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The average retirement age in American is 61 years old, according to a 2022 Gallup poll. Those who haven’t yet retired but are thinking about it typically expect to retire around the age of 66.

But for many people, retiring early is the dream, as evidenced by such retirement strategies as FIRE — which stands for Financial Independence, Retire Early. However, retiring early isn’t always the best idea. Not only can it be much more expensive than you might expect, but it can have a major impact on your social life and overall well-being.

With that in mind, here’s how to know whether early retirement is right for you, or whether it’s better to hold off for a couple more years.

You Can Live Comfortably off Your Savings and Investments

Unless you’ve created some form of passive income, you’ll need to have set yourself up financially to get you through your retirement years. More than that, it’s important to make sure you can maintain a comfortable lifestyle once you quit working. This often involves setting up investment accounts and setting aside a significant amount of money in savings as you plan for retirement.

“You are financially ready to retire when you can live off your investments without running out of money,” said Jay Zigmont, PhD, CFP, founder of Childfree Wealth. “There are a lot of retirement calculators out there, and you can even run simulations to see if you will run out of money.”

Determine how much money you have — or will have — and run some numbers to see if it’s enough.

“If your savings for retirement are way off the mark, it might be a good idea to hold off on retiring until you’ve built up a more substantial nest egg,” said Lucas Noble, a certified financial advisor and the founder of Noble Financial Group. “Starting your retirement savings late or only recently can make it tough to accumulate enough funds for early retirement. In these cases, it might be better to delay retirement and give yourself more time to grow your savings.”

You’ve Considered the Rising Cost of Living

Just because you’ve retired doesn’t mean the cost of living will remain the same throughout the rest of your life. The costs of many everyday services and goods increase every year — in May 2023, the inflation rate was 4.05%. You may be ready to retire if your financial plan accounts for these rising costs.

“Potential retirees should complete a financial plan to stress test their retirement investments and spending plans in the face of changes in the economy,” advised David Edmisten, CFP, founder and lead advisor at Next Phase Financial Planning, LLC.

“Higher inflation means higher levels of spending and lower expected returns for investments, so it’s important to see how these changes could reduce a retiree’s savings over the years,” added Edmisten. “It may mean one has to plan to spend less, change investments or potentially consider delaying retirement.”

You’ve Accounted for Long-Term Care

No matter how hale and hearty you are right now, you might still need long-term care somewhere down the line. This can be expensive and, if you’re not financially prepared, it can seriously cut into your retirement fund.

“Many people worry about running out of money in retirement and long-term care is a common reason why people run out,” said Zigmont. “Right now, the average cost for a year in a skilled nursing facility is about $108k per year. Men on average will need 2.2 years of care, and women 3.7. That is a lot of money. You need a plan for long-term care that either sets aside money for it or is covered by a long-term care insurance policy.”

Consider general healthcare costs as well. “If you don’t have adequate healthcare coverage, it would be wise to put off retirement until you can find affordable coverage that meets your needs,” Noble added.

You Don’t Have Any Dependents

Many people who are thinking about retirement don’t have any dependents relying on them financially. But if you’re still supporting someone — whether it’s an adult child, a spouse or a parent — you’ll need to account for that before retiring.

All Debts Are Gone

Before retiring, it’s generally a good idea to pay off any debts you might have. This includes auto loans, mortgages and credit cards. “If you still have a lot of debt, chances are you will be better off paying that off before retiring,” said Zigmont. “Once you retire, you are on a fixed budget, and debt is risky.”

But remember, you might still have other expenses to consider. Homeowners, for example, are typically still responsible for things like property taxes, home maintenance costs and homeowners’ insurance. Certain expenses can rise each year, so keep that in mind when deciding whether to retire.

You’ve Built Additional Cash Reserves

“It’s also helpful for potential retirees to build up a cash reserve of 12-18 months of their planned retirement spending prior to retiring,” said Edmisten. “This allows one to enter retirement with funds available to spend, without worrying about market conditions changing their spending plans in the first year of retirement.”

You’ve Made a Personal Plan

Retirement is a major life change, one that can affect your home life and overall well-being. That’s why it’s important to make some plans beforehand.

Even if you’re financially prepared, there are still social and emotional factors to consider when choosing to retire early. If, for example, you retire before your peers, you may have limited opportunities to spend time with them — even if you’re free.

If you have a partner, discuss what you plan to do with your newfound freedom, and make sure it works with everyone involved. You may also want to consider picking up some new hobbies or getting involved with the community in some way. Doing this in advance can help ensure your retirement years are all you want them to be.

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