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Retiring early means different things to different people. For some, it means retiring as soon as they turn age 62 and can begin collecting Social Security benefits. For others, it’s when they hit their late 50s. Some even call it quits in their early 50s, trading the 9-to-5 for a life of freedom.
While retiring early may appeal on an emotional level, it also brings up several practical considerations. The earlier you retire, the more years you need to plan for how you’ll live after leaving the workforce. If you retire at 65, you need to anticipate living twenty or even thirty years more. But if you retire at 55, you need to expand your estimate by another decade.
Regardless of the age at which you choose to retire early, doing so before reaching what the Social Security Administration considers to be full retirement age (FRA) can be fraught with challenges.
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For starters, retiring before your full retirement age means an up to 30% reduction in your Social Security benefits over your lifetime. Plus, Medicare doesn’t kick in until age 65, which means several years in which you have to cover your own health care costs.
But the challenge of retiring early is not just about financing a longer period of living without a paycheck. There’s also longevity and boredom to think about. Retiring early means a lot of days, weeks, months, and years you have to find ways to occupy your time.
Add a tough economy and/or a volatile stock market to the mix, and people are retiring later rather than earlier. According to a recent survey from Fidelity Investments, a significant percentage of Americans are delaying their planned retirement dates due to financial concerns and inflationary pressures.
But that doesn’t mean you can’t pull an early retirement off. With the proper planning and preparation, you can be a success. But before you leap, ask yourself these three questions.
1. Do I have the retirement income to support my lifestyle?
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When you retire early, the regular paychecks stop, and you have to rely on the savings you amassed. Even if you retire at 62, your Social Security benefits are reduced and may not be enough to cover your lifestyle.
That’s why the most important question to ask yourself is: Do you have enough steady income to live for what could amount to over thirty-five years?
“Retirement is not about hitting a single savings number but about how you will turn your savings into reliable income,” says Jamie Hopkins, Chief Wealth Officer at WSFS and Bryn Mawr Trust. “It is about sustaining a lifestyle through unpredictable market cycles, inflation, taxes and a longer life expectancy.”
To really be ready from a money perspective, Christopher Walsh, senior financial advisor and regional director at Capital Choice Arizona, says early retirees should make sure they have three to five years of retirement income somewhere accessible that won’t be exposed to sequence of returns risk.
Sequence of returns risk is the danger of needing to withdraw from your portfolio during a market downturn. These often badly-timed withdrawals act as a permanent drain on your nest egg, making it difficult for your portfolio to fully recover when the market turns around.
He says to test your ‘retirement number’ against the 4% rule. If withdrawing 4% in the first year — and adjusting for inflation each year after — doesn’t feel sustainable or as if it fits with your lifestyle, you may need to reconsider.
If you have to claim Social Security early to make it work, will you be fine with a reduced benefit for the remainder of your life? If you’re too young to collect Social Security, have you figured out at what age you will begin receiving benefits and what impact it will have on the quality of your early retirement?
To set you up for success, Derrick Longo, a wealth advisor at Exencial Wealth Advisors, says to enter early retirement with little to no debt, including a mortgage.
After all, if you have $1 million saved and $2,000 a month goes to your housing, that balance will quickly dissipate. “Debt makes it a whole lot more complicated,” says Longo. “If you can time it to have no debt by the time you retire, you’ll be in a substantially better place.”
2. Can I afford to pay for health care for the years before 65 when Medicare kicks in?
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You may be at the pinnacle of health when you retire early, but that doesn’t mean you can risk not having medical insurance or expect not to spend a dime on health care.
One serious illness or accident, and you could face financial ruin. That is why the second question early retirees need to ask themselves is: Can I afford private medical insurance?
“As soon as you walk out the door from your corporate job, the benefits package stops,” says Walsh. At that point, you are on the hook and must purchase it on the open market.
You may have access to COBRA, which is a federal program that allows you to temporarily keep your former employer’s group health coverage, but that is only for a limited time and is often more expensive than an Affordable Care Marketplace plan.
If you are retiring in your late 50s, you will have to self-fund your health care for more than five years; if you do it in your early 50s, it could be a full decade of out-of-pocket expenses.
Even with Medicare, which goes into effect at 65, as of 2025, a 65-year-old is projected to spend $172,500 on their health, excluding emergencies or stays in long-term care facilities, according to Fidelity Investments. When factoring in the cost, leave room for potential premium hikes. After all, in 2026 alone, marketplace plans increased by about 26% due to the end of subsidies.
If it is too expensive and you still want to retire early, consider finding a part-time job that offers health insurance. These roles may not be easy to come by and will require you to work somewhat, but it could be a way to fund that expense while leaving the full-time workforce.
3. What am I retiring to?
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You probably have a clear idea of why you are retiring, but do you know what you are retiring to? People leave the workforce early for different reasons. For some, it is to pursue a hobby, start a business or launch a career. Others do it because they are burnt out or are simply sick of the 9-to-5 grind.
If you fall into the latter camp and don’t have a plan for how you will fill your time, that early retirement dream could quickly turn into a nightmare.
That is why asking yourself what you are retiring to is the third most important question. If you cannot answer it, you may want to hit pause until you have a vision. That doesn’t mean you have to schedule every hour of the day, but you should have a clear idea of how you will spend your time and confirm that you can afford it.
“I know someone who retired recently, and honestly, I know he’s bored, and I wish I could tell him to just go golf every day. He’d be happy,” says Walsh. “But it’s not realistic on the budget he’s got, and that’s the hard part nobody plans for.”
Beyond the budget, you also have to consider your social circle and your sense of purpose. When you leave your job, you lose your built-in community.
Think about who you will interact with and how you will stay engaged with the world around you so that you are not just retiring away from work but retiring toward a fulfilling new chapter.
Will you sleep well at night?
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At the end of the day, retiring at any age is about finding peace, and if you go into the next chapter with fears that will keep you up at night, whatever they are, it’s a telltale sign you’re not ready for early retirement.
After all, if you aren’t prepared for your biggest fear, it could limit your spending, create undue stress and stop you from enjoying your retirement.
“Health events, market downturns, cognitive decline and family changes can derail even well-funded plans,” says Hopkins. “We cannot remove all risks and concerns, but we can come to terms with them, mitigate them or plan for them. This provides confidence and peace of mind.”
Editor’s note: This article is part of an ongoing series looking at three questions to ask yourself before making a major financial or lifestyle decision. The other stories in the series are: 3 Questions to Ask Before Deciding if a Roth Conversion Is Right for You and 3 Questions That Reveal If You’re Actually Ready to Age in Place.
