Many people dream of the day they can cast aside their suits and embrace the relaxed life of a Hawaiian shirt-wearing retiree. The allure of abandoning the rigors of the 40-hour workweek is undeniable, but understanding the financial constraints associated with life after retirement is crucial, especially if you’re wondering how to retire before 60.

Early retirement requires careful planning and a thorough understanding of post-retirement money management. Here are a few key components to consider if you’re aiming to retire before 60. For personalized guidance on early retirement planning, reach out to a financial planner who can help you achieve this goal and ensure your financial stability long after you’ve stopped working.

How Could You Retire in Your 50’s by Choice?

Retiring in your fifties takes an immense amount of planning and strategy. You will need abundant retirement savings to retire early. If you’re a 55- year old male, the average projected lifespan is approximately 75 years old. This means you will need to have at least 20 years of income to live comfortably on if you live only to the average life expectancy. Take into consideration that many retirement savings vehicles also have minimum age requirements to access the funds you’ve set aside. So, you may need to consider what type of investments and retirement savings accounts you’re using to ensure you can access your money when you’ll need it

You may also need to have other (sometimes overlooked) components of retirement planning in place. This is where meeting with a financial advisor once you’ve identified your goal to retire early is extremely important. While you may have a general understanding of what accounts, investments, and savings vehicles you should be using, a skilled financial advisor will be able to give you direct access to all of the information you need, and maybe even some details you didn’t previously know or overlooked.

Ways to Tap Retirement Savings Accounts Before 60

The IRS discourages early withdrawals with 10% penalties on traditional IRA accounts prior to age 59½. Furthermore, withdrawals from many employee retirement plans before age 59½ also have penalties associated. But, the good news is, that you may be able to avoid these penalties.

If you are someone who has an IRA or workplace retirement account that you fund with pre-tax dollars, you can convert this account to a Roth IRA. This would allow your future contributions to be purely post-tax dollars. While the conversion from the traditional IRA to a Roth IRA is a taxable event, it allows a pre-retiree more potential to retrieve retirement savings early. Before age 59½, you can make tax-free, penalty-free withdrawals. However, it’s important to note that these withdrawals can only be from the amount you’ve actually contributed, and you will not be eligible to withdraw from the earnings to the Roth IRA, from your contributions.

After age 59½, you can withdraw contributions and earnings tax-free. This is contingent, based on if you’ve owned the Roth IRA for a minimum of five years. For Roth IRA conversions, the five-year period begins on January 1 of the year in which the conversion happens. Roth conversions may be a good move for some, but a bad move for those who live in high-tax states with plans to retire to a state with lower income taxes.

Under the IRS Rule 72(t), you have the option of taking “substantially equal periodic payments” (SEPPs) for five years from an IRA in your fifties. The schedule of payments must end after five years or when you turn 59½, whichever is later. Such withdrawal taxations are on ordinary income and the distribution schedule cannot change once distributions have begun.

Life Insurance Could Assist You

For most pre-retirees, buying life insurance comes down to the pursuit of the largest death benefit for the lowest cost. If you have enough net worth to retire before 60, you may have additional objectives when it comes to what you hope to achieve with your policies payout. A sizable death benefit could help your heirs pay estate taxes. A whole life policy might provide a consistent return akin to a fixed-income investment in retirement, but without the usual interest rate risk.

Take into consideration your specific situation and needs. Then, decide on the type of policy you want to pursue with a focus on what would best benefit your heirs. This is another area that planning early will assist you greatly. The earlier you purchase a life insurance policy, the less you’re likely to pay in your monthly fees.

An HSA Might Help with Upcoming Health Care Expenses

If you retire before 60, you must acknowledge that you could live another 35 to 40 years. Fidelity believes that a retiring 65-year-old couple will need $315,000 for future health care costs alone. It bases its forecast on Social Security life expectancy projections, which have the average 65-year-old retiree living to about 85. If your retirement turns out to be twice that long, you’ll need to set aside much more.

A Health Savings Account (HSA) offers a potential triple tax advantage. Your contributions are exempt from tax, the money saved or invested within the account benefits from tax-free growth, and withdrawals are not taxed if the money pays for health care costs. This is why many people are looking at the combination of HSA-plus-HDHCP (high-deductible health care plan).

Don’t disregard your health care needs when planning for retirement. Remember that your late years will probably come with some sort of significant issues that you will either require extended care for or long-term assistance with. If you plan to retire early, assure you’ve adequately planned for this area for you and your spouse.

The Bottom Line

Retiring in your fifties may present you with greater financial challenges than if you retire later. While you may retire in better health, you will have to wait to collect Social Security and Medicare coverage. If early retirement is on your mind, consult a financial professional to see if your savings, your potential income streams, your insurance situation, and your ability to work part-time correspond to your objective. Contact Navalign Wealth Partners today to discuss your retirement plans and ensure you’re on the right path to achieving your goals.