Many people dream of retiring early, especially by age 55. Retiring at such a young age may seem unrealistic, but with proper planning and sacrifice, it is possible for some. There are many factors to weigh when considering retiring at 55, such as finances, healthcare, lifestyle, and whether you still want to work in some capacity.
Is it financially feasible to retire at 55?
The most important consideration for retiring early is whether you have saved enough to fund your retirement years. To retire comfortably at 55, most financial experts recommend having at least 25-30 times your intended annual retirement spending saved up. So if you estimate needing $50,000 per year in retirement, you should aim to have $1.25-$1.5 million saved by 55.
There are several ways to build up a retirement nest egg large enough to retire at 55:
- Start saving aggressively in your 20s and 30s, contributing 15-20% of your income to retirement accounts
- Invest savings aggressively in stocks and other higher return assets to accumulate compound growth
- Downsize your lifestyle and minimize expenses to maximize savings
- Receive a large windfall such as an inheritance or proceeds from selling a business
The earlier you start saving, the less you will need to save each year due to compound growth over time. Delaying retirement contributions until later in life requires much higher yearly savings to catch up.
Factors impacting retirement savings needs
Several personal factors impact exactly how much money you need to save to comfortably retire at 55:
- Debt load – Paying down debts like mortgages and student loans by 55 reduces retirement spending needs.
- Spending habits – Those used to spending less require a smaller retirement nest egg.
- Healthcare – Excellent health and lower healthcare costs require less savings.
- Life expectancy – Planning for a longer retirement requires more savings.
- Desired lifestyle – Simple, low-cost lifestyles require less savings than frequent travel and luxury.
- Rate of return – Earning higher returns on investments reduces savings needed.
- Inflation – Higher inflation growth increases the nest egg needed.
Using retirement calculators to model different scenarios with your specific details can help determine the target savings you need. An early, consistent savings plan is key to amassing enough funds.
How to handle healthcare before Medicare eligibility
One significant financial consideration for retiring at 55 is paying for healthcare. Medicare eligibility does not start until age 65, leaving a 10 year coverage gap needing funding.
Options for covering healthcare from 55-65 include:
- Enrolling in a spouse’s employer-provided health plan
- Using COBRA to stay on an employer health plan for 18 months
- Purchasing private individual health insurance
- Enrolling in the healthcare exchange for subsidized coverage
- Paying out-of-pocket for healthcare expenses
Each option has pros and cons to weigh regarding coverage, flexibility, networks, and costs. Budgeting higher healthcare expenses for early retirement is wise. One strategy is to build up a dedicated Health Savings Account (HSA) before retiring to cover healthcare costs tax-free.
How will retiring at 55 impact your Social Security benefits?
Collecting Social Security benefits before your full retirement age results in permanently reduced payments. For anyone born in 1960 or later, full retirement age is 67. Retiring at 55 would mean starting Social Security benefits 12 years early at a significant reduction.
For example, if your full monthly benefit at 67 is $2,000, electing to start benefits at 55 would only entitle you to roughly $1,050 per month. The reduction is approximately 30% for starting 9 years before your full retirement age. However, the total lifetime benefits received starting at 55 can exceed waiting until 67 if you have average life expectancy.
Strategically timing when each spouse claims Social Security can help maximize total household benefits. For most, delaying benefits as long as possible up to age 70 results in the largest payment amounts. With proper planning, Social Security can still provide meaningful retirement income starting at 55.
Lifestyle considerations around retiring at 55
Beyond just the financial aspects, retiring at 55 impacts many other areas of your lifestyle. Carefully think through these other effects on your retirement satisfaction:
- Family – Having more free time can allow you to spend more time with children and grandchildren. But inability to financially help family could strain relations.
- Spousal dynamics – Both partners retiring at the same time can be challenging if not accustomed to being constantly together.
- Housing – Downsizing or relocating homes could be preferable to reduce expenses in early retirement.
- Travel – More frequent travel is often a retirement goal, but extended travel costs require sufficient savings.
- Health – Studies show early retirees need to maintain physical activity to stay healthier long-term.
- Purpose – Replacing the mental stimulation and fulfillment of a career with hobbies and volunteering is important.
Adjusting your living situation, relationship, and daily activities to align with your desired retired lifestyle takes effort. Remaining social and pursuing low-cost activities and hobbies is important for satisfaction.
Should you continue working in some capacity?
Some form of part-time or intermittent employment, either in your career field or a new endeavor, can make retiring at 55 more affordable. Working at a reduced schedule allows you to leave a primary career while still earning income to support yourself.
