Making a retirement decision is not simple. It is not even one decision, but rather a series of retirement decisions and calculations. You will need to estimate your anticipated expenses, sources of retirement income, how long you’ll need your retirement savings to last, life expectancy, health, Social Security or pension benefits and Medicare. All of these are factors you will have to take into consideration before you retire. For most people, it is a matter of retiring now or later. While the temptation may be to get out as soon as you possibly can, that may be a big mistake in the long run.  Let's explore some of the important areas to consider when thinking about retirement. 


If you’re thinking of taking early retirement, make sure that you are aware of all potentially hazardous factors. Obviously, the earlier you retire the fewer earning years and accumulated savings you will have, especially since people today can expect to live 30 years longer than they did a century ago, according to National Vital Statistics Report conducted by the Center for Disease Control.


In addition to your retirement savings having to last longer, inflation will also have more time to decrease your purchasing power. If inflation is 3% a year, as it historically has been since 1914, it will cut the purchasing power of a fixed annual income in half in roughly 23 years. It is so important to factor in inflation when figuring how much you’ll need to retire because chances are you’ll need that income to increase each year just to cover the same expenses.

Delayed Credits and Potential Penalties

Retiring early may also adversely affect pension payments or Social Security benefits. Because the greatest accrual of benefits generally occurs during your final years of employment, early retirement will likely reduce monthly benefits
Also, remember that if you plan to retire before you’re 59 ½ and want to start using your 401(k) or IRA savings right away, you will be subject to a 10% early withdrawal penalty. Plus, those funds are 100% taxable at your ordinary income tax rate. There are some ways to avoid the penalty, but you must make sure you are working with a professional who understands all of the limitations. As you can see from my last blog article, mistakes can be very costly!

Health Care Costs

Another area to take into consideration when it comes to early retirement is that you are not eligible for Medicare until you turn 65. Unless you are planning on taking a part-time job for health insurance (good luck finding a part-time job that provides health insurance), or qualify for retiree health benefits through your employer, you will have to plan on paying for health insurance or health care out-of-pocket, at least until you can receive Medicare coverage at 65. Then you will need to purchase Part B, Part D and a Supplement. We can explain this to you if you have questions or need help.

Future Contributions

Delaying retirement allows you to continue contributing to your retirement savings and is even more advantageous if you’re contributing to a tax-deferred account or receiving employer contributions. For example, if you retire at 65 instead of 55, and manage to save an additional $20,000 a year at an 8% rate of return during that time, you could potentially add an extra $312,909 to your retirement fund. Granted this example is hypothetical and, in reality, could be subject to other elements.  Even if you are no longer contributing to your retirement savings, delaying retirement and subsequently when you begin withdrawing from your savings, will enhance your nest egg’s ability to last throughout your lifetime.

Regardless of whether you choose to retire early or wait awhile, there are four key decision-making points to remember:
1. Are you Eligible to tap tax-deferred saving without penalty for early withdrawal?
• Must be at least 59 ½ and federal income taxes will be due on pretax contributions and earnings.
2. Are you eligible for early Social Security benefits?
• Must be at least 62 and taking benefits before full retirement age reduces each monthly payment.
3. Are you eligible for Medicare?
• Must be at least 65 and be sure to contact Medicare 3 months before your 65th birthday.
4. What is your full retirement age for Social Security?
• 65 to 67 depending on when you were born. After full retirement age earned income no longer affects Social Security benefits.

If all of these factors have been considered and you feel comfortable in your ability to retire early, then make sure you have a thorough conversation with your advisor.  Tackling all of these factors and trying to figure out the best road to retirement for you can be complicated and confusing. Seek out the help of a trustworthy financial advisor, like myself, to help you navigate these sometimes uneasy waters. We will take the time to complete a thorough retirement analysis for you to help give you peace of mind regarding your retirement decision.  Call us today for a complimentary 1-Hour Consultation at (309) 808-2224, or click the link below to see how else we can help you with your retirement questions.