Everyone’s dream is to retire early. But, for most of us, it’s not in the cards to retire in our 30s or 40s. According to U.S. Census Bureau Current Population Survey, the average retirement age for men is 65, and for women, 62. But, some can reasonably aim for retirement in their late 50s or early 60s if just a few things fall into place.
- Saved enough money in those retirement accounts? Check.
- Kids out of the house and off the parental payroll? Check.
- Debt been reduced to keep your expenses down? Check.
That’s all well and good, but there a lot more that should be on your checklist. And overlooking these things could cost you big time.
- Did you budget properly for health care?
This is one of the biggest mistakes early retirees make, according to Chris Heerlein, partner at REAP Financial in Austin, Texas.
People are so used to their companies paying their health care premiums, many forget that if they retire before 65, they will have to pay for health insurance out of their own pockets until they are eligible for Medicare. That’s fine if they are covered by their non-retired spouse. But if not, health insurance in the open market for a 60-something can be really expensive.
“Say someone retires at 62 and they don’t have health care,” says Heerlein. “Then they go to Obamacare. Premiums are the biggest health care cost. They are going up faster than inflation. Have you adequately budgeted for it? According to a new report prepared by independent economists at the U.S. Department of Health and Human Services, from 1990 to 2007, healthcare spending increased 7.3% a year on average, far outpacing economic growth.
By contrast, annual spending is projected to increase 5.5% on average between 2017 and 2026, the report’s authors conclude.
“Premiums are rising rapidly,” Says Reid Abedeen, managing partner at Safeguard Investment Advisory Group in Corona, California. “I don’t’ care where you live in the U.S., the cost of health care is rising. Whatever your premiums are now, that will most likely will not be the case next year, until you reach 65 and are eligible for Medicare.
Heerlein says even people with considerable assets may qualify for subsidies for Obamacare if they sign up for an exchange and their income is low. Those subsidies may cut your premiums form $1,000 a month to $300, he says. “A lot of people are paying more than they need to,” he says.
- Beware of early withdrawal penalties in your IRA.
“Now that they are no longer contributing to their retirement plans, they have to extract money from their retirement accounts,” says Abedeen. “They can be hit with penalties if they retire prior to 59½ (and make IRA withdrawals). You have a 10 percent penalty.
Abedeen says on way to avoid those penalties is to leave your money in the 401(k), where you can make withdrawals after age 55.
- Keep your paycheck mentality, says Heerlein.
“Pay yourself on 1st and 15th,” he says. Heerlein says people get in trouble making big withdrawals and eat quickly into their assets. A lot of people get in trouble having several hundred thousand in savings, and instead of pulling out one grand, they withdraw larger chunks, and not on a set schedule.
- Set a budget.
“If you ask people how much the spend, 50 percent will not know,” says Abedeen. “They have a ballpark figure. I can’t tell you how many people I ask that don’t know.
- Re-evaluate Risk.
Typically, you could afford more risk when you were working and contributing to your retirement plan, Abedeen says. That may no longer be the case. “You need to evaluate risk. If you make a mistake, what would your recourse be. While you are working, you have a paycheck. The flexibility is not there when you retire.”
- Consider downsizing.
“The last thing you want to do when you retire is to take care of a big property,” says Abedeen.
- Have a plan.
Some people can figure it out on their own, but it is probably a good idea to sit down with a Certified Financial Planner™. You may also benefit from working with an insurance professional, financial advisor, and/or tax and legal professionals as well.
“They (pre-retirees) haven’t adequality planned,” says Heerlein. “A lot of people come into my office and think they can retire, but they have to continue to work.”
This article is for informational purposes only and is not intended to provide any specific financial, tax, or legal advice. We encourage you to meet with qualified professionals regarding your specific needs.