Bucking the Trend: Retiring Earlier Rather Than Later
Blog post
11/20/25The median retirement age right now in the US is about 62 years old. This number has been growing since the early 90’s. In 1991, it was 57 and in 2022, the median retirement age was 59. The decision to retire is a very personal one and different for everyone. The motivation is usually prompted by the obvious reason- financial readiness- but health, career flexibility and personal lifestyle attitudes can also play a big role in the decision.
Yet, while no longer the norm, retiring early is still a goal for some seeking earlier financial independence and the freedom to enjoy life on their own terms. However, achieving this milestone requires disciplined saving, careful planning and a clear understanding of the decisions you will need to make on the road ahead.
Here’s a few key factors to consider if an early retirement is your dream:
Assess your retirement savings and withdrawal strategy:
Start by evaluating your current savings, including 401(k), IRA, pension, and other investments and determine when these sources are accessible without penalties, their taxation and if these sources can sustain your lifestyle. Planning for an early retirement potentially means planning for 40+ years without employment income. Today’s increasing life expectancies make longevity risk a primary concern when planning an early retirement.
One strategy that makes an early retirement possible for many is the Rule of 55. This IRS regulation allows individuals who leave their job in or after the year they turn 55 to withdraw funds from their 401(k) without the 10% early withdrawal penalty. It does apply only to 401(k) plans and not IRAs. Additionally, be aware that such withdrawals are still taxed as ordinary income.
Anticipate future expenses and lifestyle changes:
Create a detailed budget that accounts for everyday expenses, housing, healthcare, travel, hobbies, and unexpected costs– now and factoring inflation into the future. Retiring early means you have a longer time to be susceptible to lifestyle inflation, also known as lifestyle creep. What used to feel like luxuries can become necessities, creating and unintentionally justifying higher expenses, if you’re not on top of your spending habits and budget.
Bridging the gap in your healthcare coverage:
One of the biggest early retirement challenges for many is obtaining affordable healthcare coverage. Before age 65, you won’t be eligible for Medicare. Early retirees must find alternate coverage, which can be costly. Consider COBRA, employer-based insurance (through part time employment or in rare cases, continuation if available through previous employer), or private individually purchased health insurance.
You can access your Health Savings Account (HSA) funds, regardless of age, tax and penalty free for qualified medical expenses (QMEs). However, if you withdraw funds for non-qualified expenses before age 65, you may be subject to income tax and a penalty. You generally cannot use HSA funds to pay for regular health insurance premiums, with a few exceptions.
Social Security Timing:
Understand that Social Security benefits typically start no earlier than age 62. You will need to plan for other income coverage until you file for Social Security. Many early retirees initially plan on taking Social Security right at age 62, however the truth is that since early retirees have an extended span of retirement years, it may behoove them to delay claiming benefits to maximize their payout. Otherwise, plan for a reduced benefit amount if claiming early.
Investment Management:
Your investments should be aligned with your risk tolerance and time horizon. A diversified portfolio helps reduce volatility and preserve capital over the long term. Understand that you may go through many volatile market periods given your extended retirement time frame. Be prepared for planning for your income needs in advance and strategically investing according to your appropriate risk tolerance and time horizon.
In conclusion, retiring early requires meticulous financial planning, disciplined saving, and strategic investing. By understanding these considerations and preparing accordingly, you can turn your early retirement dreams into a sustainable reality.
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