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Can You Afford To Retire Early?

Posted by Don G. Chastain, CPA on Apr 6, 2018 8:38:26 AM

iStock-652225612-141594-editedAnswer the key questions below:

If you are like many Americans, you may have visions of an early retirement. Although there are usually hurdles to overcome, the dream may become a reality, depending on your answers to the following questions.

Q. Are you financially ready to retire?

A. Some people begin planning for retirement when they are young, intending to call it quits before they hit their mid-to-late 50s. In that case, early retirement may be just what they are heading for. But if you have been putting off retirement planning, you may not be financially prepared to stop working that soon.

Q. Will the money hold out?

A. If you plan to retire at age 55, it’s possible you will have to depend on a fixed income for the next 25 years or more. Consequently, you will have to consider how much income you will need during that time period and where it’s going to come from. If you feel that you currently have enough money to live on, ask yourself how it will hold up over time.

With the help of an experienced adviser, you can develop an investment program that, at the very least, keeps pace with inflation.

On the other hand, if it seems likely that you will be forced to tap into your company retirement plan before age 59½, you probably should avoid early retirement, absent other unusual circumstances. In general, tax-deferred assets, such as 401(k) plans and other employee-sponsored retirement plans, should be allowed to grow without interruption for as long as possible. What’s more, tapping into the plan before age 59½ could result in a 10% tax penalty for early withdrawals.

Q. What about the future?

A. Take time to imagine the kind of lifestyle you’ll be living as an early retiree. Will the loss of a regular paycheck force you to cut back on certain activities you have enjoyed, such as elaborate vacations? Does it mean possibly having to relocate to an area where the cost of living is lower? Will retirement bring you relief or a one-way ticket to boredom? These issues deserve serious consideration when you are making plans for your retirement.

Know that you will likely face some difficult decisions. For instance, if early retirement will force you to adopt a less satisfying lifestyle than you have now, you might choose to keep working for a few more years, maybe on just a part-time basis.

Typically, it will help to talk about your retirement plans with someone you trust. Do not hesitate to seek guidance from your professional advisers. 

For more information on the above article or other financial planning services contact Don Chastain, CPA at (334) 887-7022 or by leaving us a message below. 

Topics: Retirement & Wealth Management Planning

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