So you are dreaming of an early retirement. Are you ready to start acting on that dream?
It takes a bold spirit to quit work in the midst of your productive years. It’s especially difficult these days: We’re living longer, wages are flat and the economy has been brutal.
But that’s not to say you can’t do it, only that you must be very well-prepared. I’ll give you five questions to find out, but first watch this video about retirement planning mistakes.
Now, find out if you’ll be able to retire early. See if you can answer “yes” to each of these questions:
1. Can you live with less Social Security, forever?
Claiming Social Security at 62 means you’ll get more checks and sooner. But make sure you think this through: It also means you get smaller checks for life.
For every month you file early, your Social Security check shrinks by about half a percentage point, permanently, according to the Social Security Administration.
Here’s an example from AARP, based on someone who’ll get $1,000 a month at full retirement age, which is the age when you’re eligible for full Social Security benefits. That’s 66 for most retirees today:
- Monthly benefits at 62: $750.
- Monthly benefits 66: $1,000.
- Monthly benefits at 70: $1,320.
As you can see, your paycheck grows if you can wait. It grows $250 a month in this example by waiting until full retirement age, and $570 a month by holding off until age 70. That money might not matter much to you today, but will you be OK without it 20 years from now?
2. Will your nest egg last 35 years?
You could live many, many more years. Social Security’s Life Expectancy Calculator will give you an idea of how long for you. Here’s a general idea: “About one in four of today’s 65-year-olds will live past age 90, and one in 10 will live past age 95,” says The Washington Post.
The recession caused Americans to reconsider when they’ll retire. But even before that, attitudes were changing:
- Retirement age is rising. The average retirement age for Americans has climbed from age 57 in 1991 to 61 in 2013, when Gallup last looked.
- Expectations are falling. In 1995, nearly half of American workers told Gallup they expected to retire before age 65. In 2013, just a quarter expected to pull off an early retirement.
Will your savings survive as long as you do? This inflation calculator shows what time can do to the buying power of a dollar. For example, it took $1,371 in 2014 to buy what you could get in 2000 for $1,000. The Wall Street Journal estimates it’ll take $32,184 (in today’s dollars) to cover the cost of the average electric bill through retirement.