Retire at 55 and Never Work Again: Is It Possible?

Retirement at 55 is possible, but it takes careful planning and discipline.

Many people dream of retiring at 55, but achieving this goal requires careful planning. While the traditional retirement age is 65 or older, early retirement can give you more time to pursue your passions and interests. However, it is important to have a strong financial foundation before retiring in your mid-50s. Running some calculations can help you determine if retiring at 55 is realistic for you. An investment advisor portfolio manager can also help you estimate when you may be ready to retire.

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Is it Realistic to Believe I Can Retire at 55?

There are no legal barriers, or any other rules that prevent retiring at 55. In fact, some people in the FIRE movement aim to retire as early as 40. So, retiring in your mid-50s is perfectly legal and possible.

However, it’s important to remember that retiring at 55 is not the norm. The typical retirement age prescribed by Social Security is 66 or 67. And some people may choose to delay retirement until their 70s or even work indefinitely.

What About Collecting Social Security at Age 55?

Social Security retirement benefits can be a valuable part of your retirement income. However, you cannot start receiving them until you reach age 62. And if you start taking them early, your benefits will be reduced.

Your benefits can also be reduced if you continue to work while receiving them. For example, if you retire from your full-time job at 55 but start doing consulting work, your consulting earnings could reduce your Social Security benefits.

On the other hand, you can increase your Social Security benefits by waiting to start taking them. If you wait until age 70, for example, your monthly payment will be 132% of your regular benefit amount.

So, if you are considering retiring at 55, it is important to keep in mind that you will not have Social Security benefits as a source of income for several years. And if you do start taking Social Security benefits early, your benefits will be reduced.

How Do Withdrawals Work if You Retire at Age 55?

Saving for early retirement in a 401(k) or IRA can be challenging because of the penalties for withdrawing money before age 59½.

The Rule of 55 allows you to withdraw money from your current 401(k) or 403(b) without a penalty if you retire, get fired, or are laid off in the year you turn 55. However, you cannot withdraw money from 401(k) plans from former employers without a penalty before age 59½, unless you roll them into your current 401(k) or IRA.

Traditional IRAs generally cannot be withdrawn from before age 59½ without a penalty, unless you qualify for an exception. Roth IRAs allow you to withdraw your original contributions tax and penalty-free at any time, as long as the account has been open for at least five years, AND you cannot withdraw earnings from a Roth IRA before age 59½ without a penalty — unless you qualify for an exception.

To supplement your retirement savings from 401(k)s and IRAs, you can consider investing in other accounts, such as an online brokerage account, regular savings accounts, money market accounts, cash value life insurance, or an annuity.

Annuities can provide a regular stream of income in early retirement. This type of insurance contract allows you to pay a premium to the insurer and receive regular monthly payments beginning at a date you choose. Annuities can be a good option for people who want a backup source of income until they are eligible to withdraw money from qualified accounts or claim Social Security benefits.

How Much Will I Need to Retire at 55?

Retiring at 55 requires more careful planning than retiring at 65 or older because you will need to stretch your savings for a longer period of time.

If you retire at 65 and live to 90, your money needs to last 25 years. But if you retire at 55, your money needs to last 35 years. This means you will need to save significantly more money to achieve your retirement goals.

In addition to saving more money, you will also need to be more mindful of your spending in retirement. You may want to consider downsizing your home, cutting back on unnecessary expenses, and finding ways to generate additional income.

It is also important to factor in the possibility of needing long-term care in retirement. Long-term care can be very expensive, so it is important to have a plan in place to pay for it.

The amount of money you need to retire early depends on your desired lifestyle and financial goals. If you’re willing to simplify your life and live frugally, you may be able to get by with a smaller nest egg. However, if you have plans to travel extensively, buy a home, or start a business in retirement, you’ll need a larger nest egg.

