Pros of retiring early include health benefits, opportunities to travel, or starting a new career or business venture. Cons of retiring early include the strain on savings, due to increased expenses and smaller Social Security benefits, and a depressing effect on mental health.
Want to Get Away from the Job
It appears that many people find their work to be soulless and opt for retirement, even if it means financial sacrifice (though often it does not). Getting away from a stressful job is the second biggest reason people cited for an early retirement.
Retiring in your mid-60s still makes sense for many people. At this point, you are old enough to have hopefully amassed sizable savings, but you are still young enough to enjoy active pursuits such as travel.
Retiring in your early fifties gives you more time to spend with your family now. For many early retirees, that's the ultimate benefit. Time to reconnect with spouses, partners, and friends. Time to engage more actively with children during their teen years and early adulthood.
It's a great age to retire, but it's a little too early for many. Retiring this young means relying on having earned a well above-average salary in the run-up and having developed a sound investment strategy. It also means opening a good private pension with excellent growth prospects at an early age.
Men responding to the early retirement offer were 2.6 percentage points less likely to die over the next five years than those who did not retire early. (Too few women met the early retirement eligibility criteria to be included in the study.) The Dutch study echoes those from other countries.
For some retirees, $1 million may be more than enough to enjoy a comfortable lifestyle. Retirees who plan to relocate to another country, for example, may find that $1 million goes much further when it comes to paying for housing, utilities, food or health care. They might be able to retire on $500,000 instead.
Cons of retiring early include the strain on savings, due to increased expenses and smaller Social Security benefits, and a depressing effect on mental health. There may be ways to chart a middle course—cutting back on work without fully retiring.
Save as much money as possible. Financial services giant Fidelity says those who make between $50,000 and $300,000 in annual income who want to retire at 67 should plan for their savings to replace about 45% of their pretax, preretirement income, or aim to save about 10 times of their current income by age 67.
But one thing you should keep in mind about these plans is that if you take funds out of them before you turn 59 1/2, you'll be hit with a 10% early withdrawal penalty. So if your goal is to retire in your 50s (or even younger), then you will need to keep some of your assets outside of a traditional 401(k) or IRA.
The average retirement age in U.S. is 64 years old, with the average retirement age across all states spanning from 61 to 67 years old. The Social Security Act sets the minimum age to retire at 65 to receive full retirement benefits, although the minimum retirement age will continue to rise.
China has the world's youngest retirement age, according to data from the Organisation for Economic Co-operation and Development (OECD). For that distinction, it can partly thank a government policy dating back to the 1950s that lets women retire at 50 and men at 60.
And, while life expectancy can be estimated, no one knows for certain how long they will live. As a result, they can only approximate how long their nest egg will need to last. Retiring at age 45 with $3 million is quite feasible if you already have the money and your post-retirement income needs are not excessive.
Unfortunately, early retirement isn't for everyone. In fact, it isn't for most people. Just 13 percent of today's workers plan to retire before age 60, according to an Employee Benefit Research Institute (EBRI) survey.
Some early retirees start their own businesses and sell at a huge profit. Others aggressively buy up rental properties, effectively replacing their salary with income from their tenants. Others are able to bank upward of 50% of their salary through extreme frugality.
The 4% rule is easy to follow. In the first year of retirement, you can withdraw up to 4% of your portfolio's value. If you have $1 million saved for retirement, for example, you could spend $40,000 in the first year of retirement following the 4% rule.
The 4% rule is a popular retirement withdrawal strategy that suggests retirees can safely withdraw the amount equal to 4 percent of their savings during the year they retire and then adjust for inflation each subsequent year for 30 years.
Retiring at 40 with $1 million requires a strategic investment approach. Specifically, you must create a well-thought-out plan that includes various types of assets, such as brokerage accounts, savings accounts and real estate.
Some people retire early only to find that they're overwhelmingly bored. To alleviate the boredom, you may find that you start overspending and putting what you have managed to save for your retirement at risk. That's why it's usually important to plan how you will spend your time and money in early retirement.
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.
Following the 4 percent rule for retirement spending, $2 million could provide about $80,000 per year. That's more than average. The Bureau of Labor Statistics reports that the average 65-year-old spends roughly $4,345 per month in retirement — or $52,141 per year.