I’ve heard it said that 30 is the new 20, implying that on the whole we are leading more youthful lives than those before us did. And 40 is the new 30.
Is 50 the new 40?
And from a retirement perspective…is 50 the new 65?
Age 62 has historically been the average retirement age for women, and age 65 for men. But wouldn’t it be groovy at age 50 to be as healthy and spry as someone ten years younger, and yet as financially fit as someone ten to fifteen years older? With this, you may leave your desk and enjoy the leisure of retirement much earlier while things still feel so good.
I think most of us can agree that retiring earlier is more desirable than retiring later, provided that we can afford it. With that in mind, many (Millennials in particular – see here) are working hard to save and position themselves to retire well in advance of the typical ages of 62-65.
There are many factors contributing to when one might decide and afford to retire. Consider some of these:
- Medicare benefits – Age 65 is also when we qualify to enroll in Medicare, a benefit greatly reducing the cost of our health insurance and medical care.
- Social security benefits – One may begin collecting this at age 62, although general advice suggests waiting until age 70 to maximize those benefits in total.
- Retirement account access – We are highly discouraged from and generally penalized if we withdraw from our retirement accounts before age 59 and a half.
It’s important to understand that someone at age 50 is not yet old enough to tap their tax-deferred retirement accounts without penalty or to yet take advantage of Medicare and Social Security benefits. With this in mind, what does it take to retire so early?
Net worth to draw upon.
Generally, one nears retirement ready once assets exceed 25 times anticipated annual living costs. For example, annual costs of $100,000 would require wealth of at least $2.5 million.
Liquid assets outside of tax-deferred retirement accounts.
If retiring before age 59 and a half, it’ll be important to have funds available outside of tax-deferred retirement accounts to fund annual costs until then. Such funds might be held in:
- Taxable accounts – These are your run-of-the-mill investment accounts (general brokerage or checking and savings) which are freely accessible and not restricted due to retirement account rules.
- Roth accounts – These are after-tax retirement accounts where contributions (but not the earnings) which have been in place for at least five years may be withdrawn without penalty.
Within those anticipated annual living costs, it’s important to account for the cost of health insurance and medical care before age 65 when Medicare becomes available.
So how about it? Is 50 the new 40 while also being the new retirement age?
Here’s how to give it your best shot: eat your vegetables, exercise regularly and PAY YOURSELF FIRST.