Can You Safely Retire at Age 55?

Can You Safely Retire at Age 55?

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Can I retire at 55? It’s a query you is perhaps asking your self in the event you’re hoping to make an early exit from the workforce.

Whereas regular retirement age for most individuals normally means 65 or older, early retirement might provide you with extra time to do belongings you take pleasure in or discover new pursuits. However it’s necessary to construct a stable monetary basis earlier than leaving your day job behind.

Working the numbers will help with deciding if retiring at 55 is a practical objective. A financial adviser will help you get a practical estimate of when you might be ready to retire.

Following are some key questions you could have about retiring at age 55.

Can I Legally Retire at 55?

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There’s nothing within the retirement rulebook that claims you possibly can’t retire at 55 years outdated. In reality, some members of the FIRE (financial independence, retire early) movement goal to retire as early as 40. So it’s completely authorized to retire in your mid-50s if that’s your objective.

However it’s necessary to needless to say retiring at 55 isn’t the norm for most individuals. When you’re going by the conventional retirement age prescribed by Social Safety, for instance, that normally means ready till you’re 66 or 67. And a few seniors might select to delay retirement to their 70s or just maintain working indefinitely.

Can I Retire at 55 and Gather Social Safety?

Social Security payments
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Social Safety retirement advantages could be an necessary a part of your monetary puzzle. These advantages are designed to supply month-to-month earnings along with any earnings you’ve from certified retirement accounts, taxable funding accounts, annuities or different sources.

So are you able to retire at 55 and gather Social Safety? The reply, sadly, is not any. The earliest age to begin drawing Social Security retirement benefits is 62.

However there’s a catch. Taking Social Safety advantages previous to reaching your regular retirement age leads to a discount of your profit quantity.

Your advantages may also be decreased in the event you begin taking them at age 62 however are nonetheless working in some capability. So, say you retire at 55 out of your full-time job however you wish to do some consulting work on the aspect. When you flip 62, you could possibly declare Social Safety retirement advantages however your earnings from consulting work might have an effect on how a lot you gather.

10 Frequent Methods Seniors Get Scammed

The flip aspect to Social Safety is which you can be rewarded with a bigger profit quantity by ready to assert them. When you wait till age 70 to take Social Safety, for instance, you possibly can obtain a month-to-month cost that’s equal to 132% of your common profit quantity.

So in the event you’re asking, can I retire at 55? it’s necessary to know that you simply gained’t have Social Safety as a supply of earnings for a couple of years. And that in the event you resolve to take these advantages as quickly as you’re in a position to, they’ll be lower than what you’d get in the event you waited till full retirement age as a substitute.

Can I Retire at 55 and Take Cash From a 401(okay) or IRA?

401(k) retirement nest egg
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Saving cash in a 401(okay) and/or Particular person Retirement Account will help to fund your early retirement targets. However you might run right into a snag when making an attempt to take cash from these accounts earlier than age 59 ½.

First, there’s the Rule of 55. This IRS rule says that in the event you get fired, laid off or give up your job within the yr that you simply flip 55 you possibly can withdraw cash out of your present 401(okay) or 403(b) with out a penalty.

However you continue to wouldn’t be capable of faucet any cash in 401(okay) plans you had at former employers with out a penalty earlier than age 59 ½. The one approach to work round this may be rolling your outdated 401(okay) or 403(b) into your present one earlier than you retire.

If in case you have a conventional IRA, you usually can’t take cash out of it earlier than age 59 ½ with out a penalty until you qualify for sure exceptions. With a Roth IRA, you possibly can at all times withdraw your authentic contributions tax- and penalty-free.

However to do this, the account should have been open for at least 5 years beforehand. In any other case, you’ll want to attend till age 59 ½ to withdraw earnings with out a penalty until you qualify for an exception.

This implies you’ll must have financial savings and investments exterior of those plans you possibly can faucet. A web based brokerage account might be a very good place to start out.

However do not forget that promoting investments at a revenue can set off capital good points tax. You might additionally complement a brokerage account with common financial savings accounts, cash market accounts, money worth life insurance coverage or an annuity.

