Americans are living longer these days, so retiring in your 60s may mean you don’t need to keep working for another 20 years or more. Still, some people want to quit their jobs in their 50s.
At that stage in life, you may have more energy, such as traveling or pursuing different hobbies. And if you’ve saved enough through your career, it might seem possible to retire in your 50s.
However, retiring in your 50s can also present some challenges. Here are some pitfalls you might run into.
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1. You may not be able to access your savings without penalty
Money held in an IRA or 401(k) plan can be withdrawn without penalty once you reach the age of 59 1/2. But if you’re in your 50s and want to retire early, there’s generally a 10% penalty for getting an IRA or 401(k) prematurely.
If you can plan for early retirement in advance, you may be able to avoid this problem by keeping some of your savings in an unrestricted tax brokerage account. But if you decide you want to retire at 52 and all your money is in an IRA or 401(k), there aren’t many good options.
2. Need to understand medicine
Medicare eligibility begins at age 65. If you retire in your 50s, you are a long way from joining.
Living without health insurance at any age is not a wise choice. So you have to think for yourself when it comes to healthcare, and paying for a plan on your own can be quite expensive.
If you retire in your 50s while your spouse is still working, you may have the option of enrolling in your spouse’s employer’s health insurance. That might solve the problem for you. Otherwise, calculate your health insurance costs before you retire early so your finances don’t fall into chaos.
3. You have to wait a long time to receive Social Security
The earliest age to join Social Security is 62 years old. And you won’t receive your full monthly benefits based on your income history until you reach full retirement age. For those born after 1960, that age is 67.
If you’re saving enough for retirement, you may not be factoring Social Security into your household budget. But what if you retire at his age of 54 and the market crashes a few years later, at which point you might not want to use your savings if you’re going to lose money. But they also lose access to social security benefits they can count on.
A good idea for retirees of all ages is to keep a year or two of your expenses in cash in the bank. That way, even if market conditions are unfavorable, you can keep your portfolio intact for a while and weather the situation. But still, make sure you understand the implications of not having access to Social Security benefits for a fairly long period of time.
Some dream of retiring in their 50s. And if you’re really good at saving, it’s a worthy goal to achieve. Before you end your career at a relatively young age, keep these pitfalls and their possible workarounds in mind.