Early retirement age according to the Social Security administration is 62, and there are many factors other than just money that contribute to this important decision. If retiring early is on your mind, there’s only one way to find out if you’re ready: You’ve got to take a look at where you’re at.
Don’t worry – we’ve boiled retiring early down to five major obstacles.
Take the following test to see where you stand.1 If you score high enough, it might be time to seek the advice of a financial professional who can get you a retirement plan that gives you the most priceless gift of all: more time.
Obstacle Number One: Health Care
The biggest obstacle to retiring at the age of 62 is that Medicare doesn’t go into effect for most people until age 65. How will you cover your health care needs during that three year time period?
- If you have health care covered through your spouse, pension benefits, or health benefits provided by your (hopefully former) employer, give yourself 30 points.
- If you will have to buy health insurance for SOME of those years but not all, give yourself 15 points.
- If you don’t have a retiree health plan and plan to purchase your own insurance through the exchange established by the Affordable Care Act for the full three year period, give yourself 10 points.
- If you think you’ll just go without insurance until you’re eligible for Medicare, subtract 20 points. (What?!? Sorry, but just one illness or accident could trigger hundreds of thousands of dollars in medical bills and ruin a perfectly good budget.)
Obstacle Number Two: Lifestyle Expenses
Before you can determine whether or not you have enough to retire, you’ve first got to find out how much you need. This might sound like a no-brainer, but spending habits change once you are no longer working, so it’s important to get a handle on your lifestyle.
- If you have done a household budget and know how much you spend every month, give yourself 20 points.
- If you plan to downsize, sell your house or property or get rid of a vehicle, give yourself 10 points.
- If you think budgets are a bad idea and know that you’re the type of person who will never follow one, subtract 20 points. (Just kidding. You can give yourself 5 points IF you make an appointment with a financial advisor to help you analyze your expected expenses and establish a budget.)
Obstacle Number 3: Income
This is a big problem for retirees today as fewer and fewer workers are lucky enough to retire with a traditional pension.
- If you are a lucky son-of-a-gun with a pension that makes up for about 45% of your current expenses, give yourself 30 points.
- If you have additional income sources that you can count on other than Social Security (such as royalty payments, rental income, or smaller pension amounts) give yourself 15 points.
- If you have a nest egg saved for retirement that can be converted into an income stream, give yourself 10 points IF you make an appointment with someone like us who can show you how to turn that money into a guaranteed income stream.
- If you keep that nest egg 100% invested in the stock market, subtract 50 points. (We’re NOT kidding this time, folks. Better to lose the points now than your retirement dreams later.)
Obstacle Number 4: Social Security
Filing for Social Security early basically locks in a penalty that can mean a 30% reduction in income benefits for the rest of your life.2 There are filing strategies, particularly for married couples, which might help your situation.
- If you plan to file for Social Security early at the age of 62 and you are in excellent health, give yourself 10 points.
- If you plan to file for Social Security early and you have health issues that give you pause for concern, give yourself 15 points.
- If you are filing for Social Security early but your spouse is waiting to file and you have an income strategy in place, give yourself 20 points.
Obstacle Number 5: The Happy Factor
Some people don’t want to retire early but they are forced to; others are happy with their jobs and don’t want to retire early, still others have personal reasons for wanting to clock out of the work force for good. Why do you want to retire early? Getting to the heart of the matter can be surprisingly motivating.
- If you know exactly why you want to retire early – what you want to do, who you want to do those things with, and where the income is coming from – give yourself 20 points.
- If you are lukewarm about retiring early, have no real strong feelings either way and no plan for how to do it, give yourself 5 points.
- If you would rather not retire early but you are being forced to by your employer, (for example you are an air traffic controller, pilot, or Federal fire fighter) give yourself 10 points.
Now for the grade
A: If your score ranges between 95 and 120, congratulations, you might have a shot at retiring early. Obviously, you will want to get your ducks in a row, talk to your Human Resource person at work, and sit down with a qualified financial advisor. The only thing you have to lose is time.
B: If your score ranges between 94 and 75, hit the pause button. There are issues that need to be addressed. This doesn’t mean you can’t retire early, but you will want to seek counsel before you potentially put your future at risk.
C: If your score ranges between 74 and 55, ahem, well . . . you’ve got some more work to do. Maybe this isn’t a bad thing. If it is a bad thing, drop us a line. We might be able to help.
D: If your score ranges between 54 and 40, then again, we would encourage you to seek the help of a financial professional. It’s really not as bad as you think.
F: If your score ranges between 39 and -75 (as in negative 75) then yes, it really is as bad as you think. But this doesn’t mean that you can’t retire. It just means retiring early might not be in your best interest.
Thanks for taking our test. If you found it helpful (or even just fun) pass it on. The retirement you save could be your own.
1.This is test is not designed to be a substitute for professional financial advice specific to your individual circumstances. Before making any major financial decision, be sure to do your own due diligence and consult a properly licensed professional.