SHOULD YOU TAKE “EARLY RETIREMENT?”
At some time or another, you’ve probably thought about what you’d like to do during your retirement years. But when will those years begin? You may have some idea in mind about your ideal retirement date, but, as that day approaches, you’ll need to ask yourself: “Can I afford to retire?”
During these days of corporate downsizing, this question is not rhetorical. If your employer offered you a severance package to take a voluntary early retirement, should you accept it?
Your answer depends on a variety of factors. Most important of all, of course, is whether you still enjoy your job and still like coming to work every day. If so, you’ll be inclined to turn down the offer and continue working. But if you’re eager to move on to the next phase of your life, you might be tempted to accept the buyout package — if you can afford to retire.
To make that determination, you’ll need to consider several factors:
•Your family situation — If you have children, are they out of college? Whether they are or not, are you still helping support them? How about elderly parents? Do you need to provide them with financial support? You’ll need to know the answers to these questions to help evaluate your need to continue working.
•Your eligibility for Social Security — You can start collecting Social Security as early as 62, but if you wait until your “full” retirement age, which will probably be around 66, your monthly payments will be larger. And if you delay taking payments until you’re 70, you can collect the maximum payments. If you continue working, but also start taking Social Security, your benefits will be reduced, up until you reach full retirement age. After that point, you can earn as much as you want without losing any benefits.
•Your potential income stream from retirement accounts — You don’t have to start taking withdrawals (“distributions”) from your traditional IRA and your 401(k) or similar employer-sponsored retirement plan until you’re 70-1/2. But if you want to take early retirement, you’ll likely have to tap into these resources much sooner, so you’ll need to calculate some hypothetical withdrawal rates to make sure your money will last.
•Your investment mix — Outside your IRA and 401(k), you may well have built an investment portfolio over the years. As you contemplate early retirement, you’ll need to look at this portfolio to see if it’s structured, or could be structured, to provide you with both the income stream you’ll need as a retiree and the growth potential to keep your investment returns ahead of inflation, so that you don’t lose purchasing power over time.
As you consider drawing on your retirement accounts and your investments to help fund an early retirement, you may want to consult with a professional financial advisor — someone with the expertise and experience to help make sure you’ve got an income stream that’s big enough to support your lifestyle, but not so big that you’d eventually outlive your money.
Once you’ve considered all these factors, and gotten the help you need, you’ll be able to make an informed choice as to whether you should accept that early buyout offer — and then your future awaits you.
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