Are you ready for early retirement?

Thinking about an early retirement? You’re not alone. Analysis of government survey data by the Federal Reserve Bank of New York showed that in the past few years, more folks than ever are planning to call it quits by the age of 62.

But it’s important to look at the big picture before making the leap. Sure, it’s easy to dream about relaxing on the beach, reading a good book or golfing with friends. Just remember there’s a lot more to retirement, ranging from practical matters to emotional ones. Here are some of the things to think about.

The benefits of early retirement

We don’t want to give the wrong impression, of course. Retiring early can bring many benefits. You get the freedom to do what you love, whether that’s traveling, learning new skills, volunteering or spending more time with family and friends.

You may also find that early retirement improves your physical health by giving you more time for things like healthy cooking, meal planning and physical activity such as walking, sports or the gym (not to mention removing work stress).

Plus, you gain more control over your life. For many people, that can mean time to focus on personal growth and self-discovery. Not working for a paycheck can allow you to live the life you feel you were meant to.

All that said, it’s crucial to plan well to enjoy these benefits fully.

What does early retirement mean?

Most people think of retirement as being the end of a full-time job. While there are specific ages related people commonly think of as being benchmarks for “normal” retirement (which we’ll cover below), there’s no one definition or legal standard for early retirement. And there are no qualifications or specific dollar amount you need to reach to retire. It’s a very personal decision that will be different for everyone.

Questions to ask yourself about early retirement

If you’re considering early retirement, ask yourself these questions:

What planning have you done to retire early?

Early retirement requires careful planning. This includes saving money, investing wisely, and understanding your financial needs. Make sure you have a detailed financial plan that outlines everything.

But it’s not just a financial plan you need! Early retirement can mean giving up a lot of things – an income stream, employer benefits, social opportunities, mental challenges and even a sense of purpose – but you do get one thing in return: a whole lot more free time. What will you do with it?

What activities are you looking forward to in retirement?

Knowing what you want to do in retirement is crucial to your emotional and financial plan. Think about hobbies, travel plans, volunteer work or even part-time jobs that can keep you engaged and fulfilled.

What concerns you most about early retirement?

It’s normal to have worries about retirement. Common concerns include financial uncertainty, health issues, feeling old and boredom, and they can be magnified by early retirement. Whatever’s keeping you awake at night, make sure you have a plan to address it.

How will your expenses change in retirement?

Your spending habits will likely change once you retire. Some expenses, like commuting and work clothes, may decrease, while others, like healthcare and leisure activities, may increase. Create a new spending plan to reflect these changes.

How will taxes affect your retirement income?

Speaking of changing expenses, taxes can impact how much money you have available in retirement, so make sure you understand how different income sources are taxed and talk to a financial planner about strategies like Roth IRA conversions or tax-efficient withdrawals to help minimize your tax burden.

Where will your money come from?

You’re facing a big reduction in income and without a regular paycheck, you’ll need other income sources. This could include savings, investments, Social Security, pensions or part-time work. Diversifying your income sources can provide financial stability.

This is where your age comes into play. In theory, you can retire at any age. But here are some things to remember.

• Accessing retirement accounts without penalties generally requires being at least age 59½. (There are certain exceptions that can allow you to access the money at age 55 or 50.)
• Social Security won’t be an option until age 62, but even then, taking it might not be the best idea. More on that below.
• Pensions can provide an important income stream if you’re lucky enough to have one. But make sure your projected pension income is reliable – as of last year, the Department of Labor identified 76 pension plans as being either critical, critical and declining or endangered when it comes to their funding levels.
• Obviously, the earlier you retire, the more time you’re going to need to get through without employment income, and the less you can safely draw from investments each year.
• Retirement doesn’t always mean completely stopping work. Part-time work, consulting or gig work are increasingly popular among retirees, and they can mean the potential to retire earlier.

What’s your plan for Social Security?

One key factor in early retirement is the impact on Social Security benefits. Claiming benefits before your full retirement age could reduce your monthly payments by up to 30%. This can affect your ability to maintain your lifestyle. Whereas delaying Social Security benefits can increase your payments, enhancing your financial security. A financial planner can help you optimize your Social Security strategy based on your situation and goals.

How will you get healthcare coverage?

Healthcare can be a significant expense, especially before you can apply for Medicare at 65. You’ll need to find another avenue for health insurance until then. Look into early retirement health care options like COBRA, the public marketplace or a spouse’s plan. Budget for higher premiums and out-of-pocket costs than you’re used to when getting insurance through an employer.

Even when Medicare starts at 65, premiums can be expensive. By law, premiums for plans on the health care marketplace may vary by age and can be up to 3 times as high for a 64-year-old vs. a 21-year-old. The good news: If you have an HSA, you may be able to use the money to pay your premiums starting at age 65 (prior to that, you can only use it for deductibles, copays and other qualified medical expenses).

What if you or your partner need long-term care?

Long-term care can be expensive and is often not covered by regular health insurance. Long-term care insurance could be a smart option, but if you’re younger than age 50 with a good personal and family health history, we generally believe a better choice is to set aside savings for potential care needs.

Have you paid off your debts other than your mortgage?

Reducing debt can make retirement more affordable. Being debt-free can also provide more financial freedom and reduce stress.

Note that paying off your mortgage early isn’t always the best decision, even if you want to retire. Keeping that money invested can give you more liquidity, tax benefits and the potential for additional growth that will help see you through retirement.

How will your portfolio change in retirement?

Your investment strategy should evolve as you get into retirement. For most people, it makes sense to shift towards more conservative investments – but remember that you still need some portfolio growth potential, too, especially given you may have a longer retirement than average.

What employee benefits are you giving up?

Early retirement can mean losing employee benefits, unless you have a spouse or partner who’s still working and can replace them.

Of course, you’ll need to replace employer-sponsored health insurance until you qualify for Medicare at 65.

But you may also lose employer-sponsored life and disability insurance and retirement contributions like 401(k) matches. And don’t forget that fringe benefits like gym memberships, educational programs, pet insurance, and retail discounts could also disappear. It’s essential to reassess these costs and find alternatives to maintain your lifestyle.

Talking with a financial planner can be a crucial step to ensure you’re ready for retirement. An Edelman Financial Engines planner can guide you through these aspects of retirement and help you prepare financially if you’re considering early retirement.