickleball, taking an art class, or joining a fishing club, retirement offers more time for fun .
Traveling the World
Another popular pastime for retirees is traveling. Retirees can visit destinations they always wanted to now that they have the time to do so. Without having to worry about asking for days off at work, retirees can easily spend a week or two abroad. For those who don’t want to travel alone, many 55+ communities host travel clubs allowing homeowners to venture out with neighbors and friends.
Is Early Retirement Right for You? Questions to Ask Yourself
You should carefully consider and plan the decision to retire early. Active adults nearing the early retirement age should ask themselves important questions to ensure they are ready.
Am I financially prepared to retire early?
A good way to test financial readiness is to create a retirement budget to determine how long a combination of Social Security and retirement savings can last after retiring. One could also test out a sample monthly budget to see if that amount will support their desired lifestyle.
Am I where I want to retire or do I want to move?
Many active adults may want to opt for retirement destinations like Florida, Arizona, or Tennessee rather than staying put. Those thinking about retirement should also consider an age-restricted community for a number of reasons, including living in homes that fit the 55+ lifestyle, convenient amenities, and like-minded neighbors.
Will I have access to adequate healthcare benefits?
Retirees become eligible for Medicare at 65, so those who retire early will not receive coverage.Those wanting to retire early should consider other options and ensure that they are covered through another source. One popular option is the Consolidated Omnibus Budget Reconciliation Act (COBRA), a type of gap insurance that allows retirees to keep their previous insurance while they find a new one.
Should I retire abruptly or phase into it gradually?
Some may have means to retire early and live off of their benefits and savings ad infinitum. Other retirees may want to consider phasing into retirement gradually to solidify retirement success. Some may do this by going part-time at their current job to keep their benefits. Others consider using their hard-earned experience to become a professional advisor in their field. Another option is to find a remote position that allows more time at home.
Am I emotionally prepared to retire early?
Everyone always considers the financial logistics of retirement, but not everyone takes into account the emotional toll of the change. Retirement can be a challenging but rewarding transition, one filled with new opportunities and more time spent with loved ones. Active adults considering early retirement should ask themselves what kind of lifestyle they want in this new stage of life.
Final Thoughts on Early Retirement
Early retirement allows active adults to begin enjoying life outside work sooner without sacrificing their good health or financial stability. Retirement is what you make it, which is why the majority of retirees choose to fill their lives with loved ones, fun new hobbies, and travel. With so much to consider when it comes to an early retirement age, here are some key points to consider:
- Meet with a trusted financial advisor to ensure a successful and sustainable early retirement.
- Verify access to healthcare benefits during early retirement before becoming eligible for Medicare at 65.
- Entertain partial or phased retirement to ease the transition from working to relaxing.
- Solidify your retirement goals and focus on how you envision your ideal lifestyle.
- Contact 55places.com to connect with a real estate expert to help you find the perfect home for your retirement years.
