Trending
Early retirement is an often discussed, undoubtedly lofty goal. It’s also one that requires immense diligence and, let’s be honest, the good fortune of either being a high earner or being left some money along the way.
And it goes without saying that if the goal is early retirement, that objective requires planning. Lots of it. That implies it’s probably not a stretch to say that 99 of 100 workers that are aiming for early retirement should work with an advisor and even that is not a panacea, but it’s certainly better than going it alone.
If nothing else, early retirement seekers working with an advisor benefit in a minimum of two ways. First, those clients get an objective party that’s going to keep it real. A scrupulous advisor is going to tell clients if early retirement is realistic. Second, even if early retirement isn’t attainable, the client still gets strong retirement advice.
In any retirement planning scenario, workers can benefit from working with advisors, but that’s amplified when planning for an early retirement because there are myriad issues to consider. That’s the stuff advisors are paid to know about and the stuff those with ambitious retirement goals may be overlooking.
Important Early Retirement Details
For the sake of simplicity, assume that the standard retirement age is 65. “Early” is subjective, so some clients may want to retire in their 40s, others in their 50s and others closer to but before 65.
In all cases, there are critical details. Consider the rules around the IRA catch-up provision. For the 2024 and 2025 tax years, those under 50 years old can contribute a maximum of $7,000 per year to an IRA. That figure rises to $8,000 for folks 50 and up. There’s another important: one must be working to contribute to an IRA and receive related tax benefits.
Then there’s the matter of Social Security. The earliest age at which retirees can claim Social Security is 62 and the earlier they claim, the lower their monthly checks are. So if a client is targeting 50 as their early retirement age, they’re going to need to know that they’ll be going 12 years before claiming Social Security. With that in mind, the advisor should ensure that the client looking to retire at 50 has substantial assets, little or no debt and modest living expenses or all three. Then there’s matter of the age restrictions on withdrawing from retirement accounts, such as 401(k)s and IRAs.
“For example, many people are unclear about their early retirement funding sources. You might have been making regular contributions to a 401(k), for example, but you might have to pay penalties on early withdrawals if you access that money before you turn 59 ½,” according to US Bank Wealth Management.
Emotional Considerations
For some, early retirement sounds like a great idea when it’s an initial thought and planning for it by saving and investing large sums of money can be fun. However, whether it’s early or traditional retirement, some retirees find that they’re anxious or bored and thus seek part-time work or full-time reentry to the workforce.
“In many cases, that feeling of fulfillment can be more important than having ample available funds to carry you through your retirement years,” adds US Bank. “The emotional aspects of early retirement, particularly for those with lengthy careers and no real plans for ‘what’s next?,’ deserve equal attention when laying down the path for the future.”
Bottom line: Early retirement sounds great, but in an emotional context, not all clients are cut out for it meaning advisors should discuss with them exactly how deep their desire is to not work for three decades or longer.
Related: Bitcoin Bonanza: Some Investors Ditch Stocks for BTC