Early retirement usually means you leave the workforce before your mid-60s (which is when you can tap into Social Security), or even before age 59½ (which is when most retirement accounts can be accessed without penalty).
Saying goodbye to the world of work early may be an appealing idea, but doing so without financial planning can be difficult.
Why Early Retirement Can Be More Complicated
If you’re retiring early, you still face many of the same questions as someone preparing to retire at a traditional age: how much you’ll need to retire, for example, and how much you can withdraw each year without depleting your savings.
But retiring ahead of schedule magnifies these decisions. Instead of funding 20 or 25 years into retirement, your savings may need to last 30 to 50 years, depending on when you choose to retire and what expenses you’ll need to cover during those years. (Check out our fire number calculator. (If you’re trying to determine what that number is for you.) This longer timeline requires less margin for error, especially if the markets drop in the first few years of retirement and you need to withdraw money from your investment accounts when the market is down.
Accessing your retirement accounts, especially if a large portion of your money is invested there, can also be complicated. It’s easy to see how early retirement can be more complicated than expected.
You must be 59½ or older to avoid the 10% early withdrawal penalty from most retirement accounts.
Early retirees should consider strategies such as: Rule of 55 IRS Section 72
