Could You Retire at 59½? Five Considerations

“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.

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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.

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