Retire at age 55?

[JoeP]

Just wondering if this is even possible. My dad did it at age 53, and has enjoyed 20+ years of travel, leisure, family time, grandkids, etc.

We will have our house paid off in 5 years, and we have no other debt. We can save for another 5 years after that, and then liquidate the house (300k) and possibly our small lake property (70k), and then buy what we're calling our Final Home on the same lake for maybe 300k. A couple gotcha's:

1. Kids will be entering college in 5-6 years. Already have 529s, about 10k each. Want to avoid college loans, so this means they will likely go to state colleges, work while in high school and maybe part time in college, look toward scholarships, and we may pay for half of their tuition. May also get help from grandparents.

2. Health insurance between 55 and when medicare/ObamaCare/whatever kicks in for us. May need private insurance?

3. Our expenses would include the normal stuff, except no mortgage and no loans. Lake taxes are high, so I suspect some sort of income will be necessary. I could work odd jobs along the lake, but doubtful any will include any kind of health coverage.

4. Sensitive subject, but when we get old, neither of us want to be a burden on our kids or family, and we don't want to spend our last years in some facility. So we'll probably end up dying in our house. What I'm getting at is that we won't plan on those "final expenses" that suck people dry financially.

With our financial planner's help, we're closing in on $1m net worth within 3 years. About half of it will be liquid, and the other half will be 401k/IRA that cannot be accessed until a certain age.

The push and pull of wanting to retire early versus waiting and having more net worth is a tricky one for us. Any advice or observations, maybe from people who have already done this?

Edit: The proposed lake location is 50 minutes from my current employer. If I stay employed there (which I expect, but who knows), I could commute until I turn 60 or so. So in other words, we'd be able to start enjoying the lake before retirement, and have income and health coverage.

[bjl584]

The quick dirty answer is that when your net worth is 20 to 25 times your annual expenses you can retire.

Keep in mind, that's just a ballpark figure. I'd be conservative in the calculations.

What sort of expenses do you anticipate in retirement? I'll assume home maintainance, taxes, healthcare, day to day bills such as utilities, entertainment, groceries, then there will be other things like travel, gifts, and don't forget your vehicle and the costs that go with it.

I'd hate to see you retire and then either run out of money or have to live a meager existance just to survive.

Just take some time to do some number crunching. If it all works out, then enjoy your retiement. If not, then work a few more years and/or trim annd adjust expenses.

[EEinNJ]

Great idea, but you're too young and don't have enough. Before I get into the financial/actuarial reasons and my own experiences, let me ask- Do you have a job you're sick of, and have you spent much time unemployed during your career?

People who've been working for a while without a break get sick of the grind and daydream about retiring. I did, and still do. But in my early 40's I had several periods with months off at a time, between jobs. After about the second spell, I'd already played with all my toys, etc. I was bored & restless. If you're 40-50's, you still have plenty of gas in the tank.

Not having an income for a while is an eye-opener for how fast the bank account depletes. Nothing is getting any cheaper, either. While the gov't. denies the real inflation rate, taxes and medical costs are galloping ahead. Also look at big ticket items like cars. 15 years ago 25K was a near-luxury car. Now, it's a loaded economy car. You may think you have enough now, but that's in today's dollars.

Like always, investments will have good & bad periods in the future. If you look at the last 10 years, equities have actually been pretty much flat in net return. I wouldn't plan on 8-10% returns in the next 10 or 20, either.

Finally, people are living longer than ever, well into their 80's and beyond. If you retire soon, you may well live longer post-retirement than you spent working! If you are so lucky as to live so long, when you get really old and need assisted living, or in home nursing care, it is VERY expensive. Like 100K/yr. for 2 people.

My advice is, try downshifting- try a second career, or work part-time. Keep your mind & body active, and do something you enjoy rather than just for a buck.

[JoeP]

Great idea, but you're too young and don't have enough. Before I get into the financial/actuarial reasons and my own experiences, let me ask- Do you have a job you're sick of, and have you spent much time unemployed during your career?

People who've been working for a while without a break get sick of the grind and daydream about retiring. I did, and still do. But in my early 40's I had several periods with months off at a time, between jobs. After about the second spell, I'd already played with all my toys, etc. I was bored & restless. If you're 40-50's, you still have plenty of gas in the tank.

Not having an income for a while is an eye-opener for how fast the bank account depletes. Nothing is getting any cheaper, either. While the gov't. denies the real inflation rate, taxes and medical costs are galloping ahead. Also look at big ticket items like cars. 15 years ago 25K was a near-luxury car. Now, it's a loaded economy car. You may think you have enough now, but that's in today's dollars.

Like always, investments will have good & bad periods in the future. If you look at the last 10 years, equities have actually been pretty much flat in net return. I wouldn't plan on 8-10% returns in the next 10 or 20, either.

Finally, people are living longer than ever, well into their 80's and beyond. If you retire soon, you may well live longer post-retirement than you spent working! If you are so lucky as to live so long, when you get really old and need assisted living, or in home nursing care, it is VERY expensive. Like 100K/yr. for 2 people.

