6 Signs that Retiring Early Would be a Good Choice

By Wendy Connick Markets Fool.com

Wouldn't it be great to retire from your job at age 60 or so? This may be an option even if you aren't blessed with a million-dollar salary. Retiring early could be a good choice for you if you meet one or more of the following requirements...

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1. You saved early and often

If you were wise enough to start funding your retirement savings accounts quite early in your career, and have continued to make regular and substantial contributions as your salary increased, you could easily have enough tucked away by the age of 60 to finance your retirement. Consult a retirement calculator to confirm if you have enough saved up at this point to make retiring early a viable option. Keep in mind that you won't be able to start getting Social Security benefits until the age of 62 at the very earliest, and if you take those benefits before full retirement age your checks will be permanently reduced. Thus, retiring early makes the most sense if you can get along without Social Security benefits until full retirement age or even later.

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2. You can afford health insurance

Health insurance premiums tend to rise steeply as you age, and once you leave your job you'll no longer have access to employer-provided insurance. Medicare doesn't kick in until age 65. If you retire before then, you'll need to buy private health insurance to help pay for any healthcare costs you incur. And if the AHCA bill passes in anything like its current form, premiums for seniors are likely to climb quite a bit higher than the current rates. Be sure to budget for this eventuality when you're deciding whether or not you have enough money tucked away in your retirement accounts.

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3. Your investments have prospered

It's nearly impossible to save enough for an early retirement unless those funds are earning you a significant return. Sticking most of your money in stocks, especially in the early years of your career, can help you get ample returns that will grow your savings to an impressive level by the time you start considering retirement. The best returns typically happen when you follow a buy and hold strategy of low-fee investments, such as an index fund.

4. You have little or no debt

The more debt you have, the more money you'll have to pay every month just to keep up the payments. Significant debt can make retiring early simply impossible because of the added expense. On the other hand, if you own your home free and clear and have no debt to speak of, you'll have minimal expenses (not even a monthly house payment) and your retirement income will stretch a lot farther, making it much easier to retire early.

5. You don't have dependents

Funding an early retirement is a whole lot harder if you're supporting someone else in addition to yourself. If you have adult children who still depend on you for periodic cash infusions, you may need to make it clear that you'll have to stop financing them in order to retire early because your retirement income simply won't allow it. Cutting off your kids isn't easy, but it may be your only option.

6. You have an emergency savings account

Emergencies don't stop happening just because you retired. Unexpected (and expensive) events can strain even a generous retirement income to the breaking point; having a dedicated emergency savings account will keep this from happening. Without an emergency savings account, you may be forced to use credit cards to finance any crises, trapping you in a debt cycle they can be almost impossible to break on a fixed income. Or if you choose instead to take extra money out of your retirement savings accounts, you could cripple your income in future years because of the reduction to your capital. Think of your emergency savings account as "income insurance."

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