While retirement or financial freedom are huge milestones, the path to get there isn’t one-size-fits-all. You may choose to retire early and live your dream lifestyle sooner, or you might opt for a more traditional retirement timeline. Understanding the different approaches and pros/cons can be helpful as you plan out what makes sense.
Understanding Early Retirement
Early retirement typically involves some form of leaving the workforce before a traditional retirement age, which is often around 65. What makes age 65 a traditional time to retire is typically the combination of Medicare eligibility and being able to initiate Social Security benefits. Those who choose early retirement are prioritizing financial freedom and lifestyle flexibility, aiming to enjoy their retirement while they are still relatively young and healthy. Financial independence and the pursuit of personal passions can be key drivers for early retirees.
Understanding Normal/Traditional Retirement
Traditional retirement, on the other hand, often follows a more conventional timeline of leaving the workforce around age 65. This retirement age is often associated with eligibility for Social Security benefits and Medicare coverage. The decision to wait until around age 65 is usually driven by the cost of purchasing independent health insurance prior to being eligible for Medicare or needing the time to continue to accumulate retirement savings to live on when employment ends.
Financial Considerations
Early Retirement
Early retirement requires careful financial planning to ensure that your investment savings can support a potentially longer period of time. Early retirees will need a game plan to provide income and insurance before Social Security and Medicare enrollment begins. Another important consideration is the taxation differences and access to tax deferred retirement accounts prior to age 55 and age 59.5. It’s important to know which investment accounts can be used to create income without tax penalties prior to when retirement benefits from the Social Security Administration kick in and to understand the impact of retiring early on your projected monthly benefits.
Traditional Retirement
In a traditional retirement scenario, your full retirement age with Social Security is typically between 66 and 67 and is determined by the year you were born. Full retirement age is the point in time where your monthly benefits aren’t reduced and you won’t receive a penalty for earning too much employment income while drawing benefits. Delaying your Social Security benefits beyond your full retirement age can result in delayed retirement credits, increasing what you receive in monthly income. Medicare benefits also become commonly available at age 65, providing a path to health insurance coverage for retirees.
Health and Well-Being
Early Retirement
Early retirees have the potential to enjoy better health and vitality due to their age, allowing them to pursue active lifestyles and travel opportunities. However, planning for health insurance benefits prior to Medicare and potential long-term care needs later in life are important factors to consider before making the decision to retire early.
Traditional Retirement
Health challenges tend to crop up as we age. The longer you wait to retire, the more likely you will be dealing with adverse health conditions when work ends. Traditional retirees usually have access to Medicare and comprehensive health insurance coverage which can provide some peace of mind. Maintaining a healthy lifestyle including regular exercise, a nutritious diet, and regular preventive healthcare check-ins can help retirees maintain their well-being for as long as possible.
Work and Career Implications
Early Retirement
Early retirement may offer you the opportunity to escape the daily grind and explore new interests or start a second career. The easy part of retirement planning is dreaming about leaving your current job. The tricky part is figuring out how to find fulfillment and meaning when you no longer identify yourself with your work or interact with your colleagues. Exploring post-retirement employment opportunities or volunteer work before you make the decision to retire may provide you with a greater sense of purpose and fulfillment when the time comes.
Traditional Retirement
The advantage of a traditional retirement scenario is that you get to spend more years connecting with your co-workers socially and more time to find meaning in your work. The sudden shift from daily work to independence can be mentally challenging, leading some retirees to choose to work part-time or pursue volunteer opportunities to stay engaged with others. Continuing education, pursuing hobbies, and staying active in the community can help you maintain a fulfilling lifestyle in retirement.
Retirement Is Unique For Everyone
Ultimately, the decision to retire early or at a traditional age is completely personal and depends on your resources, goals, and priorities. You may prefer or need the financial security of working until a traditional retirement age, or you might crave the adventure of striving for an early retirement. Regardless of your chosen path, proper planning and preparation are essential for success and fulfillment.
What Type of Retirement Is Right for You?
Whether you dream of retiring early to pursue your dream lifestyle or envision a more traditional retirement filled with leisure and relaxation, proper planning is essential. Consulting with a financial advisor, tax professional, and health insurance professional can help you make informed decisions and create a retirement plan that meets your needs and goals.
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FAQs
Is it better to retire early or wait?
The answer really depends on your financial resources, your health, and your personal goals. Early retirement can offer freedom and flexibility but requires careful planning to ensure that you have long-term financial security. Consulting with a financial advisor or financial planner can help you assess your retirement readiness and explore your options.
What is the best age to start retirement?
There is no one-size-fits-all approach to retirement. Factors such as financial readiness, your health, and your goals should be considered when determining your optimal retirement age. Working with a financial planner can help you create a retirement plan that aligns with your goals and priorities.
How much money will I lose if I retire at 62 instead of 65?
Retiring early and choosing to elect to take Social Security benefits prior to your full retirement age would likely result in a reduced Social Security benefit, as benefits are based on the age at which you begin receiving them. Consulting with a financial advisor or financial planner can help you understand the implications of early retirement and develop strategies to maximize your retirement income.
At what age do most people retire?
The average retirement age varies depending on factors including profession, health, and financial status. Some people retire in their late 50s or early 60s, while others may continue working into their late 60s or beyond. Planning for retirement and assessing your readiness can help you determine the best time to retire based on your individual circumstances.
Are people happier after retirement?
Retirement can provide opportunities for relaxation and flexibility but it can also be mentally challenging if you’ve spent your career identifying personally with your work and socializing with your colleagues. Your happiness in retirement often depends on your financial situation, your health, and having a sense of purpose and fulfillment when you no longer have day to day work responsibilities. Plan ahead for how you will find fulfillment and social connection before you retire.
Who We Are
Stage Ready Financial Planning is a fee-only financial planning firm based in Dayton, OH proudly serving individuals & couples over age 50 looking to retire early or at just the right time to live their dream life. Whether those dreams include escaping the midwest winters or simply living a life of happiness and abundance, we are here as your trusted partner to help prepare you for the next STAGE of life. Click here to learn more about us.