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To Retire Early or Not? That Is the Question

Most of us are dreaming of the day when we can finally retire. For a fortunate few still in the prime of life, that day may come sooner rather than later. Whether or not you should pull the plug may depend on how you answer the following questions:

Can you afford to retire?

Some people begin planning for retirement when they are young, intending to call it quits at age 55. In that case, early retirement could be attainable. However, if you have not been focused on retirement planning, you may not be financially prepared to stop working right now.

Will your money hold out?

If you plan to retire at age 55, it is very possible you may 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 is 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 may be forced to tap into your pension plan before age 59½, you probably should avoid early retirement. In general, assets in 401(k) plans and other employer-sponsored retirement plans should be allowed to grow without interruption for as long as possible. Furthermore, tapping into a qualified plan before age 59½ could result in a 10% tax penalty for early withdrawals.

What about the future?

Take time to imagine the kind of lifestyle you will 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 less expensive? Will retirement bring you relief or a sure ticket to boredom? These issues deserve serious consideration when you are making your plans for early retirement.

Final point: If early retirement will result in a less-favorable lifestyle, it may not be worthwhile. In that case, you might choose to keep working a few extra years to build up your nest egg. Discuss your personal situation with your personal advisers.

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	[ return to list ] To Retire Early or Not? That Is the Question Most of us are dreaming of the day when we can finally retire. For a fortunate few still in the prime of life, that day may come sooner rather than later. Whether or not you should pull the plug may depend on how you answer the following questions: Can you afford to retire? Some people begin planning for retirement when they are young, intending to call it quits at age 55. In that case, early retirement could be attainable. However, if you have not been focused on retirement planning, you may not be financially prepared to stop working right now. Will your money hold out? If you plan to retire at age 55, it is very possible you may 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 is 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 may be forced to tap into your pension plan before age 59½, you probably should avoid early retirement. In general, assets in 401(k) plans and other employer-sponsored retirement plans should be allowed to grow without interruption for as long as possible. Furthermore, tapping into a qualified plan before age 59½ could result in a 10% tax penalty for early withdrawals. What about the future? Take time to imagine the kind of lifestyle you will 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 less expensive? Will retirement bring you relief or a sure ticket to boredom? These issues deserve serious consideration when you are making your plans for early retirement. Final point: If early retirement will result in a less-favorable lifestyle, it may not be worthwhile. In that case, you might choose to keep working a few extra years to build up your nest egg. Discuss your personal situation with your personal advisers. [ return to list ]
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