Becky D. emailed us with a simple question: “Can I retire at 60?”
Whether or not you can retire at 60 depends on a lot of variables. As a starting point, retiring at 60 isn’t implausible, although it may be a little on the early side. However, retirement is an individual choice and people choose to retire at many different ages depending on their preferences, circumstances, and financial ability.
With that in mind, here are some of the key things to consider as you decide whether or not retiring at 60 is right for you.
1. Financial Ability
For most people, being ready to retire means they have the financial ability to cover their necessary expenses and afford a certain lifestyle without working. What exactly those expenses are and how that lifestyle looks is different for each person. So, start by framing that in your mind if you haven’t already, and work out a budget so that you know what you’ll need to spend each month to make it happen. This is your financial target.
Next, consider what your income sources are and whether they are sufficient to cover your expected expenses.
2. Social Security
Assuming you are covered by social security, retiring at 60 will likely affect your benefits in two ways. Even if you don’t rely entirely on social security, it can provide a stable and guaranteed income base that provides a significant amount of retirement security. It’s worth taking the time to make sure you are getting the optimal benefit for you.
Your Earnings Record
Your monthly benefit is based on the earnings you received in your 35 highest-paid years. If you retire at 60, then several of those years may still be early-career years with low earnings. This will reduce your benefit below what it might otherwise be if you worked into your 60s while you are presumably earning more. But maybe not? My suggestion is to take a look at your earnings record and see how much this might impact you.
Early Filing Benefit Reduction
Just because you retire at 60 doesn’t mean you have to file right away (in fact, you have to wait at least until you are 62) but if you do, then your benefit is reduced. The exact reduction depends on when you file and your own retirement age, but it’s significant regardless and should be considered.
3. Health Coverage
Medicare is the primary health insurance for the majority of retirees in the US. You need to be 65 to qualify, so make sure you have a plan for health coverage between the ages of 60 and 65. This could be extended coverage from your former employer, coverage from a still-working spouses group plan, or privately bought.
4. Your Withdrawal Plan
The earlier you retire, the riskier your retirement becomes. That’s because you are increasing the length of time you have to balance the tradeoff between spending your savings to live your life and making sure that savings last as long as you do.
A good withdrawal plan can help. The exercise of figuring out which withdrawal plan works best for you will also help you decide if you can afford to retire and how much risk you are exposing yourself to.
The Bottom Line: Evaluate Your Plan
As you consider each of these issues, remember that plans drive decisions and are adaptable.
For example, if you see that you can’t afford to retire at 60, then think about what you can do to overcome the issue that made you decide you can’t. Maybe the issue is that you need to save for a few more years or downsize your house to get rid of a mortgage.
Whatever you decide, it’s your life and your plan, so do what works best for you.
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