How to Decide Whether to Start Taking Retirement Early

Check the size of your nest egg.

Many workers start dreaming about retirement as soon as they enter the workforce, but actually getting to retirement can be a real struggle. With the day to day expenses of living, it can be difficult to put enough away to enjoy a comfortable retirement. If you goal is early retirement, you need to start planning for that goal as soon as possible. You also need to take a close look at your finances and your expenses, as well as the amount you can safely expect to withdraw from your accumulated nest egg.

Instructions

1. Contact your employer to determine if early retirement is available. Not all businesses offer the option of early retirement, so you might not be able to start drawing your pension early. If you have a large nest egg of personal assets, you could draw from that until you are eligible for retirement benefits, but you risk depleting your money too soon.

2. Review the benefit statement you receive from the Social Security Administration each year. This statement estimates the benefits you will receive at various retirement ages, but the government makes a number of assumptions concerning your work history up to that point. Retiring early could reduce the amount of your benefits. You can estimate the impact of early retirement on your Social Security benefits on the Social Security website at SSA.gov. You might want to input several different scenarios and retirement ages to see the impact each decision will have on your retirement benefits.

3. Get the amount of your monthly pension benefit from your employer and use that to develop your budget plan in retirement. You can use your existing household budget to estimate your post-retirement expenses, but you might want to budget more for health care expenses and leisure activities. You can start shopping now for an individual health-care plan to get an idea of what those expenses might be.

4. Review your retirement plan statements, including any 401k plans and IRA accounts. Add in any personal accounts you have earmarked for retirement, then estimate how much you could pull out of those combined accounts each year. Experts recommend withdrawing no more than 4 percent in the first year of your retirement if you want your funds to last for 30 years.

5. Add the amount you can safely withdraw from your personal and retirement accounts each year to any pension benefits guaranteed by your employer. Compare that expected annual income to what you expect to spend based on your budget. Keep in mind that expenses can be unpredictable, both in and out of retirement. Therefore you might want to build in a cushion to your retirement. If your budget looks tight, you might want to work a few more years to beef up your nest egg and get a handle on your expenses.

References

• CNN Ultimate Guide to Retirement -- Living in Retirement

Resources

• Social Security Admnistration