The US economy has experienced significant turbulence throughout the pandemic, with high highs, low lows, and everything in between. During three months of COVID-19, the unemployment rate in the U.S. grew more than it did in two years of the Great Recession.1
Even now, the economy is still in a position of drastic change. While this is unsettling for everyone regardless of situation, it can be especially unnerving for those who are approaching retirement. It can also force you to face a critical question: should you retire earlier than originally planned? Before making any decision, it is important to be aware of all factors that go into early retirement, positive and negative.
Retirement requires lifelong planning, in addition to significant preparation in the few years before you retire. If you’re considering moving your retirement up due to the current economic situation, there are certain questions you need to ask.
Consideration #1: Retirement Savings & Investments
It will likely not surprise you to learn that the absolute most important thing to consider is your retirement savings. Are you in a good place financially to retire, especially considering that you’re losing extra time to save and will need to stretch your savings over a longer period of time? The last thing you want is to retire early without adequate savings, forcing you to sacrifice the quality of your retirement.
Also take a look at your investments; as you near retirement, it’s likely that you’ll need to adjust your assets to be more conservative. If you’ve already made these adjustments in preparation for retirement, you’re likely in a good spot. If you’re still investing more aggressively with more short-term losses due to the recession, you may want to reconsider.
Consideration #2: Health Insurance
If you’re looking at retiring before 65, there’s a chance you’ll need to acquire health insurance before you’re covered by Medicare. As you age, health insurance gets more and more expensive, meaning you will need to factor it in as an extra expense to determine if you can afford to retire early.
Consideration #3: Social Security
Technically, Social Security benefits become available as early as 62 years old, but don’t make the mistake of assuming that means you will take full advantage of Social Security. If you start collecting benefits before your full retirement age, which is determined by your birth year, your benefits will be smaller.2 If your retirement plans include collecting Social Security benefits, you need to factor in the potential of reduced benefits due to age.
Consideration #4: Post-Retirement Plans
Is the main reason you’re considering early retirement the current global situation, both financial and social? While this certainly isn’t a trivial reason, it’s important to evaluate whether or not you’re actually ready to retire.
Do you have a plan for what you want to do with your retirement, and are you ready to get started on it? Are you ready to actually finalize your career, or is there a possibility you’ll quickly bore of your early retirement?
Perks of Retiring Early
If you’ve considered all of the above (and discussed with your financial advisor) and find that you are certain about your early retirement, there are a few perks.
It could reduce your stress levels from work, giving you more time to explore recreational hobbies or spend time with your family. When it is safe, you will have more time to travel. You can even use the extra time and energy to get a head-start on a new business venture you’ve been dreaming about.
With the world in its current state, it’s tempting just to go ahead and retire early if you’re nearing that stage. However, there are more factors to consider than you may realize. Genuinely reflect on your motivations for wanting to retire and have an open discussion with your financial advisor in order to make the most informed decision possible.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.