Sufficient After-Tax Savings:
The IRS makes it difficult to access money from retirement plans prior to the age of 59 ½, without facing a penalty. That is why it is important to have an adequate amount of savings held in a taxable account if you decide to retire prior to 59 ½ to avoid a hefty bill from the IRS. There is one exception that allows you to access retirement plan money early, it’s called the “Age 55 Rule”. This rule allows individuals who leave their company at age 55 or older to take penalty-free withdrawals from their 401(k). But, be careful! Once you roll the money from the 401(k) into an IRA, the rule no longer applies.
Time is Money:
For many retirees, the most difficult part of transitioning out of the work force is adapting to having an abundance of free time. It is important to financially plan for how you will fill the hours that you previously spent at work. Whether that be with expanding on hobbies, travel, or more time spent with family, it’s important to prepare for some increased spending in the first few years of retirement as you adapt to your new life. A common habit of new retirees is spending too much too soon, so it is important to monitor your spending so you can sustain your lifestyle throughout all of retirement.
A Plan for Social Security:
Before you enter into early retirement, prepare a game plan for the appropriate time to start Social Security and stick to it! It’s common for retirees to want to take Social Security as early as possible to help with cash flow, but taking the payments before full retirement age can greatly reduce your benefit over the long term.
Are you considering early retirement and need help planning for the future? Are you unsure of how much is enough for retirement? Contact Sharkey, Howes & Javer today to speak with a CERTIFIED FINANCIAL PLANNER™. We’ll help you get your financial planning on track and provide you with the advice you need to meet your financial goals.