Here are six things to consider when preparing a budget for retirement at age 55:

1. Your current income and expenses. This will give you a baseline to work from when estimating your retirement budget.
2. Your expected retirement income. This will include Social Security benefits, pension payments, and income from your savings and investments.
3. Your desired lifestyle in retirement. Do you plan to travel extensively? Downsize your home? Move to a warmer climate? Your lifestyle choices will have a significant impact on your retirement budget.
4. Your health care costs. Health care costs are a major expense in retirement, especially for early retirees who are not yet eligible for Medicare.
5. Your inflation expectations. Inflation will erode the value of your savings over time, so it is important to factor inflation into your retirement budget.
6. Your risk tolerance. Are you comfortable with investing in risky assets to generate higher returns? Or do you prefer to invest in more conservative assets to protect your savings? Your risk tolerance will play a role in determining your investment strategy and, ultimately, your retirement income.

Here are some ADDITIONAL tips for preparing a budget for retirement at age 55:

• Start planning early. The earlier you start planning for retirement, the more time your money has to grow.
• Be realistic about your expenses. It is important to create a budget that you can stick to. Don’t underestimate your expenses or overestimate your income.
• Be flexible. Your retirement budget may need to be adjusted over time as your circumstances change. For example, if your health care costs increase or if the market takes a downturn, you may need to make changes to your budget.
• Work with an Investment Advisor Portfolio Manager. An investment advisor portfolio manager can help you create a retirement budget that meets your individual needs and goals. They can also help you develop an investment strategy and retirement projection to achieve your retirement goals.

Determining how much money you need to retire at 55 can be easier if you take some time to answer some questions. For example, you might be wondering if 55 is a possibility on $500,000, $1 million, or even $2 million.

There are some basic rules of thumb that can help you get started. For example, one common piece of advice is to aim to have seven times your annual income saved by age 55. So, if you make $100,000 per year, you would need to have saved $700,000 by your 55th birthday.

However, this is just one part of the equation. You also need to consider how long that $700,000 will last you in retirement and how much more you may need to save, based on your estimated budget.

Retirement planning can be complex, but it is important to start planning early and to work with an investment advisor portfolio manager to develop a plan that meets your individual needs and goals.

What About Health Care?

One of the most important expenses to consider when retiring at 55 is healthcare. Medicare doesn’t start until age 65, so you’ll need to make other arrangements for covering your healthcare costs for the 10 years before that.

Some options for paying for healthcare include:

• COBRA coverage: This can be expensive, depending on your employer’s plan.
• Purchasing coverage through the healthcare marketplace
• Enrolling in a spouse’s plan: This can be the most cost-effective option, if you have a spouse who has employer-sponsored health insurance.
• Healthcare sharing: This is a relatively new type of insurance that can be less expensive than traditional insurance, but it may not cover all of your healthcare needs.
• Going without insurance: This is not recommended, as it could leave you with large medical bills if you get sick or injured.

COBRA coverage can be expensive, but it depends on the plan you had with your employer. If you have a spouse with employer-sponsored health insurance, that may be the most affordable option until you’re eligible for Medicare. But unmarried retirees or those with spouses who aren’t covered may need to look elsewhere.

You should also consider your long-term care needs. Long-term care can be very expensive, and it can drain your savings quickly. Medicaid can help pay for long-term care, but you may need to spend down your assets first. A Medicaid asset protection trust can help you avoid this, but you should talk to an investment advisor, portfolio manager, or estate planning attorney to see if it’s right for you.

To estimate how much you’ll need to save for healthcare costs, consider your actuarial age. This is an estimate of how long you’re likely to live, based on mathematical calculations and statistics. According to the Social Security Administration, men at age 70 can expect to live about 14 more years, while women the same age can expect to live about 16 more years. Planning ahead can help make your early retirement sustainable.

In Conclusion

Retirement at 55 is a challenging goal, but it’s possible with a well-thought-out financial plan. When thinking about early retirement, keep in mind that it will affect how much you need to save and where you’ll need to keep your savings. You should also consider what investment vehicles or planning tools you can use, such as annuities or cash value life insurance.

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Joe A. Macek, FMA, CIM, DMS, FCSI

Investment Advisor, Portfolio Manager

iA Private Wealth | iA Private Wealth USA

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