What is the Ideal Age for Early Retirement

by | Apr 1, 2023 | Early Retirement

Written by leahb

April 1, 2023

So you want an early retirement, but aren’t sure when to take the actual plunge. It’s a tough decision. There are so many pros and cons to both retiring early, and staying in the workforce. Is now the right time for you? The short answer is – It depends. In this post I will suggest the various things you should consider to figure out YOUR ideal age.

Financial Independence and saving

Why do YOU want to retire early?

There are as many reasons to retire early as there are people that want to do it. Whatever your reason, you should consider your “why” when picking the age you do it.

  • Do you want more time to yourself?
  • Do you want more time to pursue pet projects or passions?
  • Do you want to simply want more freedom?
  • More time to travel?

If you retire early, you can do all of these things and more!

There are real benefits and an allure to early retirement, but it also comes with risks. It is important to take all of these into account before picking your date.    

Things to Consider

How many years to you expect to be retired?

The average life expectancy in the USA is approximately 77 years. If you decide to retire at 40 instead of 50, that’s 10 more years of retirement you will need to fund. That makes a BIG difference if you expect to live off of savings and investments. If your family history indicates you are likely to live longer than the average, you might need to fund 15 or 20 years more in retirement.

No one can predict how long they will actually live. And no one wants to run out of money in retirement. Having more than one income stream during retirement can help keep you from going broke. Or having to go back to work.

Are you ready financially?

The main thing that keeps most people from retiring early is the ability to support themselves. Financial concerns are the biggest for most. So you should think about what lifestyle you want to live in your retirement. If you plan on being frugal the rest of your life, the amount you need to finance this is much lower than if you plan to travel extensively. Or if there are other big expenses you anticipate other than travel. Once you have the lifestyle figured out, you can estimate your expenses in retirement.

The next thing to consider is how you intend to finance your early retirement. Are you going to rely on savings or investments? Do you have another form of passive income? Do you have an annuity or inheritance that you can draw from? Does your idea of retirement involve working on passion projects where you can earn an income?

Once you have decided how you intend to finance your retirement, you can do the assessment. How much do you need in savings, annuity, or inheritance? If you have done any research on this, you know about the 4% rule in making your withdraws. How much regular passive or active income do you need to live each month. How stable is it? Will it grow over time to cover inflation?

If you aren’t sure about how to finance your early retirement, or are confused about any of the financial part, consider talking to a financial advisor. Preferably a registered fiduciary advisor. They can help you figure out the details, and are legally required to act in your best interest.

Health and Health Care

Everyone needs healthcare even if they are perfectly healthy when they retire. If you are in the USA, you likely have health care through your employer. Once you stop working, you have to finance that yourself. The cost of that needs to be a part of your budget.

As you get older, the cost of health care tends to increase. Age brings new ailments. Accidents happen. Maybe your family grows with children.

Where you retire can play a big factor in both your health and healthcare costs. If you intend to live outside of the USA for all or part of your retirement, the cost of health care can be much lower.

In Texas a Silver Plan for a 40 year old in Texas can range between $500 and $679 per month. A Silver Plan for a 40 year old in California can be $343 or $664 depending on where you live.

As an international example in some countries you can purchase a really cheap policy for under $200 per year. I wouldn’t recommend anything that cheap if you plan to actually use it. A better option for outside of the USA is a global policy. An international Silver Plan for a 40 year old female living primarily in Spain is approximately $330 per month.

Written by leahb

Other Major Expenses

Speaking of major expenses, housing and transportation are the other big-ticket items. When you are evaluating your lifestyle, make sure to include estimated costs for both. If you want to economize, consider relocating. If you currently live in a high cost or high tax area moving can reduce your costs. Whether it is to a neighboring county, another state, or another country, you have options.

The cheapest states to live in the USA are Mississippi, Oklahoma, and Kansas. If you are thinking about leaving the USA for the expat life, you probably want to factor in quality of life as well as costs. US News and World Report ranked Thailand, Vietnam, and India as the best affordable options. When it comes to living overseas, you should do a LOT more research based on your particular quality of life requirements.

Social Security and Retirement Accounts

Assuming that you have been working up until your early retirement, you probably have retirement assets.

  • Work sponsored pension or 401k.
  • Your own retirement accounts.
  • Your own investment accounts.
  • A passive income stream.
  • Social Security.

If you retire early, you won’t be able to access the retirement funds until the predetermined retirement age. If you do access them early, you will get a reduced amount. Keep this in mind when you are picking your retirement date. And when you are assessing how to fund your early retirement.

What is Your Ideal Retirement Age?

Obviously there isn’t a single age that works for everyone. Or in every situation. The important part in making the decision for yourself is to take all of the factors into consideration. Have a plan. Work the plan. Check the plan periodically to stay on track. Even if your life situation changes and you have to adjust the plan, you don’t need to give it up.

Weigh the pros and cons when you start the plan. Re-evaluate as time goes on. Priorities change. Lifestyle requirements change. And often the economy plays a big factor in deciding when to make the jump into retirement.

I have personally re-assessed my retirement ideal age at least four times in my 30+ years on the workforce. Around this time last year, my plan was do stay in the workforce for another five years, and put almost all of my income into the market. Since then, I’ve had changes in my family heath situation, and a new source of passive income. I have decided the time is now.

Conclusion

Early retirement can give you freedom and time that most others don’t have. A chance to travel before you are too old to enjoy it. Time to spend with family. The ability to work on personal growth and projects. Weighing those benefits against your personal financial situation, lifestyle choices and health is how most people make their decision. If you are unsure how to start planning the financial aspect, consider enlisting the help of a registered fiduciary advisor.

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