You may already know that planning to retire early can mean putting aside lots of money. According to Fidelity, if you plan to retire before 62, you should aim to save 33 times your expenses. If you’re 45 with annual expenses of $75,000, that amounts to $2.475 million.
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But it’s not just money and savings you need to consider if you want to retire in your 50s. Some financial experts shared with GOBankingRates a few ugly truths to consider now.
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You’ll Need To Fund a Longer Retirement Than Most
Retiring at 50 means planning for more years without a paycheck.
“That requires a deeply strategic investment approach, not just a big nest egg,” according to Christopher Stroup, founder and president of Silicon Beach Financial. “Inflation, health care costs and market downturns will all take their toll. Your money needs to outlive you, and that requires a plan that adjusts as life does.”
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Health Insurance Can Get Complicated Before 65
If you retire before Medicare eligibility at 65, expect to shoulder thousands in annual premiums through the open market. Per Stroup, for self-employed professionals or those selling a business, early retiree coverage should be a line item in your exit plan.
According to Empower, a few health insurance options for early retirees are the health insurance marketplace, health share plans and private health insurance.
Accessing Retirement Funds Early Comes With Strings
Stroup likes to remind clients that many accounts, such as traditional IRAs and 401(k)s, penalize early withdrawals before age 59 1/2. He said strategic tax planning, like leveraging Roth IRAs, 72(t) distributions or taxable brokerage accounts, can help bridge the gap.
According to Stroup, with the right mix of account types, you can retire early and avoid triggering unnecessary tax or penalty landmines.
Retirement Doesn’t Mean the End of Work
Plenty of early retirees pivot to passion projects, consulting or part-time work. The key, per Stroup, is designing financial flexibility into your plan before you need it.
Whether you’re stepping back or stepping sideways, a proactive strategy ensures your money keeps pace with the life you want to live and not just the one you’re leaving.
You Still Have Loved Ones Counting on You
It’s also important to factor in family members or other dependents when planning an early retirement.
“Supporting a loved one can either force an employee out of or back into the workforce. Consider who else might depend on your income,” according to Kevin Estes, financial planner and founder of Scaled Finance.
Your Purpose May Become Unclear
Early retirement can leave individuals with a lot of time and years on their hands without work to keep them occupied. While this sounds nice in the beginning, it could end up having negative effects.
“Retiring can limit someone’s social network, structure and even purpose,” Estes said. “Plan how to develop all three.”
You’ll Do More Upfront Planning Than You Expect
If you expect to start planning to retire in your 50s when you hit 40, you may be in for an unexpected surprise. It’s going to take a lot of planning at that stage. In fact, if you didn’t start planning in your 20s, you’re likely already behind the ball.
“The truth is that early retirement takes a lot of upfront planning and a significant amount of upfront income and investments,” according to Annie Cole, Ed.D., money coach and founder of Money Essentials for Women.
You May Run Out of Savings
Cole said one ugly truth to consider is that retiring early means more years spent living off your retirement income versus living off work-generated income.
While your nest egg may seem big at first, it can quickly dwindle down to nothing if you’re not careful.
Inflation Can Be Ugly
If you already hate inflation, just wait until you retire early. All that planning you did to reach early retirement hopefully included inflation considerations — or else you’re likely to find yourself struggling to stay afloat when it comes to money.
Inflation can affect your health costs, food bills, living expenses and so much more.
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This article originally appeared on GOBankingRates.com: Want To Retire in Your 50s? 9 Ugly Truths You Need To Know
