Retire At 55? Here’s what it takes.

Dana Anspach

May 9, 2024

Can you retire at age 55? Maybe. It depends on how far out you start planning, how much you’ve saved, and how much you plan to spend each year.

For example, if you’re 25 years old and contemplating retirement 30 years away, an age 55 retirement is possible – if you start planning now. Put away at least $350 per month and plan on increasing that amount of savings each year.

However, if you’re approaching age 40 (or older) and you’d like to retire by 55, it may be more challenging. You may need to commit to some changes to make it happen.

Of course, there is a third option that doesn’t get considered as often as it should. Find work you love, so work doesn’t feel like work. Granted, that is not really “retirement,” but who cares, if you’re happy?

Let’s explore these options; both the financial part (how much does it take) and the soul-searching part (what will make you happy).

The Financial Side

Why is it more challenging to plan for an age 55 retirement than an age 65 one? Three reasons.

 First, we’re living longer than our grandparents and parents.

If you retire at 55, assuming you have an average life expectancy, your assets must produce income for a longer period than someone who retires later.

The Social Security Administration provides a handy tool to guesstimate your life expectancy. Knowing your statistical life expectancy, based on your gender and birth date, can help you estimate how much you will need in retirement. But that is just a starting place of statistics that include the entire population. White-collar, college-educated folks have longer life expectancies than average. Depending on your demographics, you may need to add four or five years to your life-expectancy estimate.

You will then want to take that life expectancy, along with your income and assets, and make a retirement income plan so you can see how long the money would last.

Two, access to retirement money may be restricted prior to age 59 1/2.

It is difficult to access retirement account money before age 59½ without paying penalties. In general, if you retire at fifty-five, you will probably need other sources of money you can tap into, at least for a few years.

If you do the planning, there are some options to tap retirement accounts early. One option: you might be able to use 72(t) payments to withdraw from an IRA at an early age. A 72(t) payment allows you to take money out of an IRA before age 59 ½ and avoid the 10% early withdrawal penalty tax. However, there are strict rules you must follow.

Another option may be available if you have a 401(k) plan and left your employer no earlier than the year you reach age 55. I spell out these rules in another article on 401k withdrawals and age-related rules.

And what about Social Security? It doesn’t start until age sixty-two, at the earliest. And even though you can start Social Security at 62, there are many reasons to wait and take benefits at a later age. The longer you wait (the maximum is age 70), the higher your monthly benefit will be.

Overall, to retire early, you’ll need to have plenty of savings that are not inside of retirement accounts to tide you over until you are old enough to access your retirement money.

 Three, health care insurance costs can be ghastly before age 65.

Medicare coverage doesn’t begin until age 65. If you have to pay for your own health insurance from age 55 to 65, it can be expensive.

If you currently have insurance through your employer, keep in mind, your employer may be subsidizing 75% or more of the cost of health insurance. That entire cost will shift to you when you retire.

Many early-retiree-hopefuls are shocked at the cost of purchasing their coverage, which can be in the approximate range of $400 to $1,500 a month depending on the type of plan you choose. If you can qualify for a health care tax credit by keeping your Adjusted Gross Income low, that can help reduce your premiums until you reach Medicare coverage.

How do you qualify for a health care tax credit? Your income has to be low enough. In many cases qualifying for a tax credit is about planning. We’ve had many households with financial assets north of a million who qualified for the health care tax credit because we were able to specify which accounts they draw from in order to keep their income at the required qualifying-levels. In one case this reduced a couple’s premiums by over $20,000 in a single tax year.

To account for these costs, plan ahead and estimate how much purchasing your healthcare insurance will cost so you can objectively weigh the pros and cons of retiring early.

The Soul-Searching Side

According to a 2024 survey, over fifty percent of U.S. workers are dissatisfied with their current job. If you don’t like your job, you probably picture retirement as an escape hatch from the drudgery of a situation you feel trapped in.

I’m a firm believer that what we pay attention to grows and magnifies in our life. If you focus on all the things you don’t like, then those undesirable characteristics begin to loom larger than life. Now, I’m not saying the right thing to do is spend 40 hours a week in an unhealthy job situation or in a place that doesn’t suit your talents. What I am saying is, if you’re miserable, explore other options. Retirement isn’t the only solution to work you don’t enjoy.

Moreover, while sleeping in every day sounds nice, many find the post-work experience not as fulfilling as they thought it would be. We discuss this in a webinar with retirement blogger Fritz Gilbert on 5 Keys to Retirement Success.

Retirement is not an extended vacation, especially if financial circumstances require you to curb your lifestyle. If you are hell-bent on retiring early but don’t have the resources to travel, golf, take classes, etc., you may soon regret your decision.

When thinking about early retirement, give careful thought as to what you want to do with your time and your money. If you’re not the leisurely sort, you might consider starting a small business or working part-time. Maybe your current role would allow you to scale into retirement, working four days a week, then down to three, and so on. Or could also use your prior experience to start a consulting business but with less hours and on your terms?

If you can see yourself living in a third world country or buying an inexpensive RV and traveling from campground to campground, or you’ve managed to save a ton, then an age 55 retirement may work just fine.

To help you with your soul-searching, I’d highly recommend you read the blog series How to Move Your Retirement From Good to Great. The concepts in the article don’t just apply to retirement. They apply to life. With some soul searching you can find numerous ways to move your working life from good to great too.

Why Retiring Later Might Be Better

Many blogs glamorize the early-retirement lifestyle. One that caught my attention many years ago is the website is Early Retirement Extreme. Such bloggers write about how they were able to save enough to get out of the “rat race” at an early age.

There are pearls of wisdom within each of their models. However, they all made major adjustments in their lives in order to afford to retire early.  They are outliers. Most people aren’t willing to make those adjustments.

As an alternative, adding 10+ years to your work life may not sound like fun, but it can mean a comfortable life along the way, and in retirement. And when it comes to Social Security, for most folks, working longer means you’ll increase your full benefit amount. Social Security benefits are based on your top 35 years of earnings. If your last few years of income are greater than some of your earlier years, you’ll reap greater rewards by working longer.

And, as we’ve discussed, health care costs are also a good reason to extend your working years.

Once you consider both the financial and the soul-searching side, when it comes to retirement, age is not the question. Instead of asking, “Can I retire at 55,” ask, “How can I design a life, and an eventual retirement, that will be comfortable and full of joy.”

To learn how to layout a step-by-step plan for your own transition into retirement, read the 5-star rated book, Control Your Retirement Destiny.

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