Retirement. It is a desire and dream many Americans work their entire life to achieve. Almost everyone has a different vision of what retirement will mean for them. For some, it might mean traveling the world. For others, it would enable them to pursue hobbies or spend more time with their grandchildren.
The official retirement age is between 66-67 years old with many Americans planning to retire early. The key to retiring early is to ensure you've saved enough to fund your anticipated retirement lifestyles.
There are plenty of pros and cons to keep in mind as you decide whether to retire early or keep working a few more years.
Advantages of Early Retirement
These are several advantages to early retirement that make it a worthwhile consideration for some people.
- Exploring a new career or money-making hobby. Perhaps one of the biggest advantages of retiring early, particularly as people are living and staying active long after retirement, is that it gives you the opportunity to explore a new career or even transform your hobby into a source of income.
- Enjoying leisure activities or education opportunities. Retiring early allows you an opportunity to enjoy things like traveling or returning to school.
- Spending more time with family or friends. Finally, retiring early gives you freedom of time that you can spend with family, building friendships, and forging new personal relationships.
Those are just some of the advantages to consider. Some advantages may even help you fund your retirement in later years (if you operate a successful business venture during your retirement). However, it's important to understand the downside to retiring early as well.
Disadvantages of Early Retirement
The disadvantages of early retirement are primarily financial.
- No longer having employer-sponsored health care. Medicare coverage does not begin until you reach the age of 66 years and two months, meaning the costs of leaving your employer-sponsored health coverage behind could be greater than anticipated.
- Getting hit with penalties and fines for accessing your retirement funds early.Financial penalties for accessing your retirement funds before reaching your official retirement age will cut into the amount of money you've been contributing to for years.
- Losing out on benefits. If you begin withdrawing funds from Social Security before you reach full retirement age, you will receive 30 percent fewer benefits than if you wait until your full retirement age to receive them. More importantly, for each year you continue working between the ages of 67 and 70, your monthly benefit will increase by eight percent.
As you can see, the financial considerations can be significant.
Deciding When to Retire
You have a variety of choices to consider when it comes down to retirement. You may elect to retire early, on time, or late. Each one offers advantages and disadvantages according to your stage in life and retirement goals.
As you think about and research the best time to retire, consider the following:
- How long do you anticipate your retirement funds to last?
- How much do you intend to spend vs. save during retirement?
- What’s your financial situation (i.e., housing, vehicles, medical bills, credit cards)?
- Do you plan to seek supplemental employment during retirement?
- Are you ready to retire?
Early retirement may be the right choice for you, or it may not be. Only you can know which option makes the most sense for you.