Depending on your current lifestyle, financial status, and future planning, you might choose to be retire early or maybe later. For some people retiring at the age of 62 is too late for them. But being in a hurry isn’t always cool. There are few signs that you should consider to judge whether are not you are ready to retire.
Maybe you want to enjoy your retirement by traveling across the globe. Or maybe you just want to spend your leisure time with your loved ones. Whatever may be the reason, you might have just made up your mind to retire early. But the question finally came to your mind is - is it financially ok to retire at 55?
Retiring early takes a lot of hard work, planning, and commitment from your end to make it happen. If you’re at your 40s (or older) and you’d like to retire by 55, it might become a bit more challenging for you.
But in many cases, it is still possible if you’re willing to follow the steps that need to be taken.
"For retirement brings repose, and repose allows a kindly judgment of all things." - John Sharp Williams
Step 1. Mind your insurance
It is very easy to take healthcare benefits or coverage at the workplace when you are still working there. You might have enrolled in a healthcare plan provided by your company for decades. But when you retire early, it might require a bit more extra work from your end to gather all the needed documents.
If you decide to retire at 55, you still have 10 more years to rust before you can claim the Medicare benefits. Without Medicare, you are taking a big risk if you don’t get additional insurance. You should talk to your employer and discuss if you may become eligible to get proper coverage till the retirement. You might also take a chance from your spouse’s insurance.
You have a few great options to choose from. But it’s important that you should know them well before choosing and lay them out before you retire.
Step 2. Plan your life ahead
A greater part of your financial life depends on how you’re going to spend those years after retirement. Without any 9 to 5 work, you have plenty of free time to engage in different money related ventures. This is the time when you should think before spending money on hobbies that’ll keep yourself busy. You should also have to figure out how much money you’ll need to live happily.
You might have already planned to pay off the car loan or pay off your mortgage before you retire. But have you ever think about clothes, food, or about transportation once you retire? If you want to go for a long tour in Europe, what will you do? Try to find answers to such questions so that you may get a clear idea to figure out your budget after retirement.
You may review your spending pattern and spending average over the past decade. This will give you an idea of what you’ve already spent. For example, if you’re spending about $50,000 a year, you’ll probably need a similar amount of money in your bank for each year after retirement.
Step 3. Boost your savings as much as possible
Don’t worry! You don’t have to double the speed of your savings rate. But it is also important to grow your savings account as much as possible before you hit your retirement. Contribute as much as you can when you can. Additionally, don’t forget that you’ll have access to your Social Security benefits in retirement!
You must reevaluate your risk-taking ability when you want to save through investing. Normally when you are young, you might be aggressive with your investments. But if you’re planning on retiring early, especially at the age of 55, you might have to be more aggressive than ever for a longer period of time. Invest your money in such a way that may help your money grow tax-free such as 401(k)s and IRAs.
This way you have some extra fund in your savings account. If you’re confused about investing, you may ask for help from a financial advisor. He/she can help you out by suggesting the right choice based on your financial situation.
Step 4. Pay off your debts as soon as possible
If you do have a huge debt burden, try to pay off your debts as soon as possible. You may tackle your secured debts over time, and somehow it is beneficial for you. But you shouldn’t cope up with your unsecured debts after retirement.
So, consolidate your debts such as medical bills, utility bills, payday loans, credit card debt, and other unsecured loans. You have two options to get out of debt. You can opt for debt consolidation or you may choose debt settlement option to pay off your debts.
You can consider the amount of debt or the interest rate while choosing the DIY debt consolidation method.
You may either choose a “Debt Snowball” or “Debt avalanche” method to consolidate your debt, with a lower interest rate and without hurting your credit score.
Step 5. Decide where do want to live permanently
If you choose to stay in the same house you’re living in currently, then you should do your research, calculate the cost of living and real estate value of that place. If the neighborhood you are staying now is too expensive and the lifestyle cost is high, it might get difficult for you to stay there after retirement if you do not have a steady income.
If you are living in a locality where real estate prices are growing and you can expect it’ll grow more in the coming years, owning a house over there might be beneficial for you after retirement. If you don’t have a stable income in your retired days, you might take out a HELOC by using the increase home equity you own. You might also look out for a reverse mortgage loan if you have a good credit score. See, the options are there, you just need to do the math and step up!
One more thing I should tell you. When your paycheck hits your bank account, make sure you pay yourself first. By paying yourself first, you redirect your money straight to your savings account so that you can't spend it on useless commodities.
It's also a great way to automate your savings which is beneficial for early retirees. Make sure you do every planning with caution and stay alert from falling into a retirement scam. Best of luck.
"Retirement may be an ending, a closing, but it is also a new beginning." - Catherine Pulsifer