Retiring Early Is Your Dream. 7 Steps to Make It Come True.

By Cheryl Winokur Nov. 6, 2023 Barron's

Thinking about early retirement? You’re not alone. Financial advisors are fielding more calls these days from clients looking to leave the rat race earlier than anticipated.

While many people simply can’t afford to retire in their 50s or early 60s—and others don’t want to—advisors say they have seen an uptick in client inquiries for reasons that include return-to-office mandates, corporate layoffs, and a postpandemic yearning to enjoy life more fully.

During Covid, people got a taste of what retirement could look like, says Mike Leverty, chief executive of Leverty Financial Group in Hudson, Wis. This included more time at home and with family and people aren’t necessarily willing to give that up, says Leverty. He shared an example of a client in his late 50s who is being recalled to the office after having moved more than 500 miles away three years ago. “If the employer won’t allow for flexibility, the next step is going to be to go through an income/expense analysis,” Leverty says.

Here are steps to take when weighing early retirement decisions:

Understand the why. Before even getting to the finances, certified financial planner Chris Briscoe helps clients flesh out why they want to retire. “You can get to the asset picture pretty easily, but it’s not just about money,” says Briscoe, director of financial planning at Girard Advisory Services based in King of Prussia, Pa.

If the intention to retire is job-related, he asks what would happen if they had a job they enjoyed. If it is lifestyle-driven, he probes further what they are trying to accomplish—and why. Maybe clients saw their parents struggle to enjoy their retirement due to health or other issues, or maybe there’s another underlying reason. Pinning this down sets people on a course to define their retirement goals, Briscoe says.

Play devil’s advocate. David Sparks, senior wealth advisor at Mariner Wealth Advisors in Cincinnati, tries to lay things on the line for clients. Retiring at age 55 can seem like a panacea if you hate your job, but there may be better options—a different job, a switch to part-time, or another option that could be better for the client’s financial and mental well-being, he says. “When you are 55, in your peak earnings years, you might not want to walk away from that, especially if you have kids in college, or if your friends are still working—what will socialization be like?”

Crunch the numbers. Of course, finances have to be carefully considered. Russell F. Hackmann, president of Hackmann Wealth Partners, which has offices in Massachusetts and Connecticut, offers the example of a couple in their mid-50s. The wife is a stay-at-home mom and the husband was working in a corporate, high-stress job that required significant travel. They had amassed a nest egg in the $2 million- to $2.5 million-range and sought his advice about the husband potentially retiring in the next year.

One of his first steps was to craft a financial plan to ensure they could weather market ups and downs. “If you’re retired for 35 or 40 years, the market is going to crash at some time. It’s just going to. It’s a little like building a house in a hurricane zone. We’re probably going to get hit at some point, so we’re going to build a very strong house,” he says.

Plan ahead. Hackmann started working with this particular couple about a year before they planned to retire, talking about issues such as tax-planning, healthcare, and cash-flow. He crafted a plan that could enable them to live comfortably without having to work in retirement, but even so the husband is contemplating a part-time job to fill his days beyond volunteering. In some cases, he’ll run numbers for clients two to three years ahead of time. The more time, the better, he says.

Jesse Coffee, a certified financial planner with True Private Wealth Advisors in Eugene, Ore., suggests couples do a financial “test-run retirement” a few years ahead of when they plan to leave the workforce. This could involve setting a target expense level and living off that for a few months. At the end of the exercise, they all discuss the results of the simulation and whether changes should be made to the couple’s spending and savings projections.

Social Security considerations. Kelly Gilbert, owner of EFG Financial in Grand Rapids, Mich., talks to early retirees about their options for claiming Social Security. No one has a crystal ball about how long they are going to live, but he recommends clients take into account personal health and family history when considering when to start taking Social Security. He runs the numbers for clients to show that generally speaking, someone who is going to live past 82 or 83, would be better off waiting as close as possible to age 70 to start Social Security payments. Otherwise, it could be more advantageous to start taking benefits before age 67, the full retirement age for anyone born in 1960 and after. The strategy could be different for married couples, he says.

Factor in healthcare costs. Medicare doesn’t kick in until age 65, and private insurance is expensive, so the cost of medical care shouldn’t be played down, especially for people retiring in their 50s. On average, clients could find themselves spending five figures a year per person until Medicare kicks in, Coffee says. There may be workarounds, however.

For instance, one spouse could retire and seek coverage under the other spouse’s medical plan. Or maybe there’s only a small gap in coverage that the client can afford to cover, says Coffee, giving the example of a 64-year-old client who decided to retire several years earlier than initially planned after breaking his leg. The extra cost was doable since he was close to age 65.

Consider part-time work. Many people choose to work part-time in retirement, either because they are bored or because they need to in order to make ends meet. Advisors can help make this feel less taboo. A recent report from T. Rowe Price shows that of those who consider themselves retired, 20% work either part- or full- time, while another 7% of respondents reported looking for employment. Notably, nearly half of those working in retirement felt they needed to do so for financial reasons, while 45% said they chose to work for social and emotional benefits.

Sparks works with a client who was laid off in his early 50s. His wife can continue working and cover the health insurance, and he doesn’t necessarily need to work full-time for financial reasons, even to support his teenage children. But what to do with his time is a consideration. He’s thinking about a part-time job or consulting gig so he can have more flexibility and a better work-life balance. Especially for younger clients, knowing they have the ability to work part-time can be a comfort as they plan their next chapter, Sparks says.

Sometimes clients have trouble believing they will really be OK to retire early, but those who are able to stick to the financial plans they craft together with their financial advisor, can make it work, Gilbert says. “If you don’t have discipline and you’re not good at budgeting, you may want to reconsider early retirement.”

Form CRS