Having enough money to cover living expenses in retirement is nice, but there are issues if you retire too early.
your pre-tax investments are locked up until you turn 59.5 (or if you turn 55 while working at the company your pre-tax investments are with). So if you try to pull money from those accounts you face penalties.
You also need health insurance. Now that we have the ACA things are better for those who retire early, but you have to carefully manage your taxable income to ensure you get a subsidized health care plan (unless you have a ton of money and don’t mind paying the full price).
So how did people do it? Did you do a roth conversion ladder and convert your pre-tax assets into post tax IRA contributions, then live off those 5 years down the line? But doesn’t doing that mean that your taxable income was too high to qualify for the ACA?
Back when Biden was president they expanded ACA subsidies so they capped at 8.5% of income no matter your income level above 400% of the federal poverty level (FPL). But now that those subsidies have expired, you only get ACA subsidies up to 400% of the FPL and if you go a dollar above that you pay full price, which for a couple or a family can easily run 20-30k a year or more in premiums, plus another 20k in deductibles and copays.
So what have other people done?
Did you stay on a spouses health insurance?
Did you cut back to working part time to keep health insurance?
Did you move overseas (this post is mostly aimed at Americans with our shitty health care system) and get on another nation’s health insurance programs?
My understanding is some states have expanded ACA coverage. Not only do you get enhanced premium support for incomes below 400% of FPL but states like New Mexico, California or New Jersey also offer state support for incomes up to 600% of FPL. So the subsidy cliff is much higher. I think New Mexico may have gotten rid of the subsidy cliff altogether. So moving to one of those states would make it easier to retire early and do a roth conversion w/o losing health insurance.
My wife and I both retired at 55 and have had no trouble in nearly 10 years since, but our resources are not available to everybody. We were career civil servants, working for a state agency. I knew going in that I wasn’t going to get rich. I also knew, however, that the job had a moderately generous pension and health insurance coverage in retirement. Those two factors made it immeasurably easier for us. Not wanting to rely on the pension, however, my wife and I put a lot away into deferred compensation plans and IRAs. Thus far we have yet to tap into any of those investment accounts, nor have we started taking Social Security. Sometimes I think our biggest problem is feeling that it’s ok to spend some of our $$, because we lived so frugally while we were both working.
I got a bit lucky. I was set to retire at 66, with well-planned after-retirement income.
Then my employer decided it was time to move the young ones up and the old ones out. They offered me an early retirement just before I turned 63, which allowed me to start drawing my pension at that time, and they paid for our health insurance until I was eligible for medicare. It worked out great for me.
So the upshot is I retired about 3 years early, but only because my employer wanted me to retire.
I retired a couple years before 65. My husband is younger than i am, and wants to work until he’s 65, so I’m on his health insurance. The rest wasn’t a problem, we saved a lot of money outside of retirement accounts. It helped that i had a moderately lucrative career for most of my working lifetime, and my husband invested my earnings well.
My brother retired in his early 40s (he made a killing in the Global War on Terror).
As I understand it he could access his IRA and 401k under a scheme of “substantially equal periodic payments”. But he has significant assets outside his retirement accounts that he could access, so he did not need to access his retirement assets.
Most people who retire early have either very substantial non retirement assets or significant public sector pensions. My sister will retire at age 55 and have a pension almost equal to her peak earnings for the rest of her life plus health insurance that has zero cost share and the kind of copays that you and I can only dream of. When she gets to 65, the county will provide a Medicare supplement plan that is equally comprehensive.
I retired at age 54. Mainly I was quite lucky, but here’s how I did it:
For over twenty years I was a highly paid engineer. Twice during that time the company I worked for was bought out, and I received a large lump sum from my stock options.
For the first 12 years of my employment as an engineer I was single, living alone, with few expenses. So I put about 40% of my net income into savings and investments. As a result I had built up a large nest egg.
Then I got married, and a few years later we had a son. So obviously our expenses went way up. But now we had two salaries in the family. So the nest egg was no longer growing fast, but neither was it losing money.
My wife is still working, so we earn some money, but her salary is far lower than mine was. But that huge nest egg I built up when I was single is enough to make up the difference.
As for health insurance: My wife’s job pays for her insurance, which is the one great thing about it, as otherwise the salary is low. I have been under Covered California, our version of Obamacare. For tax year 2025 I still got a subsidy. For this year I probably won’t, due to the changes in the law you mentioned. Looks like I’ll have to pay the full price for my insurance this year, which will certainly be be a pain. I’ll know when I file my taxes next year. Fortunately I turn 65 next year so I’ll go on Medicare. So this is the only bad year.
The spouse is planning to retire at 63. As it happens, we literally just had a retirement meeting with our financial advisor this past Friday. They told us we’re in good shape, even with having to pay for health insurance out of pocket for the two years before we’re eligible for Medicare (one for me–I’m a year older than he is). I’m never planning to retire (I’m a writer and I love my work, so why not keep doing it until I physically can’t anymore?) so that will be extra income. What surprised me was that the advisor told us it wouldn’t be a good idea to take Social Security at 63, but that we should be fine waiting until 67. At that point, our income should actually go up because I wouldn’t lose any SS because my writing income would eat into it.
I’m not super financially savvy, but I’m good at saving and managing household finances. If our advisor (Fidelity, who acts as a fiduciary) knows what they’re talking about, we should be set just fine as long as we don’t decide to make any unexpected major purchases (which we have no real desire to do–we’re both getting to be hobbits as we get older, so we don’t have any big travel plans).
