Retiring early might be a pipe dream of yours -- and one you assume you'll never realize. But 37% of workers have retired earlier than they had planned to, per the Center for Retirement Research, and that might happen to you, too.
Whether you plan to retire early or not, here are three reasons to contemplate doing so. See if they apply to you.
1. To enjoy retirement as much as possible
Not only do many people not know just when they'll actually retire, most of us also have no idea how long we'll live. It's a sad fact that plenty of people die earlier than expected. If you're putting off retiring longer than you need to, you might end up cutting it short, with relatively few work-free years to enjoy.
The sooner you retire, the sooner you can get around to all those fun activities that you've long meant to do, such as taking a few months to drive across the country checking out local landmarks and diners, walking through old cities in Europe, making long-overdue visits to far-flung friends and relatives, planting a killer garden, learning to sail or golf, or taking history courses at a local college. While you're younger, you're likely to be healthier than you will be later, and can use and enjoy your money more, as you're more able to travel and enjoy recreation.
2. Because you can
For many people, another great reason to retire early is that they can. If you haven't taken the time to figure out how much money you'll need in retirement and how well you've been growing your nest egg, you may not even know whether you can retire early or not.
You can use the flawed-but-still-helpful 4% rule to help you roughly estimate how much annual income you might wring from the amount you have saved up and the amount you expect to have at retirement. The rule suggests that you can withdraw 4% of your nest egg in your first year of retirement, adjusting future withdrawals for inflation, in order to make your money last for 30 years. The table below shows how much you might withdraw in your first year of retirement from nest eggs of various sizes.
You can, of course, play it safer by making smaller withdrawals, and you might have some of your portfolio invested in solid dividend-paying stocks that generate income without requiring the selling of any shares. If you have, say, $400,000 invested in stocks with an average overall dividend yield of 3%, you're looking at $12,000 in dividend income for the year -- $1,000 per month. You might also deploy some or much of your nest egg to buy one or more fixed annuities, which can deliver relatively guaranteed income for the rest of your life.
If your nest egg isn't as fat as it should be, you can beef it up by saving more aggressively over the coming years. Here's how effective that can be:
3. Because it's not worth delaying Social Security
Finally, give some thought to Social Security. If you haven't done so, you might be forgetting that Social Security income could bring you closer to being able to afford an early retirement. Most beneficiaries actually start collecting as early as they can, at age 62, and the average monthly retirement benefit was recently $1,417, which amounts to about $17,000 per year. If your earnings have been above average, though, you'll collect more than that.
Those who are fairly familiar with Social Security will know that putting off starting to collect benefits will make those benefit checks bigger. Odds are, though, that you shouldn't delay.
You're eligible to receive your full Social Security benefits at your "full" retirement age, which is based on the year you were born. For most of us, it's 66 or 67. Despite that, you can start collecting as early as age 62 and as late as age 70. For every year beyond your full retirement age that you delay starting to collect Social Security, your benefits will grow by about 8%. Delay from age 67 to 70, and you'll get benefits that are 24% bigger. If you start collecting early, your benefits can shrink by up to 30%.
Starting as late as possible may seem like a no-brainer, but that's not necessarily the case. According to the Social Security Administration, "If you live to the average life expectancy for someone your age, you will receive about the same amount in lifetime benefits no matter whether you choose to start receiving benefits at age 62, full retirement age, age 70 or any age in between." (Remember: The checks you get if you start collecting at 62 or 67 might be a lot smaller than what you'd get at 70, but you'll get a lot more of them.) Since it's pretty much a wash for those who live close to an average-length life, starting to collect at 62 can make a lot of sense, and can make an early retirement possible.
Why you might not want to retire early
Of course, despite the excellent reasons above to retire early, it might not be the right move for you. Why? Well, lots of reasons: You might love your job more than almost anything else, in which case continuing to work is quite reasonable. You might not have anywhere near enough saved up with which to retire. You might come from a family where people routinely live into their late 90s -- which is great, but can put a strain on the nest egg that might be built to support you for 30 years, not 40.
The calculations and considerations will be different for everyone. Give the matter some thought and see whether you may be able to retire early -- and whether you want to.
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