Early Retirement Planning

early retirement planning

Early retirement planning is key to your financial longevity especially if you retire a decade or more before reaching 65.  What’s most important to consider for your early retirement planning? Taxes? Health insurance? Emergencies? Portfolio growth? Retirement activities such as travel and hobbies? Let’s take a look at some of the recommendations for early retirement planning and post-retirement expenses so we can all enjoy a long, financially healthy and fulfilling retirement.

Withdrawal Penalties

Withdrawals from individual retirement accounts before age 59 1/2 typically trigger a 10 percent early withdrawal penalty. However, there are several exceptions. For example, once you reach 59 1/2, you can withdraw any amount from your IRA without paying the 10 percent penalty. But regular income tax is due on the withdrawal. Traditional IRA distributions are not required until after age 70 1/2; after that age you are subject to Required Minimum Distributions (RMD). See this article published by US News for more ways to avoid early withdrawal penalties: 10 ways to avoid the IRA early withdrawal penalty.

Taxes in Retirement

Before you retire, develop an income strategy for your portfolio withdrawals that minimizes your tax liability.  More than likely, you have a Traditional IRA, 401(k), SEP, Roth IRA, and savings in your portfolio. Making withdrawals from multiple accounts strategically can reduce your tax burden and too many people fail to plan ahead according to the financial experts. If you’re not sure of the best strategy for your portfolio, consult with a financial expert or CPA to structure your portfolio, before you retire, so you have options based on your income and tax bracket in early retirement. You can save thousands by planning your taxes in retirement.

Health Insurance

health insurance early retirement planning

Did you receive health insurance coverage from your employer? Note that most of us are not eligible for Medicare until we turn 65. Say you retire at age 50, you won’t get Medicare coverage for 15 years and that’s important to consider in your early retirement planning. If you are married and your spouse is still working, more than likely you can get health insurance coverage through his/her plan, if they have one. Private health insurance policies are expensive and costs will likely continue going up. Some early retirees find part-time work that includes health insurance coverage to help lower that cost until Medicare kicks in.

Note that your IRA distributions used to pay for medical expenses that are not reimbursed by your health insurance and exceed 10 percent of your adjusted gross income are not subject to an early withdrawal penalty.

Emergencies in Retirement

Expect the unexpected! I’m a fan of a larger than average emergency “plan” – not necessarily an enormous emergency fund. What I mean here is liquid funds available without triggering major tax consequences. Say you are contributing more than usual to a Traditional and/or Roth IRA through a Roth Solo 401(k) or other vehicle. You can use those funds for extreme emergencies. Or, say you are investing in a taxable account because you maxed out your retirement contributions. You may also be able to use those funds for emergencies. What’s most important is reducing your stress level given you are prepared to cover emergencies; expect the unexpected and plan for it.

Portfolio Growth

If you retire early, planning for portfolio growth isn’t necessarily over just because you retired. Consider ways to grow your principal while retired. Setup multiple income streams while you are still working so you’ll have some income that doesn’t come from your nest egg. I believe this is one of the most important things you can do while planning for early retirement. Plant recurring income seeds whenever possible.

Multiple Income Streams

Again, researching and implementing ways to create recurring revenue is one of the smartest ways to facilitate your financial independence (FI). Real estate investments – rental properties and buying a home – worked extremely well for us over time. Starting a small business and/or side hustle  is also a great way to enhance your income. There are tax benefits as well as opportunities to do work that you enjoy for additional income.


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