Medicare begins at age 65 for people in the United States, so if you enter early retirement before this threshold, you’ll be retiring before Medicare. Most people that come to us will say that they want to work until 65, 66 or even 70.
Since we believe in retirement planning using concrete data, we’ll plug in the person’s figures and forecast what their retirement may look like.
For some people, they’ll find that they have significant money leftover at age 90, so they want to see what happens if they retire at 62. We can easily run these forecasts, but there are a few things that occur when you start thinking of retiring early.
Early Retirement and a Few Factors to Consider
If you can secure your retirement by 60, it’s a wonderful feeling. You’ve done everything properly, and now you’re able to enjoy your life a little more. However, if you do retire early, there are some factors you need to consider.
Medicare is going to be unavailable until you’re 65, and if you’re no longer working for a company that offers health insurance, you’re now on your own. Health insurance expenses will be a major factor, especially with rising insurance costs.
Lost Income Potential
If you retire before 65, you’re no longer paying into Social Security, nor are you able to allow your investments to accumulate as much money as you would if you stayed in the workforce. Of course, this is a tradeoff of early retirement, but it’s something to consider based on your current financials.
Potential retirees that are trying to make all the calculations on their own may miss crucial factors that help shape their retirement plans. We use special software that can easily be adjusted to add in:
- Special expenses
- Fun funds
- Additional expenses or income
Running what-if scenarios, such as retiring before Medicare or if rates rise for Medicare, can help you better understand your retirement potential.
While you may be a master of Excel, it’s far too easy to miscalculate your funds or miss a calculation that throws off your retirement figures in both directions.
Real-time output and reports are crucial to outline whether you have enough money to secure your retirement and what can happen if you do retire before you’re eligible for Medicare.
Another thing to consider if you’re retiring early is that you will pay less into Social Security. You can start Social Security as early as 62, and your contributions stop at 70. For some people, they plan on retiring at 65. If you’re working and have ample income, it doesn’t make sense to take Social Security.
Instead, in the scenario above, it makes the most sense to let your Social Security build so that it’s higher when you do retire.
Some people will retire at 65 and not take Social Security until they’re 70 to maximize their benefits. We like to run figures until a person is 90 to have a good idea of what it means to take Social Security.
Ideally, we run figures for taking Social Security at:
It may seem like a no-brainer to take Social Security at 70 because that’s when your benefits will be their highest. However, if you must take money out of your retirement account because you stopped working at 65 and don’t take benefits until you’re 70, this will impact your retirement, too.
For example, if you still have $500,000 in retirement funds at 90, why would you wait to retire?
You’re unlikely to use all your retirement before your demise at that point. If you’re holding out on Social Security and continue working to maximize these benefits, will they really matter in the whole spectrum of things?
There’s a lot to think about if you plan to retire early, and it’s a very individualized thing.
You might want to help pay for a person’s wedding, renovate your house, and make other big purchases. If you’re retiring before Medicare, these expenses may be fine, or they may leave you taking money out of your retirement accounts earlier than expected.
If you do plan to retire a little earlier, we recommend running the figures to have a clear picture of:
- What your health insurance costs will be.
- What happens to your retirement accounts because you’re paying for insurance out of your investment accounts?
Ideally, you’ll work with someone, like us, who can run the numbers for you to plug in all these variables and what-if scenarios. We can even forecast what happens if you plan to retire at 55, so you can have a clear picture of how realistic retirement is for your situation.
If you need help running these reports and want to know what your retirement before Medicare may look like, schedule an introductory call with us.