A lot of us dream of being able to save enough money to retire in our 50s, or even earlier. But, the reality is that the average American retires around age 65. Since the average lifespan has increased as a result of advanced medicine and technologies, 65 might not sound too old until you realize that many Americans are retiring without enough money to sustain their lifestyles until they die.
According to some research, American households have, on average, just $120,000 saved for retirement. Calculations may vary, but a good standard is, if you hope to retire in your 50s or 60s, then you should have at least 30 years’ worth of expenses saved up before quitting your job. Other sources claim you should have 10x your annual salary saved up to retire in your mid-60s.
With all of this doom and gloom in mind, you might be wondering if it’s still possible to retire early anymore? It depends. Here are some early retirement considerations to make in order to determine if you’re on track to retiring before you reach your 60s.
How to Plan for Retirement in Your 50s
Obstacles to Early Retirement
There are several reasons why people find themselves unable to retire early, despite working hard and saving for many years, including
- Withdrawing from your retirement funds too early which means incurring penalties or simply losing opportunities to accrue more interest through your investments
- Waiting too long to start saving for retirement
- Putting all of your retirement nest eggs into one basket
- Forgoing potential chances to make extra money or create passive income streams
Whether you’re struggling to pay off other debts, waiting for the “right moment” to begin saving for retirement, or relying on a spouse or employer to manage your retirement fund for you, one way to get back on track to meet your early retirement goals is setting up an actionable plan for saving more money and determining how you’ll downsize your lifestyle during your retirement years.
On one hand, you don’t want to reach your 50s with no retirement savings, but on the other hand, you don’t want to assume you’re financially secure enough to retire until you have enough saved up to cover your expenses for the next few decades.
When Should You Withdraw from Social Security?
The Social Security retirement age has risen to 67 for people born in 1960 and later. Plus, it might rise again before those born in the 1980s and 1990s come close to retirement age. Should you initiate your Social Security benefits as soon as you reach the minimum age required to withdraw? Perhaps not, as you’ll receive considerably lower monthly payments over the long run.
If you wait until you’re 70 to begin withdrawing from Social Security, you could see your monthly payments rise by 24% in comparison to those who retire around age 67. The actual numbers are $1,240 at age 70 versus $1,000 at age 67.
Even if you retire in your 50s, it would be advantageous for you to postpone your Social Security payouts until your 70s and use money from a passive income stream until you’re able to access your IRA/401k funds penalty-free at age 59 ½.
Generate Passive Income Streams
Unless you’re saving 40-50% of your income throughout your working life and don’t want relatively hands-off income opportunities during your retirement years, you’ll likely need a passive income stream to support your early retirement goals. Although retiring from your day job is the end goal, you shouldn’t abandon money-making ventures altogether. Instead, generating a passive income with automated investing or dividend reinvestment plans is ideal for anyone who wants to retire in their 50s.
You can start building passive income streams during your career or wait until you retire. Just remember that the sooner you begin, the sooner you’ll be making money on the side.
Peer-to-peer investment platforms like Lending Club or robo-advising investors like Betterment are ideal for anyone who wants their money to be optimally allocated to growth-driven investments with low fees. There may be some upfront effort involved to get the accounts and automated investment settings set up, but after that, you can generally sit back and watch the money come in as your investments begin to pay off.
The newest robo-advisor on the market called M1 Finance gives the more established, sophisticated investors great investing options. M1 Finance simplifies the investment process for beginning and experienced investors alike. Unlike other robo-advisors, M1 Finance does not charge a fee, and it gives you the option of taking more control over your investments if you want them (and less if you don’t).
Final Thoughts on Retiring by Your 50s
Retiring by your 50s is not an impossible dream, even if the costs of living have gone up quite a bit over time and higher levels of consumer debt continue to hamper personal net worth figures.
There are plenty of ways to replace your income during retirement with investments and other passive income streams. Just don’t forget to demonstrate your commitment to retiring early by saving as much as possible in your 20s, 30s and 40s.
Do you know how to plan for retirement in your 50s? Are you on track?
