4 Things You Should Do if You Want To Retire Early

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Typically, retirement age comes sometime in your mid-60s. But what if you’re dreaming of retiring earlier than that — much earlier?

The prospect might seem like a daydream, but with some careful planning and smart money moves, you can set yourself up for a stable, comfortable early retirement. Sound appealing? Try these four strategies:

1. Understand the Challenges

The rules surrounding retirement accounts and government benefits tend to assume you’re retiring in your 60s. If you want to retire before then, you’ll need to navigate those rules. 

You generally can’t tap into pre-tax retirement accounts like your IRA or 401(k) early without incurring penalties. You can’t collect Social Security until you turn 62 unless you are disabled (and even taking it that early means you’ll receive reduced benefits). You’ll also want to make sure you’re able to cover healthcare costs, given that Medicare eligibility starts at 65. 

For these reasons, an off-the-shelf retirement plan isn’t going to cut it. Fortunately, New York Life’s financial professionals are ready to collaborate on a customized strategy that will empower you to retire early and comfortably. Talk to a financial professional here to get started.

2. Find Ways to Access Your Money Early

While getting funds from certain retirement accounts before you reach a certain age can be tricky, there are some clever ways of tapping into some accounts early. One is the Rule of 55, which allows some savers to withdraw from their 401(k) as early as age 55 if they’re retiring early.

You could open a Roth IRA or Roth 401(k), which are funded with after-tax dollars. Among other benefits, they allow you to withdraw the principal — but not the earnings — before age 59 ½ without incurring that pesky IRS penalty.

Make too much to qualify for a Roth IRA? Not a bad problem to have. Arm in arm with your trusted financial professional, you can enact a backdoor Roth IRA maneuver, which essentially involves converting a traditional IRA that isn’t bound by income limits into a Roth IRA. Taking money from these accounts can help keep you afloat until the other life rafts of retirement income become available. Note, you’ll likely owe taxes on the converted amount in the year of the conversion, as it’s treated as taxable income. Also you must wait at least five years before withdrawing converted funds without penalty. This rule applies to each conversion, and the five-year period begins on January 1 of the year of conversion. Needless to say, you should consult a tax advisor.

3. Get Greater Certainty Through Annuities 

The earlier you retire, the more years of retirement you need to cover — and people are living longer and longer. Even with a big nest egg, you could outlive your savings. Thankfully, you can add greater certainty to your retirement plans by buying an income annuity that allows you to collect lifetime income.

To gain the most certainty – and the peace of mind that comes with it – you’ll want to get an annuity from a stable insurance company. New York Life, which has a track record that goes back many years and has earned the highest financial strength ratings awarded to any U.S. life insurer by the major ratings agencies.*

4. Use Your Passion to Make Extra Income 

Just because you’ve clocked out of the office for the last time, that doesn’t mean you have to stop working. The world’s your oyster, so why not use your grit and creativity to create a pearl of income? 

If you’ve been a lifelong artist in your off hours, you might get a part-time job at an art supply store or find yourself teaching at a local college for a few hours every week. Better yet, you could mount an exhibition and sell your work, or translate your skills into freelance illustration or graphic design. 

Not a creative type? There are still ways to monetize your skills outside of the 9-5. You could take your years of expertise from the industry you’ve worked in full-time and start your own consulting business. You’ve got the passion and the skills; it could be fun to set your own hours and rates this time around. 

* Standard & Poor’s (AA+); A.M. Best (A++); Moody’s (Aaa); and Fitch (AAA). Source: Individual Third-Party Ratings Reports as of 10/4/2024.

Share This Article: