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Which Early Retirement Age Is Right for You?

By Dan Caplinger - Dec 11, 2012 at 1:45PM

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Picking the right time to quit is a key decision.

Unless you've never had a bad day at work in your life, you've probably at some point dreamed about what it would be like to retire early. But if you intend to turn that dream into a reality, you have to pick an early retirement age that will work for your specific financial situation, both in the immediate future as well as potentially for decades down the road.

To choose the right early retirement age, there are a number of factors you need to consider. They include the following:

1. Have you saved enough money to last a lifetime?
In one sense, all of your retirement planning boils down to this one simple question. If you have enough money to take care of every possible contingency, then there's no reason to wait to retire unless you like what you do or you have other reasons to accumulate more wealth than you personally need.

Bear in mind, though, that the earlier you retire, the longer you'll have to fend for yourself financially without a paycheck to support you. Conversely, every year you wait actually benefits you in two ways: It lets you save more, and it shortens the period of time you'll need to draw from your life savings.

2. Do you have the midlife gap covered?
This question follows from the first, but it highlights a particular problem that early retirees face: bridging the gap between when you call it quits and when programs like Social Security and Medicare become available to you. For instance, if you quit at age 55, then you'll have at least seven long years to wait until you can claim minimum Social Security benefits, and a full decade before Medicare will kick in.

Health care can be one of the biggest challenges to retiring early, as health insurance can become prohibitively expensive to obtain as an individual. The Affordable Care Act may make it easier to get coverage, as state and federal programs should help coordinate exchanges by which health insurers UnitedHealth (UNH 0.55%), WellPoint (ANTM 0.00%), and their peers will give you access to coverage. Still, paying your own premiums in your 50s and 60s requires more cash than you might expect, so get the details now before you find out the hard way.

3. Do you have a safety valve?
Early retirement doesn't work for everyone. As attractive as it may seem never to have to work again, many people define themselves by their work and the social life that it creates. It may take being out of the workforce to realize that you actually prefer working to being retired, especially when your friends are all still working and therefore unavailable to do things with you.

As a result, it makes sense to have a fallback position. When you leave work, don't burn bridges behind you. Instead, try to leave yourself the option to come back if things don't work out. That way, you won't feel pressure to force yourself to enjoy retirement and can make a real decision about what to do after you've been away from work for a few months.

4. What do you want to do with your time?
Early retirees are often driven by ambitions that go beyond traditional work. If you have particular things you want to do, then your timeline for doing them may depend on getting them done early enough in your life that they're still within your reach.

For instance, if the ideal retirement for you is a perpetual golf vacation, then when you retire isn't really all that important. But if you want to climb Mt. Everest or bike across the world, then you'll want to get started before you're too old to do it or enjoy it.

Be smart
Picking the perfect early retirement age is both an art and a science. Knowing what you want and making your best guess about what the future will bring is the perfect combination to make the most informed choice possible.

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