My advice is, try downshifting- try a second career, or work part-time. Keep your mind & body active, and do something you enjoy rather than just for a buck.

All good points, thanks!

WRT employment, I've been employed for 22+ years, never downsized or out of work. I really like my job and employer, and can see working here for another 10-20 years.

For cars, we never buy new. So we end up with good basic cars with relative inexpensive parts. Of course, this could change, but we don't define ourselves by the need for cars beyond basic (e.g., you'll never see a premium car in our driveway).

How about my commuting option? Still work, enjoy the lake, hopefully still get medical coverage, and then some day just not go into work!

[JoeP]

What sort of expenses do you anticipate in retirement? I'll assume home maintainance, taxes, healthcare, day to day bills such as utilities, entertainment, groceries, then there will be other things like travel, gifts, and don't forget your vehicle and the costs that go with it.

Expenses will be pretty much what you describe. Our house will likely be much smaller, like 900 sq ft, so utilities will be relatively lower.

Again, if I could continue working and commute, this will give me more than enough income to cover those expenses and save up. Then hopefully we'll be built up enough so draw from savings when I retire, and then have SS (maybe), IRA, 401k kick in at whatever age they do.

[97guns]

i retired with less than 300K in total assets, invested the whole thing in income producing real estate that grosses me 12% ROI. 12% of 300K is 36K more than enough for me to live on.

[BMEPhDinCO]

Honestly it sounds to me like you want permission to build and live in a lake house...

But if you have 1-2 kids, it sounds like you should wait until they go to college if you want a small (900 sqft) place.

So I'd save as much as you can for 6 more years, then start building the house, then sell your current one and move in. At that point, you can decide if you want to keep working.

But you can move to the lake house and work still - you don't have to "retire" to move to your dream home.

Or your employer may be willing to work out telecommute or part time (especially in 6+ years).

Good luck with your plans.

[JoeP]

Honestly it sounds to me like you want permission to build and live in a lake house...

But if you have 1-2 kids, it sounds like you should wait until they go to college if you want a small (900 sqft) place.

So I'd save as much as you can for 6 more years, then start building the house, then sell your current one and move in. At that point, you can decide if you want to keep working.

But you can move to the lake house and work still - you don't have to "retire" to move to your dream home.

Or your employer may be willing to work out telecommute or part time (especially in 6+ years).

Good luck with your plans.

Not looking for permission, just soliciting input on feasibility, as well as tips from those who have done it. The house will not be built, we will be buying an existing house. It will be our dream house as long as it is on the lake.

Your advice on saving is in sync with our plans. The telecommute is a good idea as well, if it can be done (it is already about 5% of our work force).

[MonkeyMama]

Very feasible. {My dad retired at that age, and had far less than $1 mil at your current age}.

**Health insurance is a biggie; good to have a plan. You can re-evaulate at that point (age 55) your options. COBRA buys you some time.

**College is going to be a biggie. Depends how that pans out. Many people I know said best savings years were after kids flew nest. Even if they only eeked out 4-5 years before retiring, it made all the difference.

**Age 55 - 60 or 65 you can always work just enough to pay bills, so as to not tap nest egg. My dad has been disabled and unemployed, but without saving for the future and without GIANT income tax bills, he has easily been living off disability and unemployment. Which means they will also very easily live off of social security, perhaps rendering a large nest egg rather moot.

**My dh and I are pondering this because our family is of the SAVE and "don't count on anything" mentality - but I have watched two generations save a pile of money that they never needed to touch. Which makes me think that $1 mil at 45 is more than ample, unless you have some very expensive habits. The key is to have no debts, and to keep expenses low. Without a mortgage and kids to support, our parents live VERY well on very little. 4% withdrawal rate would be six figures for them, at this point, but they are withdrawing $0. My grandparents were the same way, though they didn't have quite the nest egg to fall back on - they still never really touched their savings.

I wouldn't be overly optimistic, but I think your plan is feasible, even for someone who is very conservative.

[Petunia 100]

Not looking for permission, just soliciting input on feasibility, as well as tips from those who have done it. The house will not be built, we will be buying an existing house. It will be our dream house as long as it is on the lake.

Your advice on saving is in sync with our plans. The telecommute is a good idea as well, if it can be done (it is already about 5% of our work force).

One thing you might consider is buying your new home with a reverse mortgage. You put half down and take a reverse mortgage for the other half. You keep the other 150k in your nest egg.

I notice you mentioned that you can't tap IRAs/401k until later. That isn't true. You can tap them early and avoid penalties if you elect substantially equal periodic payments, also known as 72t rules. You do lose the flexibility of deciding how much to withdraw. Just something else to consider.

If you retire young, you will want to start with a very conservative withdrawal rate, like 3%. So if you have 1m in your nest egg, that is 30k per year. It is still some time off, so perhaps your nest egg will have grown to 1.5m, that is 45k per year. Or maybe you feel you will start with a higher withdrawal rate, but will reduce when SS benefits kick in at 62, then again at 65 when Medicare kicks in.

