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not work if you begin the withdrawals in your 50s. Using a conservative rate of withdrawal and adjust-
ing it for market volatility would be prudent. This means that a large nest egg may be needed to achieve your dream. Also, you may consider a type of insurance prod- uct called an annuity. At its core, an annuity provides a series of payments for a premium that you pay. There are many different types of annuities, so do your homework and understand the risks. Annuities can be valuable for providing a lifetime income stream that you may need to fund retirement.
When to start Social Security may be one of the most important decisions that a retiree can make. Yes, it adds a stream of income that will take the stress off retirement withdrawals, but taking it too early can be detrimental to a financially sound retirement. Social Security benefits are available at age 62, but they are reduced by approxi- mately 32% of the full retirement-age benefit amount. Conversely, every year that a retiree waits after age 67, retirement benefits are increased 8% per year. Social Security planning should be approached with great care.
Perhaps the biggest challenge to an early retirement is finding a healthcare plan. Medicare does not begin until age 65. What do you do before then? Many early retirees go to the Health Insurance Marketplace, also known as the Affordable Care Act (ACA) marketplace. You can com- pare plans and see if you qualify for subsidies based on your income. Your income is what is shown on your tax return, so having an investment account outside of your work retirement plan can be advantageous when with- drawing living expenses in early retirement.
Other options could be COBRA from your last employ- er, or perhaps your spouse still works and has access to
a policy. A last, and expensive, option would be to pay
for private insurance. Many of my clients find the cost of private insurance to be prohibitive, and that is the reason many wait until age 65 to retire.
Tax planning can also play an important role in an early retirement. Investments can have many different
tax structures. Traditional 401(k) plans, SIMPLE plans, and IRAs are all fully taxable when withdrawn after age 591⁄2. Roth 401(k)s and Roth IRAs are not taxed upon withdrawal. Non-qualified investment accounts or broker- age accounts have a variety of tax implications, including dividends, interest, and capital gains. Structuring the withdrawals from your different accounts can play a very large role in planning for retirement and may save a lot of money if done properly.
Lastly, the word ‘retirement’ means many things to many people. For some people, it means not working
at all, which requires a plan for fully funding your living expenses. For others, it means leaving your full-time, stressful career and taking on a part-time ‘fun’ job or a different career altogether, which would help pay the bills until Social Security full retirement age. Working with an experienced financial planner and not making this decision to retire early on your own is always recom- mended. BW
Barbara Trombley is a financial planner with Wilbraham-based Trombley Associates. Securities offered through LPL Financial. Member FINRA/ SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. Asset allocation does not ensure a profit or protect against a loss. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
“Structuring the withdrawals from your different accounts can play a very large role in planning for retirement and may save a lot of money if done properly.”
BusinessWest
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