The benefits of retirement at an early age are endless, especially if you were wise and tossed a substantial amount of money aside, or have a stable retirement plan. Most people (60%) when asked if they would like to retire early, said yes. With obvious benefits: more time to do the things you enjoy, travel, grandkids, and hobbies, the list is endless.
However, there are some serious considerations to early retirement that you may want to consider.
HAVING A CASH CUSHION:
Ensuring that you have the cash to retire early, because now you are going to need quite a bit more money than a person who retires at 62. Did you save like a maniac to be able to do so? Because remember, now that you're not working, it's going to cost a lot more for all those fun things you want to do. Here is a handy retirement calculator to find out if you are really ready to retire: Retirement Calculator.
SOCIAL SECURITY:
Social Security doesn't kick in until age 62, and without paying in during the years of early retirement - your expected benefits could change the monthly amount you had budgeted. Social Security works on credits, and in order to be eligible for retirement benefits, you need 40 credits, which equals 10 years of work. If you stop working before you have the credits needed, it could seriously affect that monthly paycheck. Plus, the lack of work for the years you retire early won't be adding to your retirement credits and will ultimately change your benefits. For more details, see: Social Security Benefits.
REDUCED PENSION:
When you retire before age 62, your IRA pension can be accessed, however a whopping 10% penalty will be charged for early withdrawal. Plus, you won't be contributing any longer, so your pension should be padded, over and above what you predict your living expenses will be during retirement.
Make sure your pension plan is padded enough to cover the 10% penalty and the 20% withholding tax you'll have to pay for early withdrawal.
MEDICARE:
Medicare isn't available to anyone until age 65 and medical insurance can be costly, even with COBRA or other extended health insurance benefits from your company. If you get sick, experts in "Retirement, Your Future" say that you need to have in excess of $200,000 to cover medical expenses should you become ill, and do not have access to Medicare.
ECONOMY:
With the stock market dropping regularly, and people losing their nest eggs due to low returns on bonds, IRAs and other retirement accounts - you need assets that will grow, not shrink. Be certain your retirement fund is safe in this less than stable economy.
DEBT ELIMINATION:
Too many people go into retirement in debt and many fail. Financial planners and advisors strongly advise that you consider paying off all of your debt before retiring. Your credit cards, lines of credit, auto loans, mortgages and other higher interest debt. Without the burden of deb and can really enjoy your freedom.
UN-RETIREMENT:
Should you fail, maybe because planning was not sufficient or retirement accounts took a dive in the market, are you thinking about what you would do if you had to come out of retirement? So many elderly people find themselves in this position. Having to work after the market crash put a huge dent in their retirement funds. Planning what you could do should if you have to return to work would be a smart move.
INFLATION:
This is the catalyst that will eat away at your hard saved cash. It is like a tax on products that are nearly invisible, and is the number one enemy of people who retire early.
An inflation rate of 4.5% will cut your purchasing power in half every 15-16 years. In the near future, your dollars will be worth less, and you will have to nearly double your money to survive the inflation crisis.
Make certain you figure for inflation in your retirement plans, and also be sure that your fixed annuities and pension plans compensate for inflation now and in the future, or you could be facing a serious cash problem.
Too many people go into retirement in debt and many fail. Financial planners and advisors strongly advise that you consider paying off all of your debt before retiring. Your credit cards, lines of credit, auto loans, mortgages and other higher interest debt. Without the burden of deb and can really enjoy your freedom.
Should you fail, maybe because planning was not sufficient or retirement accounts took a dive in the market, are you thinking about what you would do if you had to come out of retirement? So many elderly people find themselves in this position. Having to work after the market crash put a huge dent in their retirement funds. Planning what you could do should if you have to return to work would be a smart move.
This is the catalyst that will eat away at your hard saved cash. It is like a tax on products that are nearly invisible, and is the number one enemy of people who retire early.
An inflation rate of 4.5% will cut your purchasing power in half every 15-16 years. In the near future, your dollars will be worth less, and you will have to nearly double your money to survive the inflation crisis.
Make certain you figure for inflation in your retirement plans, and also be sure that your fixed annuities and pension plans compensate for inflation now and in the future, or you could be facing a serious cash problem.
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2 comments:
Very helpful summary.
Unfortunately, for many of us, we're long past being able to do anything much about any of this, except hold our breaths, say a few prayers to the gods of our choice, and hope we make it through another decade or more.
Or next month.
You and me both BLW!
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