You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
These are especially tricky times for workers close to retirement age.
The COVID crisis is forcing many people who expected to work into their 60s or longer to re-evaluate their retirement plans — either because they’re worried about the health consequences or because they lost their job. And it’s difficult to say how many will return to work when conditions improve.
But pre-pandemic research shows that feeling pressured to retire earlier than planned really isn’t all that unusual — even when the economy isn’t as rocky as it is right now. The annual EBRI/Greenwald Retirement Confidence Survey, for example, has consistently found that a large percentage of retirees leave the workforce sooner than they expected.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In the 2019 survey, 43% of respondents reported retiring earlier than planned, and of that group, 33% said it was because they could afford to do so. Another 35% of the early retirees said they made the decision to retire because of a hardship or disability. And 35% said they retired early due to changes at their company. (Retirees could have retired for more than one reason.)
Perhaps their department was downsized, or their position was eliminated, or maybe they were reassigned to another location. Leaving wasn’t part of their plan, but when circumstances change, pre-retirees often decide their best or only move is to stop working (full-time or altogether) and retire.
If you’re 55-plus and facing a similar decision, and you’re wondering if retiring early is the right answer for you, here are five things to consider.
1. Test your plan to see if you can afford to retire.
An experienced financial adviser using today’s sophisticated planning technology can stress test your portfolio and determine your plan’s strengths and weaknesses. Maybe you aren’t as far away from reaching your goals as you thought. Or maybe working part-time and drawing on your existing funds until you’re eligible for Social Security is a real possibility. You won’t know until you run the numbers.
2. Figure out where you stand with Social Security.
Depending on when you were born, your full retirement age (FRA) for claiming Social Security benefits is between 66 and 67. You’re eligible to claim benefits at 62, but there are several drawbacks to filing early, including:
- The annual earnings test: Each year, the Social Security Administration (SSA) establishes an earnings threshold for retirees who haven’t yet reached their FRA. In 2020, that threshold is $18,240, and the SSA will withhold $1 for every $2 you earn over that amount. Once you reach your FRA, your monthly payment will be increased to reflect the months in which those benefits were withheld. But if you’re planning to freelance or work part-time after claiming Social Security, you’ll have to deal with the income limits imposed by the earnings test.
- A permanent reduction in benefits: Filing for Social Security before you reach your FRA will result in permanently reduced benefits — as much as 25% to 30% less than if you had waited. The only increase you’ll see after claiming is from cost of living adjustments (COLAs). (And you may not see a COLA every year.) On the other hand, if you can wait to file until after you’ve reached your FRA, you’ll earn delayed retirement credits (up to age 70) that can give your monthly payments a significant boost. To determine how long you would have to live to make delaying benefits worthwhile, ask your adviser to run a break-even analysis for you and your spouse.
3. Identify your health care options if you aren’t old enough for Medicare.
Workers who have always had health coverage through their employer are often shocked at how expensive insurance can be when they’re on their own. Your employer may offer continued coverage options as part of a severance package or as a retirement benefit. If not, you’ll have to look elsewhere. One alternative is to check out the Health Insurance Marketplace (better known as Obamacare), at www.healthcare.gov. The amount you’ll pay monthly will be based on the plan you choose and your expected household income for the year.
4. Create a written income plan to transition from accumulation to distribution.
Once you reach retirement, a funny thing happens: Your paychecks stop, but your bills do not. You’ll have to transition efficiently from your employer’s paycheck to your own income streams. A written income plan is designed to outline where your money will come from (retirement accounts, Social Security, maybe a pension or an annuity); when you’ll turn on those various income streams; and what the tax consequences might be as you move through retirement.
5. Consider getting help from a financial professional.
If you haven’t yet met with a financial adviser — someone who is experienced in retirement options — this may be the time to finally make an appointment. A lot of people like the idea of DIY investing, but mapping out your entire retirement future takes planning to the next level. (Think of it like this: You might be able to renovate your own bathroom or build a deck, but are you equipped to draw up the blueprints and build your own house?) Hiring a competent adviser — someone you trust and with whom you feel comfortable — may add significant value to your overall plan and help you stay on track with your retirement goals.
An early retirement doesn’t necessarily have to be a doomsday event. With a good plan in place, you may find the years to come can be more golden than you ever thought.
Kim Franke-Folstad contributed to this article.
Investment Advisory Services offered through Retirement Wealth Advisors Inc. (RWA) a Registered Investment Advisor. Securities offered through World Equity Group, Inc., Member FINRA and SIPC. Stonebridge Insurance and Wealth Management and Retirement Wealth Advisors are unrelated entities and are not owned or controlled by World Equity Group, Inc. Our firm is not affiliated with the US government or any governmental agency.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
-
Ask the Tax Editor: Federal Income Tax DeductionsAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on federal income tax deductions
-
States With No-Fault Car Insurance Laws (and How No-Fault Car Insurance Works)A breakdown of the confusing rules around no-fault car insurance in every state where it exists.
-
Why Picking a Retirement Age Feels Impossible (and How to Finally Decide)Struggling with picking a date? Experts explain how to get out of your head and retire on your own terms.
-
For the 2% Club, the Guardrails Approach and the 4% Rule Do Not Work: Here's What Works InsteadFor retirees with a pension, traditional withdrawal rules could be too restrictive. You need a tailored income plan that is much more flexible and realistic.
-
Retiring Next Year? Now Is the Time to Start Designing What Your Retirement Will Look LikeThis is when you should be shifting your focus from growing your portfolio to designing an income and tax strategy that aligns your resources with your purpose.
-
I'm a Financial Planner: This Layered Approach for Your Retirement Money Can Help Lower Your StressTo be confident about retirement, consider building a safety net by dividing assets into distinct layers and establishing a regular review process. Here's how.
-
The 4 Estate Planning Documents Every High-Net-Worth Family Needs (Not Just a Will)The key to successful estate planning for HNW families isn't just drafting these four documents, but ensuring they're current and immediately accessible.
-
Love and Legacy: What Couples Rarely Talk About (But Should)Couples who talk openly about finances, including estate planning, are more likely to head into retirement joyfully. How can you get the conversation going?
-
How to Get the Fair Value for Your Shares When You Are in the Minority Vote on a Sale of Substantially All Corporate AssetsWhen a sale of substantially all corporate assets is approved by majority vote, shareholders on the losing side of the vote should understand their rights.
-
How to Add a Pet Trust to Your Estate Plan: Don't Leave Your Best Friend to ChanceAdding a pet trust to your estate plan can ensure your pets are properly looked after when you're no longer able to care for them. This is how to go about it.
-
Want to Avoid Leaving Chaos in Your Wake? Don't Leave Behind an Outdated Estate PlanAn outdated or incomplete estate plan could cause confusion for those handling your affairs at a difficult time. This guide highlights what to update and when.
