You might be sitting in your cubicle dreaming about the freedom that goes along with early retirement. You will no longer be financially dependent on that 9-5 job, but instead, you get to go out and explore your newly found freedom. 

Early retirement means saying goodbye to work life before the age of 65. At this moment, men tend to retire at the average age of 64, whereas women typically retire at the age of 62. Alternatively, perhaps retirement isn’t your choice, and life is forcing you to retire. Whatever the reason is, here is how to plan your early retirement. 

Social Security and Early Retirement

The earliest time you can apply for social security is age 62—but may be as early as 55 if you have a pension. However, you are not eligible to receive all of those benefits for a few years after that. If you choose to claim these benefits earlier than age 62, the benefits will be reduced if you collect before the full retirement age

If you go on the Social Security website, you are able to find the projection of what your benefits might look like if you claim them early. 

What’s Financial Independence, Retire Early (FIRE)?

Some people are getting an early start with retirement by joining the FIRE movement, which stands for “financial independence, retire early.” 

The goal of people within this movement is to retire while still relatively young so they can travel, find enjoyment in doing hobbies, and live a more free and financially secure life. Deciding your optimal quality of life will help you determine the best course of action as you work toward early retirement.

What You Need to Consider Before Retiring Early

Unfortunately, retiring early isn’t usually just about having enough money in your savings account to pay your bills for the rest of your life. There are other factors you need to take into consideration, some of which we discuss below.

How Health Insurance Affects Early Retirement 

Medicare covers over 18% of the U.S. population, but older Americans aren’t eligible for these benefits until the first day of the month they turn 65. If you do not want to wait that long for retirement, there are other alternatives for healthcare, though they may be pricey.

If you’re not able to receive Medicare, consider applying for a plan at as an alternative. You could also consider joining your spouse’s health plan if they are still working. 

Saving Affects Early Retirement 

If you have prepared for the day you can gain freedom from work and have sufficient savings, achieving this goal of early retirement is easier than you might think. A lot of 401k plans allow penalty-free withdrawals from ages 55-59 if you separate from a job in this age range. This is also called the “rule of 55.” 

You should also keep one of the golden rules of saving in mind as you consider your plan for early retirement: the earlier you start saving, the better. Time is the best tool you can have in your belt. Saving or investing even a small amount of money regularly can have a profound impact on your retirement savings over the course of many years.

IRA And Pension Plans 

If you choose to retire before the age of 65, you may be able to make a withdrawal from your retirement savings as early as 55, depending on your job—for example, if you were a Federal employee. At the age of 59½, all employees will be able to withdraw from their pension plans and IRAs without any sort of penalty. 

Alternatively, if you delay the retirement process, then you must apply for your required minimum distributions (RMDs) by the age of 72.  

Getting organized and understanding when you can utilize distributions from your IRA or pension (and if you will face any penalties for doing so) is a must if you want to retire early. 

How to Prepare Yourself for Early Retirement

If, after thoughtful consideration and research, you think it’s time for you to start planning an early retirement, there are a few things you should do to prepare. Here are some ways to start the early retirement process off on a good note.

Workplace Retirement Plan 

Optimally, you should contribute between 10 and 20% of your gross income to your retirement plan, and if your employer offers a match, be sure to contribute enough to take full advantage. It’s important to be aware of the 401k contribution limits set by the IRS before making a budget and a savings plan.

If for any reason, you are not eligible for workplace retirement benefits, you can use other alternatives, such as IRAs, SEP, etc. for retirement. A financial planner can help you get a better understanding of how your workplace retirement plans will tie into your ultimate early retirement strategy.

Set Up Multiple Different Forms of Income 

Even though you may technically be retired when you stop working a traditional job, it does not mean that you should stop finding ways to make extra money. Leaving the 9-5 environment gives you more free time to explore other financial possibilities and create a schedule that fits your new lifestyle while also expanding your assets. 

When setting up your finances before early retirement, look into different options for passive income streams. Since you won’t have earned income to rely on, you’ll be falling back solely on savings and portfolio income unless you also have passive streams. This could be a good time to turn a hobby into a lucrative side hustle or, for example, finally publish the book you’ve been working on and use the royalties to pad your retirement budget.

Reevaluate Your Housing Investments 

Getting ready for retirement means that you must think about the different types of investments you’ve made over the years. One of the biggest investments you can make is owning a house, and it also makes it easier when considering where you will live.

Follow these steps to prepare your home as an asset and a safe haven before early retirement:

  • Try to pay off your mortgage early  
  • Consider downsizing your home 
  • Complete any repairs if needed 
  • Complete big renovations or additions, such as the kitchen or deck
  • Research homes if you are moving 

Paying Off Debt 

This may seem like an obvious step, but ensuring loans and debt are paid off will increase your financial security in retirement life. 

Of course, the longer you’re paying off debts, the more you pay in the end. This isn’t something you want to deal with when you don’t have a steady stream of earned income in retirement. To get the most out of your money, make sure all unnecessary expenses are dealt with before you retire.

A Financial Planner Can Help You Save Money & Retire Earlier

The earlier you begin planning retirement, the sooner you will accomplish that goal. It might be nice to think about the financial freedom and independence that goes along with retirement. However, it can be stressful if you’re trying to make it happen alone. Consider asking for some assistance as you create your early retirement plan.

A financial planner can help educate and guide you as you come up with a really early retirement strategy. Here’s how a financial planner at Alpha Wealth Funds will help guide you through the organizational process of growing your assets. We will:

  • Establish a strong professional relationship
  • Assemble all your relevant data, including goals, needs, and wants 
  • Look into your current financial status
  • Share advise, recommendations, and alternatives
  • Execute and monitor the plan as it progresses

Get Help Envisioning Your Early Retirement

Since the start of the pandemic, many people have come to see us at Alpha Wealth Funds to inquire about immediate retirement or figure out how early they can retire. If you’re in the same boat, we can build personalized models and forecasts to give you answers and show you what your retirement will look like, no matter when you decide to do so.

Get Ready for a New Beginning  

Early retirement is an exciting new chapter in your life. Be sure to consider all the options available to you in order to make your dream a reality. 

It will be incredibly beneficial to hire a financial planner that can share their knowledge and experience as they help you set up an early retirement plan while you work toward a post-work life.

Contact Alpha Wealth Funds today to learn more about how our financial planners will help make early retirement happen for you.

Please feel free to reach out to me on this or any of your investment needs or questions. I may not always have the answers at my fingertips, but I promise I will get them for you. Michael Torrence

Calendly link Work: 435.658.1934 Contact: 330.284.3211
Michael Torrence – Investment Advisor Representative: Michael was born and raised in Ohio and attended The Ohio State University. After College, he was commissioned as a 2ndLt in the United States Marine Corps. He attended his initial training in Quantico, Virginia, then graduated at the top of his Primary Aviator Class and was selected for the Strike (Jet) Platform.

Founded in 2010, our services include boutique hedge funds, separately managed accounts, financial planning, estate & trust services, private placements, and in-house concierge services for high-net-worth individuals, families, and businesses.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. All investments involve risk, including the loss of principal.