The Case to Retire Early

 How do you retire early? With much planning. Sometimes it’s the best move if you have a skill that you can convert into a consulting position. It’s like slowly stepping into retirement and having flex time while still earning money. It’s common in technical positions like engineering, construction and architecture. Evaluate your field and see if such opportunities exist for you. 

 If you are reading this when you’re young, you have decisions to make. Do you want a shot at early retirement or do you want that $150 a month cable bill now, that new car every three years now, that really nice vacation every summer now? Most people can’t have both a shot at early retirement and the immediate gratification of things now. Choose carefully. I’m not suggesting that you sacrifice everything now for the sake of building your nest egg. I’m saying that you should find balance. 

If you are reading this at an age that you are contemplating an early retirement, I hope you made the right decisions related to the above expenses. With many questions about how the workplace will change after the current concerns of the coronavirus are contained, this idea is on the minds of many people. 

 The type of retirement plan matters. 

The type retirement plan you have plays a big role in this decision. First let’s look at defined benefit plans. Your HR department will have a plan document that will help you determine an estimate of your benefits at various ages. Some plans may not allow benefits to be paid on an early retirement. You may have to wait until at least age 62. 

Most pension plans will have multiple payout options, for example, straight life, joint life or life period certain. With a straight life option, you will get the highest payout because it only considers your life expectancy but it ends upon your death. The other two options payout over your lifetime and continue to pay a joint person, usually a spouse, during their lifetime. Depending on the difference in payout, you may be better to take the higher life only payout and use the amount above the joint options to buy a life insurance policy making your spouse the beneficiary as a substitute for the joint life options. 

Some defined benefit plans have a lump sum option. Again, your HR department can supply you with a plan document. I review many of these and help my clients make the best decision for them. 

Consider a rollover IRA. 

Most employer sponsored and self-employed plans can be rolled into a self-directed IRA upon separation of service from your employer or retirement from your business. If you terminate employment with your employer who sponsors a retirement plan, you should understand that your options with respect to plan assets include one or more of the following: (i) Remain invested under the plan (generally, if balance is $5,000 or greater), (ii) Transfer Plan assets to a defined contribution plan of your new employer (if applicable), (iii) Transfer plan assets to an IRA with a financial institution, or (iv) Withdraw assets directly which would be subject to federal and applicable state and local taxes and possibly be subject to the IRS penalty of 10% if under age 59 ½. 

How much will you need to retire? First you need to establish your minimum acceptable annual income. Next, subtract Social Security, annuity income and pension benefits. The answer is the shortfall that your investments need to produce so you can enjoy the standard of living you want. One strategy is to assume a 4% return for an income portfolio. Now divide the shortfall by .04. The answer is the lump sum that you should plan for outside of the three income sources mentioned above. Maybe you’re already there. When withdrawing money, deplete your taxable accounts first to keep your other assets tax-deferred longer. 

Now for the case against retiring early. 

Of course, an early retirement means fewer income earning years and more years that your money needs to last. By delaying the start of income withdrawals, your assets continue their potential to earn for you. This also continues your opportunity to make contributions and to pay off debts so that you go into retirement debt free if you are not already. The real objective is to make your move when you feel financially secure. Maybe that’s early, maybe that’s later. Only you can decide. 

According to the Social Security Administration a 60 year old has a life expectancy of 83.1 Consider family health history and your own to arrive at your own estimate. Retiring early may well mean accepting a lower standard of living to get your money to last through life expectancy. Inflation is an important consideration, too. The Bureau of Labor Statistics records that inflation for the past 40 years has averaged 3%.2 Include the effect of increased prices in your plan. 

A few more tips. 

Your goals, expectations and risk tolerance should be in harmony with your needs which moves from future growth to current income when you retire. If your investments are subject to high volatility you may find yourself selling equities at a time that their value is down just to fund your income needs. Just imagine what that would have looked like in March and April of this year. 

The markets are always in a fluid condition. Your life goals, not as much but still they evolve. I recommend regular checkups on your plan. Contact me at to schedule a time to review your plan. In the age of COVID we can meet by phone. Stay safe and subscribe to my newsletter so you can be first to receive timely and important information. 

1 Social Security Retirement & Survivor Benefits life expectancy calculator at 

2 This average is calculated from Bureau of Labor Statistics data on inflation Series Id:CUUR0000SA0L1E annual inflation 1980-2019 

Securities and advisory services offered through Madison Avenue Securities LLC (MAS) Member FINRA/SIPC and a Registered Investment Advisor; MAS and PFS Wealth Management Group are not affiliated companies. MAS does not provide legal and tax advice. Seek competent legal and tax counsel for your specific needs