How much do you project you will need to spend each year to cover your basic expenses, and how much do you wish to additionally spend each year? Start with those numbers. Then use them to project how likely it is your nest egg can provide them.

[LivingAlmostLarge]

My mom, MIL, other family members retired at 55. But different times they have a pension and free medical for life. The real killer is how to insure between 55 and 65? Without employer provided insurance and Medicare, those are the highest years of medical expenses. So what do you do?

No mortgage is essential but will your mortgage just turn into a medical premium or deductible or % proportion of your medical care? Honestly only you know what sort of health you are in. Granted some of it is luck. My mom is in excellent health, works out 5 days a week, not overweight, does cardio kickboxing, yoga, weights, etc. But she's had two detached retinas, cataracts and couple other eye issues before turning 60 this year. My MIL is the same except she has retinitis pigmenosa, so is going blind but slowly (also why DH can never not be covered by non employer coverage). But she's had spurs and a couple of other issues but otherwise both are in excellent health, no real issues.

I know those things would have been extremely expensive if they had not had medical coverage. I also know that it would have been horrible to be struggling with an independent plan and not have it covered, excluded, or considered "unnecessary". And yes all those things happen, my mom spent 30+ years as a medical social worker so she knows every loophole. And insurance companies try to avoid paying on anything and everything. Unless you've dealt with them and seen people go BK you wouldn't think it's that bad but it is.

So I think it depends on pricing out the medical insurance and costs associated with retiring before Medicare kicks in.

[snafu]

Since you're wanting to retire early, I suggest you start creating your 'Bucket List' now so you have something to occupy that vast amount of time. It's a good idea to try to negotiate part time hours with your current employer since you enjoy the work and have a good relationship. If at all possible look at your skill sets and try to identify what you could use to create some sort of self employment. Retirement is b-o-r-i-n-g unless you have a plan. Retirees are currently dividing 35 years post employment as activity driven/relationship driven/having some level of assistance.

[Vic Doke]

To Joe P

Hi Joe -

I tried to find a way out for many years and ended up going out at 62.

I am a tradesman and, as such, didn't need to quit a career or a job. I would just quit working for awhile to explore other avenues and opportunities.

I was in-and-out of work for years. I wasn't to-well financially prepared for retirement and so needed to keep working to sock it away.

The overriding sentiment with me was to go ahead and try it. If it needs fixing, I'd fix it along the way. Accordingly, I had a few 'false starts and had to jump back in.

If your mortgages ar covered and your kids' college is covered, what the heck. Take the leap and see how you do.

One effect of cutting the cord of job/income security is it will keep you sharp. I had to do some 'fast-stepping over the years. I found it much more desirable than the hum-drum sameness of going to the same old place everyday for 40 years.

It's not for the feint of heart, however. And, your wife will have to buy into it. Otherwise it becomes doubly tricky.

Just my two sense. I realize I was fortunate to have a trade that I could move around with, leave and come back to. Corporate America doesn't usually work that way.

Best of luck.
Vic Doke

[EarlyRetirementJoy]

Joe,

I retired last year at 48, and my DH retired earlier this year at 56. Our retirement is entirely self funded, as neither of us had jobs that included pensions. Before retiring we did a three way check - we worked out savings figures on our own using a variety of online retirement calculators, we worked with the specialist assigned to our account at our brokerage firm, and we also hired the services of an independent financial adviser. When all three indicated we appeared to be sufficiently funded till an anticipated mortality point of 100 years, I went ahead and retired one year ahead of my husband. By having one of us retire first, we were able to test the waters and see if our retirement budget appeared to be adequate. When we decided that yes, it was, my husband then retired.

Our medical expenses are not horrendous. We went with Kaiser, a well managed health plan in the state where we live, and selected the highest deductible option. Currently I'm $192 a month, my husband is $245. Our deductibles represent an additional possible payout of $6,000 a year combined, but since preventive care is included and not subject to a deductible, and we are both extremely active and healthy, we don't anticipate exceeding the $192/$245 monthly costs for some time to come.

Someone mentioned earlier here about being bored in early retirement. In my opinion, boredom is a choice, generally the result of not being proactive in your own life. When you work, your employer proactively expects you to perform. In retirement you have to take on this task yourself, but you have the luxury of deciding exactly what you're going to be proactive about. Big, big difference.

[97guns]

Joe,

I retired last year at 48, and my DH retired earlier this year at 56. Our retirement is entirely self funded, .

in my opin that self funded retirement will be the only way out down the road, ss is in a heap of trouble, pensions are making cuts, there is talk of nationalizing 401K, the country is in a total mess.

look at greece and the euro zone, they exteneded the retirement ages and people have rioted over this. big changes are coming and if you think everything will be there for you when your ready to go you could be in for a rude awakening.


even my brothers grocery pension is under attack, he's been retired for 4 years and they are now trying to take 100% of his medical coverage away.