March 5, 2018
WE ALL HAVE DAYS when we dream about retiring early, say at age 40 or 50. But the truth is, with people living (and working) longer, retiring at 60 or even 65 is considered “early” retirement these days. It’s also worth remembering that retiring early isn’t always something that happens by choice.
More than half of American workers retire earlier than expected, according to a 2017 Merrill Lynch study created in partnership with Age Wave, Finances in Retirement: New Challenges, New Solutions. The No. 1 reason, reports the study, is an unexpected health crisis. Other common reasons, says Cynthia Hutchins, director of Financial Gerontology at Bank of America Merrill Lynch, include layoffs or caregiving responsibilities.
Preparing to retire at any age requires more than just contributing to your 401(k). Below, Hutchins offers four tips to help you retire ready:
Save early—and often. “Starting as soon as you enter the workforce is ideal,” Hutchins says, but “it’s never too late.” Consider maxing out tax-advantaged accounts like a 401k, an IRA and a Health Savings Account (HSA).
Five years before retirement, meet with your financial advisor at least every six months to make sure you’re on track.
Map out your retirement income. While saving and investing before retirement is key, coming up with a smart plan for turning those assets into an income stream may be even more important. Before you retire, speak with your financial advisor about a distribution strategy that can last throughout your retirement years.
Prepare for rising health care costs. Many people who retire early neglect to plan for the gap between retirement and eligibility for Medicare at age 65. “The average out-of-pocket costs for health care are $5000 to $6000 for a healthy 65-year-old each year,” Hutchins notes. And costs tend to rise as you grow older. Begin to estimate health care costs in retirement with your advisor and create plans to help cover medical bills and caregiving expenses for yourself and your spouse or other loved ones.
Connect with an advisor. “Five years before retirement, meet with your financial advisor at least every six months to make sure you’re on track,” Hutchins says. And if it turns out you’re not totally comfortable with the state of your retirement finances, work a few years longer.
That’s exactly what one client did. Even though she had hoped to retire at 40, Patricia postponed her retirement until she felt financially prepared for what’s ahead. “There were two things that really led me to the decision to retire eight years later than when we were contemplating,” she says. Listen to her story here.
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