For some people, early retirement is really nothing more than a pipe dream. But if you plan for it from a young age and save and invest aggressively throughout your working years, you might manage to wrap up your career at a much younger age than the typical American.
A good 66% of Gen Z workers say they'd like to retire before the age of 60, according to a recent survey by ConsumerAffairs. And while that may be a doable goal, you might also encounter some challenges by virtue of retiring at such a young age. Here are a few to be aware of.
1. You may not have penalty-free access to your retirement account
There's a benefit to saving for your post-career years in an IRA or 401(k) plan. These accounts are tax-advantaged, and it pays to capitalize on the associated savings involved, such as tax-free contributions or withdrawals, depending on the type of plan you have.
But IRAs and 401(k) plans impose a 10% penalty for taking withdrawals prior to age 59 1/2. If your goal is to retire before the age of 60, you may run into a situation where you have enough money to support yourself for many decades without working -- only you can't access your money just yet.
2. You'll be too young for Social Security
Social Security can be an important income source for retirees, namely because those benefits are consistent and not based on market conditions. When you take withdrawals from a retirement savings plan, you might alter the amount you remove each month based on how the market is doing. But that's not the case with Social Security.
However, the earliest you can sign up for Social Security is age 62. And going that route means locking in a lower monthly benefit for life. If you're planning to retire in your mid-50s, you may have to go a number of years without those monthly benefits to fall back on.
3. You'll have to pay for healthcare
One benefit of working (at least for many people) is getting access to subsidized health insurance through an employer. If you stop working before age 60, you'll need to cover the cost of health insurance on your own. That's because Medicare eligibility doesn't begin until age 65.
Now granted, it may be that you're married to someone who doesn't want to retire quite as early as you, and that you're able to get on their health insurance plan once you stop working. But if you're single or if you're married and both you and your spouse want to retire before age 60, you'll need to make sure you can truly afford the cost of health insurance.
A manageable goal -- if you plan accordingly
Early retirement is something many people do manage to pull off. If that's a goal of yours, be sure to account for these hiccups and find ways to work around them. Otherwise, you may end up disappointed when you realize that despite your best efforts, retiring before age 60 isn't something you can manage financially.