Experts Reveal What Makes Early Retirement at 62 Possible
Not everyone can retire at age 62, even if they want to. Not only is everyone’s path to retirement unique, but some simply aren’t financially — or emotionally — prepared to leave their career behind and launch into retirement.
Of course, if you do want to retire at 62 — or at any specific point in your life — there are a few signs you’ll be able to do so. Here are the big ones, according to experts.
Discover Next: 18 Money Skills You Really Should Know in Your 30s and 40s
Consider This: Start Growing Your Net Worth With Smarter Tracking
1. You’ve Got Multiple Income Streams
In retirement, many people rely on Social Security. However, you’re more likely to weather any financial challenges that come your way with more than one source of income. If you’ve got that covered, you could be ready to retire when you want to.
“If you have at least two reliable sources of income that can comfortably cover your essential expenses, that’s a good sign you’re financially secure enough to retire early,” said Erika Kullberg, attorney and founder of Erika.com. “Whether that’s across Social Security, pension or investments and savings, this income should be consistent and reliable, and comfortably cover rent/mortgage, food, healthcare and any other essential costs.”
2. You Can Live on 4% of Your Investments
Having multiple income streams that can replace your regular paycheck is important, but if you can also live on your investments throughout your retirement years, that’s a good sign, too.
“With multiple income streams, it suggests you have enough to replace what would be your paycheck,” said Joe F. Schmitz Jr., founder and CEO of Peak Retirement Planning. “This is a very common thing to hear, but if you can withdraw 4% a year from your retirement accounts, then you are in a good spot.”
Say you have $2 million in total retirement savings and investments. Following the 4% rule, this would give you roughly $80,000 a year to live on (not accounting for inflation or unforeseen costs). Run the numbers to see if you have enough to sustain you throughout your retirement.
3. You Have a Long-Term Plan
If you’ve considered all possible outcomes, run the calculations and created a sound financial plan that covers not just the immediate future, but the next multiple decades, you could be on track to retire.
Ask yourself whether or not you have an actual retirement income distribution and preservation plan. Chances are you’re going to need one.
“My first answer is to have an actual plan that goes into effect at age 62,” said Steven Charlton, certified financial fiduciary and founder of Wisdom Financial. “You should start planning at the age of 30 or 40, allowing the maximum opportunity of achieving financial success because you’re looking at the end and building it for the end, not just for today.”
Charlton gave several suggestions for what you should have figured out before retiring. The first is knowing what your guaranteed income streams will look like when you turn 62 and beyond. Again, plan to have enough income to last between 20 and 30 years. Make sure you understand where those income sources are coming from and how they’ll be taxed. And don’t forget to have a set monthly budget.
Your plan should also account for — and control — risks as much as possible. This includes:
Sequence and returns risk (volatility): This “requires a volatility buffer to be able to have protected assets that can be leveraged to distribute from during years of market downturns,” Charlton said. “Withdrawing from a market-based asset when the market is down causes too much disintermediation.”
Tax risk: “Finding out what their tax diversification index looks like to see if leveraging Roth conversions or 7702 planning makes sense,” said Charlton.
Longevity risk: “People are living longer today, and the older they get, the greater all of these risks compound,” said Charlton. “Most spend 80% of their money in the last two years of their lives.” If you don’t prepare for this one (and this includes long-term care), you could wind up financially devastated.
Fee and inflation risk: “These are actually the two biggest risks that all retirees have to deal with as they erode a tremendous amount of their assets to pay for things that they do not need to pay for,” said Charlton. “Inflation-proofing a plan is key to success.”
Last but not least, ask yourself if you’ve got a plan for healthcare and medications. This could mean creating a separate fund to cover these things. Worst-case scenario, you have it when you need it. Best case, you don’t end up using it and have something more to leave behind for your heirs.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion:
Discover a Smarter Way to Keep Unexpected Expenses From Derailing Your Budget
The New Middle-Class Trap: Making $100K but Living Paycheck to Paycheck