couple discussing early retirement while walking bikes

7 things to consider when preparing for an early retirement

Do you ever dream about retiring early? Maybe you fantasize about traveling the world with your partner or spending long afternoons on the golf course with your friends. Perhaps you’d like to provide childcare for your grandchildren, or maybe you’ve simply “had enough” and are ready for a slower pace of life.

Whatever your reason is for wanting to walk away from work early, it’s essential to enter retirement 100% ready—financially and mentally—so you can live your desired lifestyle in the years (or decades!) ahead.

Before setting an aggressive early retirement goal, here are seven things to keep in mind.

1. The size of your nest egg

According to the CDC, the average life expectancy in the United States is about 79 years old.1 However, it’s crucial that your nest egg can support you into your 80s or 90s—because, in today’s world, more people than ever are reaching these decades.

For someone who retires at age 55, it’s not a far-fetched possibility he or she will need 30 years of retirement income. How much money does that mean? According to the Bureau of Labor Statistics, “older households” (those run by someone 65 or older) spend roughly $3,800 a month, or $45,756 a year.2 That equals $1,368,000 over the course of a 30-year retirement (and that doesn’t take inflation into consideration)!

2. Your debts

Many finance experts will advise you to only retire once your debts are paid off. A monthly mortgage or credit card debt can quickly eat away at your retirement nest egg each month. Making a concerted effort to pay down debt before retiring can create more financial flexibility for you during your golden years

3. Social Security benefits

You may be thinking, “But what about my Social Security benefits?”

The earliest you can start receiving Social Security benefits is age 62, but you won’t receive your full benefits unless you delay your benefits until your full retirement age. For someone born in1960, their full retirement age is age 67.3

Once you start receiving benefits, how much can you expect to get? That depends, but know that the average Social Security benefit currently being paid out to a retired worker is about $1,372 per month or about $16,464 per year.4 The bottom line is, Social Security was never designed to fully replace one’s savings or wages.

4. Health insurance and health care costs

Keep in mind that you aren’t eligible for Medicare until you turn 65, so unless you’re able to obtain health insurance from your spouse’s current employer, you’ll have to purchase your own insurance at a significant premium of anywhere from $400 to $1,000 a month depending on the type of plan you choose.5

You also need to consider and plan for any health care costs you may incur during retirement. Although this amount is uncertain, you need to be ready for the possibility of any injury or illness you may incur. According to Time magazine, the average American couple retiring today at age 65 will need $280,000 to cover health care and medical costs in retirement.6

5. Long-term care costs

One of the greatest expenses in retirement that you need to prepare for is long-term care. According to the Department of Health and Human Services, 70% of Americans over age 65 expect to use some form of long-term care services.7 And long-term care comes at a steep price. A private room in a nursing home costs $253 a day, or $7,798 a month.8

If you opt for early retirement, it’s crucial to ensure you have enough money to cover your expenses today—and in the future, if you need long-term care. This is why a growing number of retirees are turning to long-term care insurance to help protect their life’s savings from the high cost of assisted care services.

6. Your financial legacy

When considering when to retire, it’s easy to get caught up in the here and now, but one thing you should consider is the type of financial legacy you want to leave for your children, grandchildren and beyond.

The earlier you retire, the longer your nest egg needs to last. And the longer your nest egg needs to last, the less you’ll have to pass on to your loved ones. One way to help ensure you have a financial legacy to share with your children and grandchildren, even with an early retirement, is through life insurance.

7. Mental preparation

So far, we’ve focused on financial considerations to make before retiring early, but it’s also crucial to ensure you’re mentally prepared for an early retirement.

Many pre-retirees believe that retirement will feel like one long vacation, but the reality is that suddenly going from a 40-hour work week to zero employment responsibilities can be jarring.

According to U.S. News & World Report, “One study of about 18,000 men from the U.S. and 16 countries in western Europe found that men reported much higher levels of well-being and satisfaction right after retiring, but those levels of happiness crashed soon after.”9

 If you decide to retire early, it’s important to go into retirement with a plan to keep yourself mentally and physically stimulated. Whether it’s immersing yourself in a hobby, volunteering or learning a new skill, having something to fill your days will be important for your mental well-being. You may also consider working part-time. Picking up a job will keep you active for a few hours a week, plus provide a bit of extra income—a win-win!

Are you ready to retire early?

These seven considerations may help you turn your dreams of early retirement into your reality, but if you’re still unsure about taking the leap, a Bankers Life Securities Financial Advisor may be able to help. Get started here.

 

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1Centers for Disease Control and Prevention, Life Expectancy, https://www.cdc.gov/nchs/fastats/life-expectancy.htm, May 3, 2017.
2NerdWallet, Let’s Get Real: What an Average Retirement Costs, https://www.nerdwallet.com/article/lets-get-real-what-an-average-retirement-costs, May 28, 2018.
3Social Security Administration, Full Retirement Age, https://www.ssa.gov/planners/retire/retirechart.html, Accessed 2019.
4USA TODAY, This is the maximum Social Security retirement benefit payable in 2018, https://www.usatoday.com/story/money/personalfinance/retirement/2017/12/04/this-is-the-maximum-social-security-retirement-benefit-payable-in-2018/108185942/, December 4, 2017.
5The Balance, 3 Things to Consider Before You Retire at 55, https://www.thebalance.com/why-retire-at-55-2388841, December 3, 2018.
6Time, Here’s How Much the Average Couple Will Spend on Health Care Costs in Retirement, http://time.com/money/5246882/heres-how-much-the-average-couple-will-spend-on-health-care-costs-in-retirement/, April 19, 2018.
7Department of Health and Human Services, https://longtermcare.acl.gov, February 2018.
8Department of Health and Human Services, Costs of Care, https://longtermcare.acl.gov/costs-how-to-pay/costs-of-care.html, October 10, 2017.
9U.S. News & World Report, Can Retirement Be a Depression Risk?, https://health.usnews.com/health-care/patient-advice/articles/2017-07-28/can-retirement-be-a-depression-risk, July 2017.