Potential benefits of continuing work include:
- Earning enough to cover expenses if retirement savings are inadequate
- Accessing affordable employer health insurance until Medicare eligible
- Maintaining job skills and professional connections
- Preserving mental sharpness and daily structure
- Supplementing income with extra savings
Many early retirees enjoy redirecting their skills to consulting, freelancing, starting a small business, or a passion career. Part-time work provides fulfillment without the time demands of a full-time job. Even earning a modest consistent income can make a big difference in retiring comfortably at 55.
Types of work to supplement retirement
Some examples of popular forms of work to earn extra retirement income include:
- Consulting in your former profession on a project basis
- Advising small businesses in your industry for a fee
- Selling products or services online through a home business
- Tutoring students in academic subjects
- Freelance writing or skilled services like programming and design
- Part-time employment with a small local company
Choose intermittent or temporary work commitments that provide flexibility to still enjoy retirement. Weigh how much income you realistically require against your desired free time.
Key factors that influence the ability to retire at 55
Succeeding at retiring comfortably at 55 relies heavily on these key factors:
- Savings rate – Saving 15-20% annually enables accumulating enough assets.
- Investment strategy – Earning market-rate returns accelerates reaching savings goals.
- Spending habits – Lower spending needs require a smaller nest egg.
- Debt reduction – Eliminating debts, especially mortgages, reduces expenses.
- Supplementary income – Earnings from part-time work provide a cushion.
- Healthcare costs – Controlling healthcare spending and utilizing an HSA helps manage the expense.
- Social Security timing – Delaying benefits as long as possible increases monthly income.
- Relocation – Moving to an affordable area reduces living costs.
Those able to optimize these factors have the highest probability of a secure and comfortable early retirement. Compromising on some factors, like a more modest retirement lifestyle, may enable retiring at 55.
Early retirement planning checklist
If aiming to retire at 55, here is a checklist to help develop a successful retirement plan:
- Calculate target retirement savings goal based on expected spending needs. Review annually and adjust.
- Open a retirement savings account like an IRA or 401k. Contribute at least 15% of income. Increase contributions whenever possible.
- Research investing strategies focused on growth while young to accumulate savings faster.
- As retirement approaches, gradually adjust investments to more conservative assets to protect principal.
- Downsize household expenses whenever possible to maximize savings.
- Take advantage of any employer retirement healthcare options to bridge until Medicare eligibility.
- Research Social Security timing strategies and spousal coordination to optimize benefits.
- Explore part-time work or small business opportunities to provide supplementary retirement income.
Planning a decade or more in advance for early retirement at 55 provides flexibility to tweak your strategy over time. Continually monitor your progress to determine if you need to make adjustments to ensure you stay on track.
Frequently asked questions
Can I withdraw retirement savings without penalty at 55?
You can take penalty-free withdrawals from 401k plans and IRAs at age 55 in most cases. This provides access to retirement savings if needed when retiring early. However, withdrawals will still be taxed as ordinary income and reduce your overall nest egg.
What income sources should I rely on if retiring at 55?
At 55, you can tap retirement accounts like 401ks and IRAs. Other options are Social Security if you delayed benefits, income from part-time work, investment income from non-retirement accounts, and passive streams like rental property income. Having diverse income sources provides more flexibility.
How much income do I need if retiring at 55?
Aim for around 70-80% of your pre-retirement income to maintain a comparable lifestyle. However, your specific income need depends on many factors like family size, large expenses, healthcare costs, and desired retirement activities. Build financial models using your personal details.
Can I still retire at 55 without a large nest egg?
It is challenging to retire at 55 without sizable existing savings. You would need to rely much more heavily on other income sources like Social Security and part-time work. Consider delaying retirement for a few more years to keep building savings to make retiring at 55 more viable.
What should I do 5-10 years before wanting to retire at 55?
In the final decade before retiring at 55, focus on aggressively eliminating debts, downsizing expenses, and optimizing healthcare coverage. Shore up retirement savings shortfalls through extra lump-sum contributions. Expand income streams with part-time work. Model different Social Security start dates. Focus on health and wellness.
Conclusion
Retiring comfortably at 55 requires diligent savings, investment growth, and expense management starting early in your career. Achieving viable retirement income takes a combination of accumulated savings, Social Security, and supplementary part-time work. With proper preparations, retiring at 55 is an attainable goal for many. But you must be willing to make some trade-offs from a traditional retirement lifestyle.