Should you retire early? Learn to plan for retirement effectively with help from licensed advisors who understand the pros and cons of early retirement.
The economy throughout the course of the pandemic has been a rollercoaster. 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
For individuals nearing retirement, economic uncertainty is all the more unsettling. Living in California is getting more expensive every year. It raises the question: should you consider retiring earlier than you originally planned? Before making a decision, be aware of the special considerations that retiring early entails.
Considerations of Retiring Early
Retirement requires lifelong planning, in addition to adequate preparation in the years preceding your eventual retirement. Our team at California Retirement Advisors will guide you through this process, providing comprehensive feedback by assessing if it is feasible to retire and then create a plan for you to feel secure that you can do so comfortably. As you’re thinking about pushing up your planned retirement even earlier, there are certain questions you need to ask.
Consideration #1: Retirement Savings & Investments
The foremost 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. One of the biggest mistakes we see people make as they approach retirement is to look at various aspects of their financial life independently of each other rather than looking at their overall financial big-picture collectively. Coordinating investment, insurance, tax and estate planning needs while also providing the income needed to keep your retirement lifestyle and standard of living afloat creates unique challenges that require specialized planning from a retirement specialist, not just an investment advisor.
Additionally, how are your investments looking? 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. This means you’ll need to factor this in as an extra expense to determine if you can afford to retire early. We can help you understand, plan for, and implement appropriate insurance strategies including: Providing income later in life with qualified longevity annuity contracts (QLAC), protecting your income during your working years with disability insurance, healthcare in retirement, Medicare planning, understanding long-term care insurance, and much more.
Consideration #3: Social Security
Social Security benefits are available to you as early as 62 years old, but don’t let that fool you. If you start collecting benefits before your full retirement age, determined by your year of birth, your benefits will be smaller.2 If your early retirement plans also include collecting Social Security, this is another financial consideration to acknowledge.
Consideration #4: Post-Retirement Plans
Do you want to retire early only because you’re overwhelmed by the current state of affairs? 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? By meeting with one of our licensed advisors, you will be able to determine how your entire financial picture is working using our holistic approach to advisement, which will allow you to see where money can be spent and where money should be saved or invested. This overview will give you the confidence to plan for all the adventures that you want to have during your retirement.
For more information on the market and how it's being affected by trend equity, watch this video by Rodney Johnson of The Rodney Johnson Report
Perks of Retiring Early
If you’ve considered all of the above and find yourself 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. You can spend more time with your family and spend more time traveling, or you can even get a head start on a new business venture you’ve been looking forward to.
With everything going on, it’s tempting just to go ahead and retire early if you’re nearing the age. However, there are more factors to consider than you may realize. Genuinely reflect on your motivations for wanting to retire in order to make the most informed decision possible. CRA has your back as we strive to give you the confidence to plan for the best years of your life, and it all starts with a simple phone call. Feel free to contact us to speak with one of our qualified, California-local advisors today.
By Christian Cordoba
CERTIFIED FINANCIAL PLANNER™
Founder, California Retirement Advisors
For more retirement-specific information, check out these other CRA articles:
Having Unexpected Expenses During Your Retirement? Here's How To Deal With Them! — California Retirement Advisors (cradvisors.com)
Americans Are Retiring Now More Than Ever - Here's Why! — California Retirement Advisors (cradvisors.com)
Dreaming About Retirement? Here Are 7 Films To Get You Excited About It! — California Retirement Advisors (cradvisors.com)
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. 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. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.