Annuities can present a gradual stream of earnings in early retirement. This sort of insurance coverage contract means that you can pay a premium to the insurer. This lets you gather common month-to-month funds later starting at a date you select.

An annuity is one thing you may contemplate in order for you a backup supply of earnings till you’re eligible to withdraw cash from certified accounts or declare Social Safety advantages.

How A lot Cash Do I Have to Retire at 55?

Happy businessman throwing money in a bathtub
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Planning to retire at 55 is totally different from planning to retire at 65 or older for one essential cause: You’ll want more cash to final you thru your outdated age. When you had been to retire at 65 and dwell to age 90, your cash would want to final 25 years.

However in the event you’re retiring at age 55 as a substitute, your financial savings now wants to have the ability to stretch for 35 years. And that assumes you keep wholesome and don’t require long-term care at some level, which might considerably drain your property.

So how a lot cash do it’s good to retire at 55? The quick reply is that it will depend on the kind of life-style you wish to have. When you plan to reduce and dwell a really minimalist life-style that means that you can maintain bills low, then you might be high quality with much less cash.

Alternatively, you might want a bigger nest egg in case your early retirement plans embody touring, shopping for a house or beginning a enterprise.

When getting ready a finances to retire at 55, contemplate:

  • Your present month-to-month bills
  • What you estimate your bills can be in the event you had been to retire early
  • How lengthy you count on to dwell in retirement
  • What your important earnings sources can be earlier than you’re eligible for Social Safety advantages or to make penalty-free withdrawals from a 401(okay) or IRA
  • How a lot you presently have saved exterior of a 401(okay) or IRA
  • How lengthy you continue to have to save lots of and make investments till age 55

Pinpointing a selected quantity to goal or will get simpler once you take time to reply these questions. For instance, you might be questioning if it’s doable to retire at 55 on $500,000 or $1 million. Or you might suppose $2 million is nearer to the mark.

Utilizing some primary guidelines of thumb will help you provide you with a solution. For instance, a generally accepted piece of retirement planning recommendation suggests having seven instances your annual earnings saved by age 55.

So in the event you make $100,000 a yr, you’d want $700,000 saved by your fifty fifth birthday.

However that’s solely a part of the equation. You even have to determine how lengthy that $700,000 will final and the way way more you might want to save lots of, based mostly in your estimated retirement finances.

Well being Care and Early Retirement

health care worker doctor remote worker
Josep Suria /

One expense you possibly can’t afford to miss when retiring at 55 is well being care. Medicare will pay for sure well being care bills in retirement, however you gained’t be eligible to enroll till the yr you flip 65.

In order that leaves a 10-year hole through which you’ll must make different plans for paying well being care bills.

Your choices for paying for well being care might embody:

  • COBRA protection
  • Buying protection via the medical insurance market
  • Enrolling in a partner’s plan
  • Well being care sharing
  • Going with out insurance coverage

By way of value, COBRA protection could also be the costliest possibility, relying on the kind of plan supplied by your employer. Getting coated below a partner’s plan might be essentially the most cost-effective approach to handle well being care prices till you’re Medicare-eligible.

However in the event you’re single or your partner isn’t coated this is probably not an possibility.

You’ll additionally want to contemplate how long-term care wants may have an effect on your plans to retire at 55. Lengthy-term care can simply siphon away 1000’s of {dollars} a yr out of your financial savings. When you might qualify for Medicaid to assist pay for these prices, that normally requires spending down a few of your property first.

A Medicaid asset safety belief might aid you to keep away from that state of affairs. Speaking to your monetary adviser or an property planning lawyer will help you resolve if it’s best for you.

The Backside Line

Happy senior couple enjoying retirement
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Retiring at 55 is one thing of a lofty objective, nevertheless it’s achievable with the proper monetary plan in place.

When contemplating early retirement, do not forget that it could have an effect on how a lot it’s good to save and the place you’ll must maintain these financial savings. Additionally, contemplate what varieties of funding autos or planning instruments, reminiscent of annuities or money worth life insurance coverage, might assist with reaching your targets.

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