At the beginning of 2020, the outlook for the economy was as encouraging as possible. Unfortunately, the pandemic had other idea's and this year has been an absolute rollercoaster. During the first three months of COVID-19, the unemployment rate in the U.S. grew more than it did in 2008 and 2009 combined! 1
If you're nearing retirement, our current economic uncertainty could be causing major anxiety. You may be wondering: should I retire earlier than I originally planned? Before making any decision, here are four questions you absolutely have to answer.
Can You Retire Early?
It's no secret that retirement requires lifelong planning in addition to adequate preparation in the years preceding your eventual retirement. If you’re thinking about moving up the start date of your retirement, there are certain questions you should be asking yourself.
#1: Do I Have Enough Retirement Savings & Investments?
This may be obvious to some, but the most important thing to consider is your retirement savings. Financially speaking - Are you in a good place to retire? this is especially important due to the fact that you’re losing extra years to save and now your savings will have to last for a longer period of time. The worst decision you could make would be to retire early without adequate savings. If you don't have an adequate nest egg, you could be forced to make sacrifices when it comes to the quality of your retirement.
Additionally, how do your current investments look? As you get close to retirement, it’s likely that you’ll need to adjust your assets to be more conservative. We often advise our clients to start looking at this around ten years prior to their ideal retirement age. If you’ve already made these adjustments in preparation for retirement, you’re likely in a good spot. If your investments are still aggressive, you may want to reconsider.
#2: Can I Afford Health Insurance After I Retire?
If your plan is to retire before 65, there’s a chance you’ll need to pay for your health insurance before you’re covered by Medicare. As we all know, health insurance gets more expensive as we age and seems to be more and more expensive on a daily basis. This means you’ll need to factor this in as an extra expense to determine if you can retire early.
#3: When Should I Take My Social Security?
You could start receiving your Social Security benefits as early as age 62, but is that the right decision? Don't be fooled. If you decide to collect your benefits before your full retirement age, determined by the year you were born, your benefits will be smaller.2 There is no hard and fast rule here. For some individuals and families, it's better to wait to begin receiving their benefits. Conversely, there are many people for whom it's better to start receiving as early as possible.
If part of your early retirement plan includes collecting Social Security, when and how to take it is a very important question to answer and make no mistake about it, this decision is very specific to your own personal situation.
#4: What Are Your Retirement Plans?
Are you going to retire early solely because you’re overwhelmed or don't like the current state of affairs? Although this reason should not be minimized, it IS important to evaluate whether or not you’re actually ready to retire or is this just an emotional reaction.
Why do you want to retire? Do you have a plan for what you want to do with your retirement? Are you ready to get started on it? Are you ready to actually finalize your career? Is it possible you will quickly find yourself bored in your early retirement?
What Perks Would I Receive Retiring Early?
If you’ve considered all of the above and still find yourself certain about early retirement, there are a few perks. It could reduce your stress and offer you more time to explore recreational hobbies. You can spend more time with your family, or spend more time traveling, or you can start a business ahead of schedule. Ultimately, the possibilities are endless, and the choice is yours!
With everything going on in the world today, it may be tempting to throw in the towel and retire early if you’re nearing that age anyway. Unfortunately, there are more factors to consider than you may realize. Genuinely reflect on your motivations for wanting to retire, we can't stress that enough! This will help to make the most informed decision possible.
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