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How Much Do I Need to Retire at 50?

Retirement Planning
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middle-aged couple prepares their retirement budget and asks: how much to do I need to retire at 50?

Have you ever wondered, "How much do I need to retire at 50?" You most likely realize it's an ambitious goal — after all, the average American worker doesn't expect to retire until they turn at least 66, according to a 2018 Gallup poll.

But retiring at 50 isn't necessarily impossible. Here are some initial considerations to help you determine whether an early retirement could work for you.

Estimating Your Retirement Budget

Before deciding how much you'll need to save, you should figure out roughly how much you expect to spend in retirement. Think about how much housing, travel, insurance, food, entertainment and everything else you'll need when you stop working will likely cost you each year.

The average person needs 70 to 80 percent of their work income in retirement, according to AARP. This will be higher or lower for each person, depending on how you plan to spend your time and arrange your assets. Someone who plans on traveling the world will likely need more, whereas someone who only plans to stay home and go to the library may not.

Once you have a retirement income goal, you can start planning on how you might generate that amount.

Securing Income in Retirement

There will be two stages of income when you retire: before and after Social Security. Social Security payments don't start until you turn at least 62. This means you'll need to cover everything yourself during the first 12 years of your early retirement.

After 12 years, you'll then be able to take Social Security, although taking payments before the official retirement age (between 65 and 67) can permanently lower your payment amounts. And even if you were earning a high income before your early retirement, you won't have paid into Social Security for as long as someone who worked into their 60s, which could lower the payments you receive even more.

To supplement Social Security payments, you might consider working part-time after you retire from your main job — though this can affect the amount of those Social Security payments. By working, however, you can spend less from your savings — and if you can find a part-time job with health insurance, you'll have addressed one of your largest costs during early retirement. You might also consider seeing if you can keep the option of returning to your old career later on. After a few years of early retirement, you may find your budget isn't working as well as you hoped, or even that you miss working and want to go back.

Preparing Your Retirement Accounts

Retiring at 50 comes with some additional challenges. First, you may be too young to take qualified distributions from your retirement plans. With 401(k)s and other work-sponsored plans, you can't take money out until you're at least 55 (and officially retired). With a traditional individual retirement account (IRA), you can't take distributions until you're at least 59 1/2. If you do withdraw money before then, you'll owe a 10 percent penalty on everything taken out. This penalty applies even if you're fully retired.

So for at least five years, you'll likely need money coming in from somewhere besides your retirement accounts, like a taxable brokerage account (though some retirement plans might allow you to withdraw funds earlier). You might consider putting this money aside to avoid paying early withdrawal penalties on your retirement plans.

Also, you won't be eligible for Medicare until you turn 65. This means you'll be paying for your own health insurance for 15 years. Health care payments could command a sizable part of your budget, and will likely increase every year, both because premiums rise as you get older and health care costs are increasing in general. Make sure to factor in these rising costs when estimating how much income you'll need.

Making Your Money Last in Retirement

As you can imagine, the higher your income needs during retirement, the more you may have to save. One way to increase your chances of retiring at age 50 is to find ways to spend less per year at that time. Someone who only needs $40,000 a year probably won't need to have nearly as much saved as someone who needs $100,000 per year in retirement.

What could you do to lower your retirement income needs? Could you pay off your mortgage before retiring? Could you downsize to a smaller house or move to a less expensive area? Could you travel and eat out less frequently? It might be worth deciding how much you'd be willing to trade in exchange for an early retirement.

Finally, as you prepare for your early retirement, consider meeting with a financial representative. They can help you hone in on how much you'd need in savings and what types of accounts could help you properly retire at 50.

Concluding your full-time working life at age 50 is a challenge that usually takes a lot of preparation. But with the right plan and a lot of disciplined saving, it may yet be possible for you to enjoy an early retirement.

IMPORTANT DISCLOSURES
Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.