Ready to Retire Early?
- rzophin
- 4 days ago
- 3 min read
5 Must-Knows Before You Take the Plunge
Dreaming of those early golden years? Who wouldn't want to swap their 9-5 for days filled with freedom and less stress?
Understanding the 59.5 Rule and Taxes
First up, let's talk about the 59.5 rule. It’s a biggie for anyone thinking of early retirement. Most pre-tax retirement plans, like traditional 401(k)s and IRAs (even Roth IRAs), have this rule. What does it mean? Basically, you’re not supposed to withdraw these funds before you turn 59 and a half. If you do, you might get slapped with a 10% penalty on top of your taxes.
So, if you're planning to retire early, you need a game plan. Do you have other savings to dip into until you hit 59.5? How will you replace your income?
Social Security and Early Retirement
Social Security at 62? Sure, it sounds tempting, especially if you’re feeling burned out. There’s a catch. If you start claiming Social Security before your full retirement age (around 67 for many), you’ll get a smaller benefit. Plus, if you take early social security and keep working and earn over allowable income, your benefit will shrink even more. For every $2 you earn over the limit, you’ll lose $1 in benefits.
So, if you’re planning to continue working in any capacity, make sure you factor this in. Talk to your tax advisor and financial planner to see how this might impact your overall strategy.
Health Care Costs
Health care is a huge consideration. If you retire before 65, you're not eligible for Medicare. This means you’ll need to cover health insurance on your own, which can be super pricey. Have you checked out your Cobra options? And what about your spouse? If they're younger, you could be looking at years of hefty insurance premiums.
There’s more: after 65, if your income is above a certain level, you could face an additional Medicare tax. It’s crucial to do your homework and plan for these expenses.
Keeping an Eye on Expenses
No one loves budgeting (myself included), but it’s essential. You need a clear picture of your monthly expenses and any big-ticket items like insurance or property taxes. You will need a new car sometime in retirement. You probably will have to replace an appliance or two at least. If you don't know approximately how much you need, planning becomes very difficult.
Remember, retirement could last 30 years or more. Imagine living until 95—in couples, one of you might! We plan for that just in case. Figure out your living costs, so you can ensure your money lasts as long as you do.
Regularly Review Your Financial Plan
Finally, keep your financial plan up-to-date. Things change—interest rates, taxes, your own needs and goals. Run your financial scenarios annually. That slight tweak could mean the difference between running out of money and living comfortably.
Stress-test your plan with various scenarios. Plans aren't set in stone; they’re flexible and should evolve with you. Consider hiring a financial planner to get a comprehensive view, especially if you’re eyeing early retirement.
Wanting to retire early is no longer just a dream but a movement. The FIRE (Financial Independence, Retire Early) philosophy is gaining traction, and for good reason. Everyone wants to break free and enjoy life sooner. But to do it right, you need a solid plan.
Need some help??? Set up a short get to know you call to see if we are the right fit for you: https://calendly.com/onevisionretire/getting-to-know-you-call-15-min
Investment advice offered through Integrated Financial Partners, doing business as One Vision Retirement, a registered investment advisor. The information in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. Integrated Financial Partners does not provide legal/tax advice or services. Please consult a qualified legal/tax advisor regarding your specific situation.
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