The United States doesn’t have an official retirement age. Non-retirees expect to end their careers at age 66, on average, according to Gallup, whereas current retirees had an average retirement age of 61.
But a 2024 YouGov survey found that 59 percent of working Americans would like to retire early, and 40 percent are confident they’ll be able to do so.
With enough savings, early retirement may be possible. But if you want an early retirement and haven’t accumulated a fortune, changing your approach to work could help you attain that goal.
Working in some capacity eases the financial brunt
Retiring fully at a young age means becoming completely reliant on your savings and investments to fund your lifestyle. A shift toward a different type of work or work schedule could help preserve those assets while helping you feel retired to a large degree.
“You can leave a 50-hour-per-week career without leaving work behind entirely,” says Julian Morris, founder and principal at Concierge Wealth Management in Boston. “Many of my clients choose to gradually downshift their hours, which can be healthier than a hard stop. This could include consulting, teaching, mentoring, seasonal work or an encore career completely unrelated to their previous job.”
Adam Spiegelman, wealth adviser at Spiegelman Wealth Management in Alamo, California, says even modest part-time income could make a big difference when you’re trying to stretch a nest egg an extra 10 years.
“If you earn $40,000 a year from consulting or a passion project, that’s $40,000 you don’t have to pull from your portfolio,” he says. “At a 4 percent withdrawal rate [which financial planners commonly recommend as a baseline], you’d need about $1 million saved to produce the same income.”
But part-time income doesn’t just give you extra money to spend. Spiegelman says part-time earnings could be a lifeline if a market crash hits soon after you retire.
Portfolios recover from downturns if their underlying shares eventually increase in price. If you’re forced to sell more shares early in retirement to fund your lifestyle, you’ll have fewer left to participate in that eventual recovery.
Plus, Spiegelman says, early retirement can be more expensive than planned when you consider the cost of bridging the gap until Medicare starts at 65.
“Some part-time jobs come with benefits,” he says. “If yours doesn’t, keeping your income in a moderate range may help you qualify for subsidized coverage on the [Affordable Care Act] marketplace.”
Work could keep you connected and engaged
It’s easy to look at early retirement as a math problem to solve. Part-time work can help make the numbers work, but Morris says there’s another aspect to look at.
“Work gives people more than income. It can provide routine, social interaction, intellectual stimulation, status, purpose and a sense of accomplishment,” he says.
Morris says it’s particularly important for early retirees to replace these things intentionally. That could entail a combination of volunteering, hobbies, or social activities and clubs on top of a part-time or consulting role.
“If you’re retiring at 55, you may be creating 30 or 40 years of life without the built-in structure that work provided for you. So your relationships matter enormously. And your community matters, too,” he says.
That’s another reason Morris recommends an encore career chosen for meaning and not just money. You don’t have to be bothered by lower compensation, he says, because you have more flexibility to choose work that you enjoy but that didn’t pay well enough to pursue full-time during your earlier years.
Planning your early glide path
If you’re considering downshifting rather than stopping work entirely, start by calculating your annual income needs. Make sure to calculate health insurance costs if you’ll be giving up subsidized coverage.
Next, ensure you have savings to access penalty-free. Traditional IRA and 401(k) plans generally impose a 10 percent penalty on withdrawals taken before age 59½. If you’re separating from your employer the calendar year you turn 55 or later, that company’s 401(k) balance may be available to you penalty-free before age 59½.
From there, research part-time work opportunities or an encore career based on your interests and skills. Figure out how much income allows you to cover your costs partially without pressuring your savings too much.
Finally, outline how you’ll fill your days meaningfully if you’ll be working only part-time or shifting to remote consulting work that offers little social interaction. Once you’ve crafted a plan, you may find that an early retirement that incorporates work in some shape or form allows you to free up time and do something rewarding without taking on undue financial risk.
The post How to retire early — the right way appeared first on Washington Post.
