Early retirement is becoming more prevalent amongst wealthier people, while those with average earnings tend to work to retirement age, an IFS report showed. Lifestyle, savings, investing and housing are just some of the factors in play when it comes to early retirement, experts say.
For Social Security purposes, full or normal retirement age typically means age 66 or 67, depending on when you were born. Early retirement for you could mean retiring at 62 but it could also mean retiring at 40 if you're interested in the FIRE movement.
A lot of people have asked this question (and if you're reading this article, our guess is you're one of them), but is retiring early a pipe dream in this crazy economy? The answer is no! Not at all—it's 100% possible. That's the good news!
Many people choose (or are forced) to retire early to care for loved ones. They may need to care for an aging parent, spouse, or family member with health issues. The desire to invest more time in family life can also be a strong pull toward early retirement.
So it's perfectly legal and possible to retire in your mid-50s if that's your goal. But it's important to keep in mind that retiring at 55 isn't the norm for most people. If you're going by the normal retirement age prescribed by Social Security, for example, that usually means waiting until you're 66 or 67.
With $400,000, if you buy an annuity at age 62 and then retire, you might expect monthly payments of around $2,400 for the rest of your life. This comes to about $28,800 per year in guaranteed income according to one estimate.
In fact, a recent survey found that investors believe they'll need at least $3 million to retire comfortably. But retiring with $1 million is still possible, even as early as age 55, if you're smart about it. It will require some careful planning since you'll have to wait 10 years for Medicare, but it can be done.
“For most Americans, early retirement isn't just a decision to take the longest vacation of their lives — it's one of the biggest money mistakes that they will regret,” wrote economics professor and author Laurence J. Kotlikoff in a column for CNBC.
When we looked at just the unhealthy retirees in the sample—who accounted for 1,022 of the 2,956 participants—we still found that retiring one year later was associated with a 9% lower mortality risk.
Pros of retiring early include health benefits, opportunities to travel, or starting a new career or business venture. Cons of retiring early include the strain on savings, due to increased expenses and smaller Social Security benefits, and a depressing effect on mental health.
Retiring in your mid-60s still makes sense for many people. At this point, you are old enough to have hopefully amassed sizable savings, but you are still young enough to enjoy active pursuits such as travel.
If you started paying into your pension at 35 and the pension is based on 1/80 of your final salary, then: retiring at 55 would give 20/80 of final salary. retiring at 65 would give 30/80 of final salary.
The earliest age you can start receiving retirement benefits is age 62. If you file for benefits when you reach full retirement age, you will receive full retirement benefits.
If you love your job, then the ideal age range to retire is between 46-60 years old. If you hate your job, then your ideal age to retire is between 36 – 40, if you can. In each case, just make sure to have at least 20X of your annual income saved up before you leave work.
Following the 4% rule, $600k could provide for at least 25 years in retirement, with an annual spending of around $24,000. However, the actual duration will be influenced by your age at retirement and your monthly spending plans.
Those who work in public health live the longest – up to almost 84 years.
This often happens due to unforeseen circumstances such as job loss or health complications. Retiring early can have negative financial effects, like drawing down savings and claiming Social Security before the optimal time.
Life expectancy at birth, in years, 1980-2022
In 2022, the CDC estimates life expectancy at birth in the U.S. increased to 77.5 years, up 1.1 years from 76.4 years in 2021, but still down 1.3 years from 78.8 years in 2019, before the COVID-19 pandemic.
The results show that many retirees wish they would have started saving sooner—and a larger amount—than they actually did. In fact, many don't think they'll have enough money to finance their full retirement.
Retirees who were less confident about their financial situations say not saving was a major regret. Other savings regrets included not making the most of their 401(k) plan, not enrolling in the plan early enough, and not saving the maximum amount allowed by their plan.
With $800k initially saved, you could withdraw $40k-60k annually and still have your portfolio last between 19-28 years. The higher your spending amount, the faster your savings get depleted. Assessing your specific retirement costs and life expectancy is key to determining withdrawal rate.
If you have more than $1 million saved in retirement accounts, you are in the top 3% of retirees. According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
There are two approaches you could take. The first is increasing the amount you invest monthly. Bumping up your monthly contributions to $200 would put you over the $1 million mark. The other option would be to try to exceed a 7% annual return with your investments.