Explore how to know when taking early retirement makes sense, and some of the things you should consider before retiring.
Consider building a future with fixed-income products.
Over the years, financial planners meet a lot of folks in their 40s considering when to retire, who think it would be great to retire early, maybe sometime in their 50s. But there’s always that pesky hitch of money.
Sometimes, though, people might just get that opportunity—say, if their company is downsizing and offers them an early retirement package. “It might be a nice way to get paid, at least for a while, while you take a break, try out how retirement works, and/or figure out your next career move,” said Christine Russell, who is senior manager of retirement and annuities at TD Ameritrade.
There can be lots of reasons for taking early retirement. Maybe you’re thinking of it anyway, and the company package is a bit of serendipity. Maybe you’re unhappy with your boss, or you might have an ailing family member you need to take care of. Maybe you’re not looking to retire at all; you just want to change careers, if what you’re currently doing isn’t what you want to do for the rest of your life, or you want to use different skills.
Russell knows of an attorney—a criminal litigator, no less—who, when she got older, became a concierge at a North Carolina golf course. That was a full-time gig, but because it was so much less pressure than her lawyer job in the northeast, “to her it felt like part time,” Russell said. Although the attorney didn’t get offered an early retirement package, her decision to take early “retirement” could be inspiring if you’re thinking about making the leap.
If you’re hoping to change careers, do some research on what you think you might want to do and start figuring out the skills you need now. You’ll need to let your new employer know why you might be a good fit for the role, given that it’s something new. You may have to be flexible in your requirements. Also, when changing careers you may have to start at a lower level or work for someone younger than yourself, to prove that you can do the job. So make sure you’re mentally and financially prepared for the change.
If you’re considering taking early retirement, always start with the finances, Russell said. Look at what you’re spending today versus what your new lifestyle would require and what the early retirement package your company is offering looks like. In addition to having a basic budget, make sure to have a cushion.
Financially, you want to crunch the numbers so you don’t retire at 50 and end up having to go back to work when you’re 85, she said.
Assessing your finances means looking at your spending list today and analyzing how that spending will change as you get older. There’s housing and health care, hobbies, and other retirement lifestyle considerations. Some retirement pros advise people to categorize spending into “needs, wants, and wishes.”
If you do fully retire early, how will you spend your time? Those activities may have a cost, so remember to include them in your planning.
Keep in mind that the IRS offers an exception that will let you sidestep the 10% early distribution penalty when you withdraw from a company retirement account, such as a 401(k) or 403(b), if you leave your job after you turn 55 years old. It’s known as the “rule of 55,” and it’s an exception to the penalty you’d normally be hit with if you take a distribution, for whatever reason (including hardship), before age 59 1/2.
Of course, that might stress your retirement savings, especially if you live longer, so it’s especially important to analyze your nest egg and retirement expectations before doing that.
It’s also worth noting that you generally can’t tap your social security benefits until you’re 62. And even then, you may wish to delay receiving Social Security, as the government offers incentives to those who wait. In order to receive your full retirement benefit you have to wait until age 66 or 67 to collect.
So if you don’t want to take Social Security early or dig into your retirement savings, you may want to opt for a second career—maybe one that offers more of a work-life balance than you’ve had in the past. Given that many folks will spend 30+ years in retirement, a more fulfilling and stress free career could be just the thing to improve your retirement security.
TD Ameritrade does not provide tax advice. We suggest you consult with a tax-planning professional with regard to your personal circumstances.
Matt Whittaker is not a representative of TD Ameritrade, Inc. The material, views, and opinions expressed in this article are solely those of the author and may not be reflective of those held by TD Ameritrade, Inc.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2022 Charles Schwab & Co. Inc. All rights reserved.