Questions you’re asking: Can I retire early?

Retiring early might be something you’ve daydreamed about — or something you’re planning. Even if it isn’t your goal, it can be smart to prepare for it so you can feel empowered to make the best decision for you in case of an unexpected event such as a late-career layoff or even a health crisis.

How do you define early retirement? Is it prior to age 62 when Social Security benefits can begin? Maybe early means before age 65 when Medicare coverage begins. Based on your birth date, your full retirement age as defined by Social Security may not be until age 66 or later. In order to develop a plan, it is helpful to define a retirement age that makes sense for you.

Being able to retire at your desired retirement age could depend on identifying and addressing any gaps in your retirement plan sooner versus later. Effective planning is often the key to helping ensure that your resources will fund a happy, secure retirement.

In order to develop a plan, it is helpful to define a retirement age that makes sense for you.

These five considerations can help you shape your plan.

1. Know your goals — and where you can be flexible

Well-rounded retirement planning is not just about managing money but about managing a portfolio of goals. That means outlining what you hope to accomplish with early retirement, understanding what you’ll do with your time, and making sure that you and your partner, if you have one, are on the same page. For example, do you hope to enjoy your winters on a beach? Tour the United States in an RV? Or spend more time cooking, creating art, or volunteering?

Before retirement, many people simply focus on accumulating lots of assets and assume that those assets will pay for whatever they decide to do. But targeting a certain amount of assets often isn’t enough, as health care costs or other needed expenses might take priority over recreation. The key can be to create a retirement plan based on how you want to spend your time that includes built-in flexibility.

In other words, what goals are you willing to change? And how will you change them? It’s prudent to think through and have options for the trade-offs that could arise.

2. Understand your spending

Many financial advisors recognize that spending in retirement can be the same as — or even higher than — what individuals spent before retirement. This is often due to more active lifestyles in retirement and to the increasing costs associated with health care and other necessities.

Establishing a baseline budget before retirement is a good place to start. This will help you understand the income you may need to live, pay for health care, and meet other obligations. Doing this can also help you see places where you can cut expenses to help you save more for retirement.

Things like market volatility, inflation, and sometimes even your own health are not necessarily within your control. However, you can control what you spend on things other than necessities and adjust your spending when needed.

3. Take health care costs into account

Identifying possible retirement planning gaps could also involve weighing health expenses if you retire early. Even if you become eligible for Medicare soon (coverage starts at age 65), a younger partner could need another form of coverage.

If you have a spouse who will continue to work for an employer who provides health insurance, one option may be to get coverage under that plan. Otherwise, paying for health coverage until you qualify for Medicare at age 65 will be an important expense to consider in your retirement planning.

This will also be a time to explore costs associated with long-term-care insurance to help cover costs associated with in-home health care, assisted living facilities, or nursing homes. These costs aren’t covered by traditional health insurance, making them a common planning gap that can be costly: Today, the median annual cost of a private room in a nursing home is more than $116,000.¹

4. Carefully consider when to start collecting Social Security

You can opt to take Social Security payments as early as age 62, though delaying can mean bigger checks in future years. However, postponing receiving Social Security isn’t always the best choice.

Delaying Social Security could require you to live entirely off your savings and investments for several years. Drawing from your savings and investments could reduce the amount of money that might potentially be there at the back end of your life expectancy — money that you might need or may want to pass on to family members.

Once you’ve retired, it can make sense for you to reevaluate your situation annually before deciding whether to continue delaying Social Security payments. One item you need for that annual review in retirement: a current copy of your Social Security benefit estimate from ssa.gov.

5. Explore ways to fill potential income gaps

Understanding your anticipated expenses allows you to begin to identify the income sources to help pay for them in retirement. With your income sources clearly defined, you can have a plan in place to offset potential disruptions from market volatility.

So what happens if you find a gap between your retirement goals and your expected or actual retirement income? It mostly boils down to two main choices: Reduce your spending or find more income. Learn more about creating a retirement income plan.

Some retirees start new jobs or careers based on hobbies and interests — giving music lessons or overseeing operations at a golf course, for example. And some take on a part-time role doing something that they enjoy. The benefits can be both financial and emotional. So think about all of the options available to you as you consider retiring early.