For most Americans, retiring early is a fantasy but did you know that retiring at 55 needs you to have a sound plan, expert expenditure management, and money outside of retirement to take care of you?
For whatever reason you intend to retire early, it is expedient that you ruminate over it a second time and seek the help of a financial advisor to help you plan your early retirement.
If it is your dream to retire at 55, read what this article has to offer.
Why Retire at 55?
The fifties seem to be the perfect age bracket for people who are intentional about retirement. This is true for the following reasons.
- It gives you more time to prepare
- You’ll pay for private health insurance for a few years
- You’ll need to cover retirement in five less years
- Retire safely if you do so early
How do I plan for my retirement at 55?
Most financial advisors will advise you to save a minimum of 10% of your yearly gross income for retirement. These little percentages add up to whatever monies you’ve been putting aside to take care of your new automobile, unanticipated costs, and emergencies.
There is no better time to begin retirement savings than now. Below are the actionable steps to take toward reaching your retirement savings goals.
- Consider your budget carefully: Your budget should reflect the importance you place on your retirement savings. On your priority list, along with necessities like food, shelter, and utilities should be retirement funds.
- Postpone retirement: If you worked for a couple more years, how much could you save? This not only keeps your income steady but also shortens the time you’ll spend in retirement. Find part-time work during your retirement is an additional choice.
- Save the money you’ve found for retirement. Add any extra money you get from a bonus, gift or tax.
- Pay your debts. The University of Michigan Health and Retirement Survey sit that Americans in their 50s have an average debt of $17,623 and talking t a financial expert about how best to lower your debt before retirement would be really helpful.
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How to Retire at 55
Here’s a full guide on how you can successfully retire at 55.
Increase your Savings for Retirement
You can only go so far by following the common thinking regarding retirement savings. But if you really want to retire by 55, you’ll need to step it up.
The rate at which you can begin saving will, of course, vary based on how much you’ve previously saved, your age, and how much you wish to have in retirement. By making as much of a contribution as you can when you can, it’s crucial to increase your savings.
Additionally, make an effort to locate a high-yield savings account in a bank that is convenient for you. Don’t forget that you will also be able to receive social security benefits.
Create a Retirement Lifestyle Plan
Your plans for those years when you wouldn’t be doing any job will have a significant impact on your retirement and savings. You have a ton of free time because you don’t have to report for work or take part in the 9-to-5 grind.
To keep yourself occupied in retirement, you’ll need to decide which interests you’ll keep up. You’ll also need to determine how much money you’ll need to live.
Before retiring, you may have already planned to pay off your home in full but what about food and clothes?
You can determine your budget by providing the kinds of answers that are requested and when you’re honest with yourself, you can make a budget and save money wisely.
Taking retirement taxes into account
The two things you can never really be free from are death and taxes. Therefore, even while retirement is a time fr leisure and pleasure, you still need to pay attention to taxes.
This is especially important if you want to retire at age 55 because the IRS imposes a 10% income tax penalty on withdrawals from retirement funds you make before the age of 59.5.
Although the growth of accounts like a 401(k) or traditional IRA may be tax-free, your withdrawals are still taxable.
This is where having a Roth IRA might be useful because you can make contributions to one after taxes.
Set up your Health Insurance
After having it for a long time, it’s simple to take occupational healthcare coverage for granted. However, retiring at 55 requires a little more work from you.
When you retire at 55, you’ll have an additional 10 years before you turn 65 and become eligible for Medicare.
Without Medicare, going without insurance might be quite dangerous.
What amount of money do you require to retire?
How much you need to retire will depend on your projected retirement expenses and your sources of retirement income. Experts will advise that you have enough money saved to have access to 80% of your pre-retirement income every year.
Pensions and social security will assist, but you’ll probably need to put additional money aside if you want to have enough money to last during your retirement.
Are there Challenges associated with retiring at 55?
Of course, there are challenges you’ll encounter on this journey to retiring early and they are below.
- Having to make money before you can withdraw from your IRAs
- Strict guidelines for IRA and 401(k) withdrawals beyond age 55
- Social Security benefits are not available until age 62.
- Purchasing health insurance before turning 65 and becoming eligible for Medicare
- Using your savings earlier, cutting down on the time you spend saving, and it can reduce the amount of time you need to save, and increase the time the money must last.
Bottom Line
The easiest method to retire at 55 is by consistently putting everything into a thorough financial plan. Maybe working for a few more years will bring you here, even if it’s too early to give you the lifestyle you want.
You can learn about trade-offs and the solutions that best meet your objectives by doing the numbers.
References
- https://www.synchronybank.com/blog/average-retirement-savings-by-age-55/
- https://www.travelandleisure.com/travel-tips/how-much-money-you-need-to-retire-at-55
- https://www.goodfinancialcents.com/how-to-retire-at-55/
- https://www.forbes.com/sites/kristinmckenna/2020/07/21/is-55-too-early-to-retire-what-you-need-to-retire-early/?sh=3a93dcd416d5
- https://www.thebalance.com/why-retire-at-55-2388841
- https://smartasset.com/retirement/how-to-retire-at-55
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