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  • Writer's pictureMichelle Marsh

Early Retirement: 5 Factors to Consider Before Making the Leap

Many people fantasize about early retirement, envisioning a life of leisure and freedom. The idea of escaping the daily grind and enjoying more time for personal pursuits is undeniably appealing. However, before making the decision to retire early, it's crucial to consider the practical implications and potential downsides. In this blog post, we'll provide 5 essential factors to consider before leaping into early retirement.

Photo of woman leaping out toward a lush green mountain valley, representing taking the leap of early retirement.

5 Factors to Think About Before Choosing Early Retirement

1. The Impact on Your Retirement Savings

Retiring early means relying on a smaller nest egg for a longer time. Most tax-deferred accounts have an early withdrawal penalty, so expect to lose 10% of your savings if you retire before the age of 59-and-a-half, unless your employer's retirement plan language specifically allows for early retirement. Also, remember your retirement savings will need to last longer, and you won’t have the advantage of compounding interest on your savings. AARP offers insight into the difference this interest makes.

“If you sock away $250 a month — $3,000 a year — from age 25 to age 55, you'll have about $237,000 when you retire, assuming you make no withdrawals and earn an average 6 percent annually on your investments. But let's say you work 10 more years and retire at 65. In that scenario, you'll have about $464,000, nearly double.”

2. The Increase in Healthcare Costs

As we age, healthcare expenses tend to increase. If you retire before qualifying for Medicare (at age 65), you will need to secure private health insurance, which can bring with it quite a sticker shock. As Forbes Advisor notes, you’re probably used to only paying around 18% of your plan’s premium costs, so expect to pay insurance premiums that are double or even triple what you’re used to. The final bill? Don’t be surprised if you pay up to 102% of what your employer’s plan costs.

3. The Cost of Your Post-Work Lifestyle

Consider the type of lifestyle you envision for your retirement and the corresponding costs. Will you be traveling extensively, pursuing expensive hobbies, or maintaining a second home? We all dream of living a great life after retirement, but we don’t always factor in the cost of achieving it. Remember to carefully assess if it's possible to sustain the lifestyle you wish to achieve, especially since you’ll have less time to accumulate savings.

4. Current and Future Obligations

Evaluate your current financial obligations, such as mortgage payments, debts, and educational expenses for children or grandchildren. Additionally, consider any potential future financial responsibilities, such as caring for aging parents or a grandchild. Assess how early retirement may impact your ability to fulfill these obligations.

5. Social Security Benefits

Retiring early will significantly affect your Social Security benefits, greatly reducing them compared to if you waited until full retirement age. “If you were born in 1960 or later, for example, and you start taking benefits at age 62, the earliest age at which you're eligible, your monthly benefits will be 30% less than if you wait until age 67,” says Investopedia. That’s a large portion of cash to help you achieve your ideal retirement flushed down the drain.

Retirement Preparedness for the Right Time

Early retirement can be an enticing prospect, but it's essential to consider the various factors that can impact your financial security and overall well-being. Evaluating the points above will help you determine when you’re best able to retire free of financial burden. However, regardless of when you choose to retire, one certainty will always remain: it’s never too soon to start preparing! In doing so, you’ll retire comfortably and confidently knowing your financial future is secure. Make sure you’re ready by checking out our blog on 10 retirement planning mistakes to avoid and contact RPCSI today.


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