“Do I have to wait until 65 to retire?”
We hear that question a lot from clients in their early to mid-50s who are thinking about the possibility of early retirement. Our answer depends on a host of factors, including their health, how much they have saved, whether they enjoy their job, etc.
Sometimes it makes sense to wait until your mid-60s or even later to retire. But some people might be able to consider retirement at 59½. Let’s take a look at some of the benefits and why retiring earlier might be a good decision for you.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The benefits of retiring at 59½
Penalty-free withdrawals. Reaching the age of 59½ is a significant milestone in retirement planning. It’s the age when you can begin to withdraw from your retirement accounts, such as IRAs or a 401(k), without incurring a 10% early-withdrawal penalty.
The ability to access these funds without penalties can provide substantial financial flexibility, especially if you haven’t reached the age where you’re able to begin taking Social Security benefits as income.
Tax-planning opportunities. One of the significant advantages of retiring early is the opportunity for strategic tax planning. With your income likely reduced, you may fall into a lower tax bracket, which allows you to make strategic withdrawals and Roth conversions. These actions can help maximize your income and minimize your tax liabilities.
Leveraging the standard deduction and potentially lowering the taxation on your Social Security benefits are additional perks.
More time to pursue new interests. Of course, one of the best things about retirement is reclaiming your time! Retiring earlier potentially gives you more years to see the world, pursue a new vocation or simply spend more hours doing the things you love to do.
Things to consider before retiring early
Of course, there are some things to consider before making the early leap into retirement. They include:
Having sufficient savings. The biggest question is whether your financial nest egg is sufficient to support you throughout your retirement years.
It's crucial to have a comprehensive financial plan that takes into account your current savings, expected expenses and potential future adjustments such as inflation and rising health care costs.
I always recommend consulting with a financial adviser who can help tailor a plan that’s flexible enough to adapt to these variables.
Optimizing Social Security benefits. Another critical factor is the timing of your Social Security benefits. While you can begin to withdraw as early as age 62, delaying until age 70 can significantly increase your monthly benefit.
By relying on withdrawals from tax-deferred accounts during your early retirement years, you can optimize your tax outcomes and secure a higher Social Security income in the future.
Addressing health insurance gaps. Medicare eligibility begins at age 65, meaning you will need to secure affordable health insurance for the years between early retirement and Medicare eligibility.
The Affordable Care Act can provide the necessary coverage, or you can consider getting a part-time job at an employer that offers health benefits to part-time workers.
Working part time. Consider the psychological and social benefits of part-time work. For some of our clients, continuing to work, even on a limited basis, provides personal fulfillment, community involvement and supplemental income.
This approach also reduces the rate at which you need to withdraw from your retirement accounts, allowing your savings to last longer.
Planning your legacy. Retiring earlier may potentially reduce the financial legacy you leave behind. However, this trade-off allows you to enjoy your hard-earned savings for personal experiences and activities while you are still healthy and active, which we always encourage our clients to do.
The key is to define what constitutes "enough" and understand that your financial legacy is just one part of your broader life story.
The importance of financial advisers
Working with a knowledgeable financial adviser can provide the confidence and clarity you need to make such a pivotal decision. Expertise in taxes, the markets, Social Security and income planning can ensure that you retire comfortably and realistically.
The right adviser can also help to continuously adjust your retirement plan as your needs and circumstances evolve.
Retiring at 59½ offers numerous advantages, from tax efficiencies to enhanced quality of life. Understanding the complexities involved and planning accordingly can make early retirement a practical and fulfilling option.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Related Content
- How to Retire Early in Six Steps
- Retiring With a Pension? Four Things to Know
- Are You a 'Midwestern Millionaire'? Four Retirement Strategies
- You’re 62 Years Old With $1 Million Saved: Can You Retire?
- Do You Have the Five Pillars of Retirement Planning in Place?
-
Donating Complex Assets Doesn't Have to Be ComplicatedIf you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Travel trends you can expect this summerThe Kiplinger Letter Domestic trips will trump foreign travel amid economic uncertainties, though some costs are down.
-
Donating Complex Assets Doesn't Have to Be Complicated
If you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Think a Repeal of the Estate Tax Wouldn't Affect You? WrongThe wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
In Your 50s? We Need to Talk About Long-Term CareMany people don't like thinking about long-term care, but most people will need it. This financial professional recommends planning for these costs as early as possible to avoid stress later.
-
Retire in Costa Rica for Expat HeavenWhen you retire in Costa Rica, you get natural beauty, ease of relocation and affordability. Will you become a part of its thriving expat community?
-
Over Half of Americans Stumble Financially After Losing a Loved One. Are You Prepared?Losing a loved one can be overwhelming, and for many, it also puts an unexpected strain on their finances, a study shows
-
Social Security Pop Quiz: Are You Among the 89% of Americans Who'd Fail?Shockingly few people have any clue what their Social Security benefits could be. This financial adviser notes it's essential to understand that info and when it might be best to access your benefits.
-
Want to Avoid High Blood Sugar as You Age? Stay MarriedA healthy blood sugar level can help you avoid type 2 diabetes as you age. If you're married, you can thank your spouse for making that a little bit easier.
-
New Bill Would Lower Age to Contribute to 401(k)s to 18 from 21. What You Need to KnowThe bipartisan Helping Young Americans Save for Retirement Act would lower the minimum age for participants in workplace retirement plans from 21 to 18.
