Some people dread the idea of retiring and would like to keep working as long as they're able to. But you may be in the opposite camp, where you've been dreaming of an early retirement -- and saving for one -- for decades.
Retiring early can be a terrific thing, but there are financial risks involved. And so if you're gearing up to leave the workforce at a relatively young age, it pays to ask yourself these key questions before making your resignation official.
1. What will my main income source be?
Either way, it's important to assess your income and make sure it'll be adequate. To that end, map out a budget that accounts for your ongoing retirement expenses. Then, compare that to either your estimated monthly Social Security benefit or the amount of money you think you'll withdraw from your savings each month, and make sure the numbers align. (If you'll be relying on both equally, then by all means, account for both numbers.)
Keep in mind that if you're retiring in your very early 60s, you may not yet have access to Social Security, since you can't sign up for benefits until age 62. Along these lines, you can't tap a 401(k) or IRA penalty-free until age 59 1/2. So your primary income source may end up being an investment portfolio, and in that case, you'll need to make sure it can provide you with enough money to cover your expenses.
2. What will I do for healthcare?
Medicare eligibility doesn't kick in until age 65. If you'll be retiring early, you may need to bear the cost of health insurance, and it could get expensive. Make sure you budget for that expense before leaving the workforce. If you're looking to retire at age 60, for example, that's five full years of having to make what could be expensive premium payments.
3. What will I do to stave off boredom?
Once you retire, you won't have an office to report to or a full-time work schedule to maintain. That's a good thing -- but in some ways, also a bad one.
Many retirees struggle to fill their days once their careers wrap up. And if you retire at a fairly young age, you may find yourself getting restless in the absence of a job.
And so if you're going to leave the workforce early, have a plan for what you'll do with your time. Maybe you'll volunteer at an animal shelter twice a week and help out by watching your grandkids. There are different options you can look at, but it's important to have a solid idea of what your schedule will entail.
Retiring early could end up being a great decision. But be sure to run through these questions first so you don't wind up regretting that choice -- or struggling financially because of it.