Americans are living longer these days, so retiring in your 60s could easily mean having another 20+ years where you don’t have to hold down a job. Still, some people would rather stop working in their 50s.
At that stage of life, you might have more energy to do things like travel and pursue different hobbies. And if you save well through your career, retiring in your 50s might seem doable.
But retiring during your 50s can also pose some challenges. Here are a few pitfalls you might encounter:
1. You may not be able to access your savings without penalty
Money that’s kept in an IRA or 401(k) plan can be withdrawn penalty-free once you reach the age of 59 1/2. But if you want to retire earlier in your 50s, you’ll generally face a 10% penalty for tapping your IRA or 401(k) prematurely.
If you’re able to plan ahead for an early retirement, you can potentially get around this issue by keeping a portion of your savings in a taxable brokerage account, which isn’t restricted. But if you decide at age 52 that you want to retire and all of your money is in an IRA or 401(k), you won’t have many good options.
2. You’ll have to figure out healthcare
Medicare eligibility begins at age 65. If you’re going to be retiring in your 50s, you’ll be a long ways off from enrolling.
Going without health insurance at any age is an unwise choice. So you’ll need to figure out healthcare on your own, and paying for a plan independently could prove quite expensive.
If you’re retiring in your 50s while your spouse is still working, you may have the option to get onto their employer’s health plan, which could nicely resolve the issue. Otherwise, price out the cost of health insurance before retiring early so your finances aren’t thrown for a loop.
3. You’ll have to wait a long time to get Social Security
The earliest age to sign up for Social Security is 62. And you won’t get your full monthly benefit based on your earnings history until full retirement age arrives. That age is 67 for anyone born in 1960 or later.
If you’ve saved really well for retirement, you may not be factoring Social Security into your finances too much. But what if you retire at age 54 and a few years later, the market tanks? At that point, you may not want to tap your savings if doing so means taking losses. But you also won’t have Social Security benefits to fall back on.
A smart thing for retirees of all ages to do is sock a year or two of expenses away in the bank in cash. That way, if market conditions are unfavorable, your portfolio can be left untouched for a bit of time to ride things out. But still, make sure you understand the consequences of not being able to access your Social Security benefits for what could be a pretty long time.
Some people dream of retiring in their 50s. And if you’ve been saving really well, it’s a goal you deserve to achieve. Just be mindful of these pitfalls — and their potential workarounds — before bringing your career to an end at a relatively young age.