Want To Retire at 55? See If You Can Answer These Five Questions

Retiring at 55 might seem too young. You can easily work another decade. Plus, you can’t collect Social Security until 62 at the earliest. Even then, you’re losing money by receiving benefits before your full retirement age (FRA).

Nonetheless, millions of people strive to retire at 55 and don’t care if they have to do it without Social Security or without Medicare (which doesn’t kick in until 65). They put a greater value on life outside the office, even if it means downsizing their lifestyle.

“A lot of people who retire early worry about passing away early and not having time to sit back and relax in retirement,” says Tyler End, CFP and CEO/Co-Founder of Retirable. “Others don’t like their current job.”

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Either way, the ones who pull it off tend to have a plan in place to sustain themselves for what can amount to decades without a paycheck. They also tend to have saved a lot, have minimal debt and a clear vision for what their post-retirement life will look like, says Sabino Vargas, CFP, senior financial advisor at Vanguard.

If you check off all those boxes, then you’re on your way to retiring at 55. If you are still unsure, see if you can answer these five questions first.

1. Will you work part-time or retire completely?

At 55, you are still young enough to work, but will you? Some people retire completely, using their newfound time to travel, pursue a hobby or kick back and relax. Others consult, work part-time or pursue a new career.

Regardless, what you do will have an impact on how much you’ll draw down and your quality of life in retirement. The more income you bring in, the less you have to rely on your savings and the longer it can grow.

“Working part-time is a great thing and it's not just the cash,” says End. “It's the time spent engaging with people.”

2. What income sources will you use to avoid penalties?

Unless you leave your job in the year you turn 55 or older, you won’t be able to access your 401(k) penalty-free until 59-½. In that case, you need to ask yourself what income sources you will rely on until you reach the penalty-free age, says Vargas. And what about inflation and unexpected expenses? Have you calculated them into your budget?

“Those best positioned to retire early typically have significant savings in taxable accounts,” says Vargas. “They also have alternative income sources to bridge the gap until traditional retirement benefits kick in."

3. Are your savings fine-tuned for a long retirement?

Since you're retirement has a longer drawdown period than usual, you'll need your money to work harder for you. That means having you’re investments allocated in a way that will sustain you for the decades to come.

“You can’t afford to invest too conservatively,” says End. While many retirees go into protection mode with their investments, at 55, you don’t have that luxury. “You need to protect the nest egg and invest for growth that outpaces inflation.”

4. Do you know how you’ll cover healthcare costs?

Healthcare isn’t cheap. At 55, you have ten years until Medicare kicks in, which means you're looking at ten years to self-fund your health care.

If you are healthy, you may be able to get away with a lower cost plan, but if you have any conditions or preferred doctors or family members to support, it can get pricey.

“Your healthcare costs change drastically at different segments from 55 until Medicare,” says End. “If you haven’t spent quite a bit of time with a financial adviser understanding how the cost impacts retirement at different ages, you should.”

5. What will you do once you retire?

Whether you plan to work in retirement or pursue a hobby full-time, the key to a happy retirement is having a plan for how you’ll spend your time. Without one, you can easily fall into a depression. Everyone needs a purpose, a reason to get up each morning.

“You have to think about what your life will look like if you are in retirement for 50 years,” says End. “Don’t focus on the dollar and cents. What does life look like?” If you have a clear idea of how you’ll spend your free time, then great; if you are unsure, think that out before retiring. You may find a phased retirement is a better option for you.

Don’t let your dream escape you

Retiring at 55 is what dreams are made of for many people, but it doesn’t have to be only aspirational.

If you saved enough money, have income to bridge the gap until retirement benefits kick in and have a plan for how you’ll spend your time, then nothing is stopping you.

If you don’t, work a couple more years or overhaul your lifestyle, and you’ll be on your way to retiring younger.

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