Thinking you should retire early? Read on for three good reasons why you might want to consider it — but not without consulting a financial planner first, of course.
In this article:
- “What Age Should You Be Ready to Retire At?”
- Reasons You Should Retire Early
- Things to Consider Before Retiring Early
- Additional Early Retirement Planning Tips
3 Practical Reasons to Pursue Early Retirement
“What Age Should You Be Ready to Retire At?”
I love meeting with new clients for the first time.
Sure, it’s another opportunity to help someone prepare for a Rich Retirement. But one of my favorite parts is that going into the meeting, I already know the first question they’re going to ask.
And it’s a question I love answering.
“Beau, what age should I retire at?”
Many of my clients expect me to answer with the “magic number” they need to arrive at before they file for Social Security. A lot of people are interested in early retirement.
But if filing for retirement benefits was only about doing it at the “right” age, then it wouldn’t be nearly so intimidating.
Everyone would just file for benefits at their full retirement age (as low as 66 for some) where they receive their full amount or lump sum.
And a financial advisor like me would out of a day job!
While it’s true that you receive reduced monthly benefits for filing before your full retirement age, it may be a better idea for some to file and retire early. That’s why today, I’m going to give you three reasons why an early retirement could be smart for you.
Reasons You Should Retire Early
Reason #1: You’re Out of Work
Most people choose to claim Social Security early because they’ve suffered a job loss.
If you need the money to cover basic living expenses, claiming early while job hunting or looking for more part-time work can boost your monthly income to help you get by.
Once you find work again, you can start putting the extra Social Security income into a nest egg for your future retirement budget. Your newly-established income can also be used to save and invest in other retirement accounts.
However, if you do decide to file early because of this reason (or any of the other reasons below), you need to know upfront that you’re going to get a much smaller retirement income check later on.
How much smaller your check will be depends on how many months before full retirement age you begin collecting Social Security.
Claiming at 62 could result in a reduction of as much as 30% of your monthly benefit payment. Your eventual annual income – and subsequent plan to retire comfortably — could take a big hit.
That’s a large amount of monthly income to miss out on!
But in instances like this where you need money now, it makes sense to file early and join the ranks of early retirees.
Reason #2: Your Health Is Declining
Another big reason early retirees file for Social Security is poor health.
Social Security is designed to pay you the same amount in lifetime benefits based on average life expectancy, regardless of the age you claim your benefit.
But if your health is suffering and longevity doesn’t run in the family, then claiming early could actually get you more money in retirement benefits.
After all, if you put off claiming only to not live to the average life expectancy, you’d be leaving thousands on the table.
And you’re entitled to these benefits!
This is an extra monthly income that you could use to achieve true financial independence and live the early retirement of your dreams.
If you anticipate a shorter than average lifespan and could use the extra cash for medical bills or to support long-term care — or just living a more comfortable retirement — then filing early could be in your best interest.
Reason #3: Your Family Could Collect Benefits
If you’re in your 60s, and you have minor children, Social Security benefits for family members could make claiming early a smart strategy for you.
When you qualify for Social Security retirement benefits, your eligible children can collect up to 50% of your primary insurance amount (PIA).
Spousal benefits may be a consideration, too.
If your spouse is younger than age 62, they can claim spousal benefits while caring for a child under 16. Once the child turns 16, the child’s benefits continue, but your spouse’s benefits stop.
Things to Consider Before Retiring Early
Keep in mind when considering your early retirement plan: If you’re married and expect someone to receive survivor’s benefits based on your work record, your filing decision will affect the recipient.
That means if you decide to retire early, your survivor will be locked into a lower monthly payment. This could also affect plans for any future investments you (or they) might want to make with that money.
If this is a concern, you owe it to yourself and your loved ones to explore alternative claiming strategies with your financial professional.
Additional Early Retirement Planning Tips
1. Be sure you have a solid retirement plan.
2. Plan out your retirement spending with your spouse and children.
3. Inflation is a reality. Expect it will affect your retirement funds, so come up with a good contingency plan as well.
4. Create a budget and follow it.
5. Try to pay off your mortgage. Securing your home before you retire is smart, because otherwise it will have a significant effect on your budget.
6. Eliminate debt before retiring early.
7. Start a healthy lifestyle. This is a crucial investment you make for your quality of life.
Always consult with a tax professional and a certified financial planner so you can execute your plan to retire early as flawlessly as possible. The right advisor will help you eliminate risking damage to your savings account, any existing real estate investments, or your current health insurance plan.
Don’t forget to download, save, or share this handy infographic for reference:
It is possible to retire early and claim your Social Security benefits, and these three reasons outlined above are legitimate cases to do so. But, remember not to make a hasty decision without weighing your options and consulting a financial planner.
Check out this video that explains the reasons why you should retire early and get social security benefits at 62:
Did this article help solidify your decision to retire early? Let us know in the comments section below.
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