I’ll admit, there’s a part of me that would love to retire in my 50s. I have big plans for retirement, and I’d love more time to devote to my hobbies. But even though I’m prioritizing retirement savings now, I don’t know that I’ll actually retire that soon. The advantages of early retirement are obvious, but it has serious drawbacks too. Here are three you should bear in mind if you’re thinking about retiring in your 50s.
1. Your savings have to last a lot longer
If you retire in your 50s, you can probably expect to spend about 30 years in retirement, and some people might even make it to 40 years. You’ll need a lot of money to cover your expenses during that time, so you have to get comfortable foregoing certain purchases today so you can save more for retirement.
An extra-long retirement also increases the risk of running out of money prematurely. It’s difficult to know exactly how much you’ll need for retirement under the best of circumstances, and with a 30-plus year timeline, there’s plenty of opportunity for unplanned expenses to throw off your budget. Even if it’s just a few thousand dollars here and there, that can add up over time, and you could find yourself without enough money to cover all of your planned costs in your final years.
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If you want to avoid this, you should build plenty of cushion into your retirement budget and review your plan frequently to ensure you’re still on track for your goals. You should also have a backup plan in case you drain your savings too quickly. This might entail cutting back on travel and discretionary purchases or possibly going back to work for a while.
2. You’ll have difficulty accessing money in your retirement accounts
Most retirement accounts impose an early withdrawal penalty if you try to take money out before you turn 59 1/2. It’s usually equal to about 10% of the amount you withdraw. So if you take out $10,000 at 58, you’ll have to give $1,000 back to the government.
There are ways around this early withdrawal penalty. The government allows exceptions for things like large medical expenses or educational expenses. Certain account types also have exceptions. For example, the Rule of 55 allows 401(k) owners who quit or lose their jobs in the year they turn 55 or later to withdraw money from their 401(k) without a penalty. However, you can only take money from your 401(k) that’s associated with that job, not any other retirement accounts you …….