I had not intended to be retired at age 61, but here we are.
I’m now 2.5 years removed from my last full-time job (and company-provided health insurance), and about 9 months removed from my last significant freelance gig. The advertising industry, in which I’d worked for the past quarter-century, is eating itself, as between adoption of AI tools and the big agencies chasing profits, staffing – especially for more experienced, higher-paid professionals – has been mercilessly slashed.
I’ve had numerous talks with my financial planner, and we’re OK if I’m done working; he’d like me to get some part-time work for another year or two, but I’ve spent this year having to take the lead on helping my family navigate my father’s terminal illness, and now managing my mother’s finances; it’s a frickin’ full-time job of its own.
I am fortunate that I started putting money away in my mid 20s, and never tapped it until now, and that I’ve been with a very good financial/insurance company, with two very smart financial planners, all this time. Honestly, that’s about 95% of why I can do this now.
We also have a good long-term-care policy, so I’m not worried about that, either, if and when that time comes for either or both of us. Health insurance is the big PITA right now, and will be for another 3 years (for me) and another 1 year (for my wife).
Another civil servant here. I retired at 60. I was planning to go earlier, but they needed me to stick around a while, so they promoted me. I worked three more years until the pension reflected the promotion.
I’ve always lived cheaply, and I never married or had kids. I had hoped to–came close a couple of times–but when it gradually became clear it wasn’t going to happen, my saving/spending habits were pretty well ingrained. So I salted away a good pile.
When I retired, I remember being concerned about health problems eating away at my funds.
But ironically, now that my health has declined, and I’m less able to enjoy big, rich meals and long airplane flights, I think maybe I should have retired earlier.
I’ve been married for 34 years, but we never had kids, either (not for lack of trying). That undoubtedly did make it easier for us to build up the nest egg that we did.
I retired at 55 and began saving for retirement in my 20s with an IRA offering a $2000 annual contribution limit. In my 30s, I went to work for a company offering a 6% match in a 401k along with a pension and a company car. My 401k did very well in the 90s. My pre-retirement lifestyle also helped, as I never had a desire for expensive vacations or hobbies. My primary challenge involved, how would I occupy my time once retired and for me, it was woodworking, and I’ve never looked back. I can’t imagine how any of this will help you, but you did ask.
I moved to Europe at age 45 and worked for 10 years, earning my second passport at year 5. Thanks to universal healthcare I retired at age 55 – five years ago. Being an introvert and living modestly (no desire for travel or eating out) made it possible, along with no health insurance premiums. If I’d stayed in the US I’d probably still be working, though my younger brother (no kids and a wife who also made good money) managed to retire there younger than I did. I don’t know what he’s doing for medical coverage.
I retired at 60 (and was really relieved to be able to do so) and these are the main factors involved.
I married my long-time GF as soon as I turned 60. She is a State retiree and her benefits include excellent, but inexpensive, health insurance coverage for spouses if they marry after age 60. My coverage is less than $30/month.
After our marriage, I moved in with my wife in her “forever home” (one-story ranch in an area good for retirees and older folk) that she had purchased after selling a much larger home she and her late husband had built years ago.
At age 60, I started drawing my late (previous) wife’s SS death benefits, so I had SOME income each month (around $1200).
I did some gig work teaching professional certification courses. I didn’t do many, but they did bring in some “butter and eggs” money. For example, a two-day class might pay me $2K. In fact, I’m presenting a virtual class tomorrow and I will net about $1100 for the day, which means a new refrigerator.
I maintained my retirement portfolio that I had started years ago and tried not to dip into it. This is my emergency fund.
I waited until I was 70 before starting to draw my SS. I know this gets a lot of discussion, but I believe I will live long enough to make this the better choice. Also, I wanted the highest guaranteed monthly income that I could get if I need to establish additional credit, go into assisted living, or similar. The 10 years of my late wife’s SS basically got me over the hump and actually made the transition to my full retirement benefit a very simple process.
My first career started in 1982. They had a “25 and out” retirement plan which I was grandfathered into. 2.5% of your highest wage multiplied by years of service. Health insurance came along at no cost to the retiree. They certainly don’t do this anymore but it happened to me. I retired at 47.
I didn’t stay retired though, and started a second career with another agency.
This might be me soon. I’m 62, currently working in the tech / marketing industry. Used to be, just a few years ago, all I had to worry about was younger up-and-comers who know as much or more than me, and are willing to work for considerably less. Now I have to worry about them and AI. On top of that, work in our dept. has slowed down a lot for various reasons.
If or when I am involuntarily retired early, I think we’ll be OK. Our 401ks and investments are doing fairly well. My wife recently started a job that has better health insurance than mine, so I switched. She’s several years younger than me, so hopefully will be at her job for a good few years to come.
I retired at 60, after 20 years in the DC school system. My pension isn’t huge, but it’s not terrible. I’m paying more for health insurance than I was when I was working, but coverage for my wife and me is a good bit lower than it would be if I had to go through ACA. It’s the same insurance I had when I was working. I didn’t pay in to Social Security for most of my career, but I’m getting a little. Our financial advisor told us that I should take mine at 62 and, since she paid into it for longer, my wife should take hers later. Our mortgage is paid; property taxes are a pain, since our house’s assessed value has nearly quadrupled since we bought it in 1999. I’m also bring in a little income as a part-time substitute teacher, and my wife is a self-employed massage therapist. I had a 403b when I was working, and it along with a little money from my previous job got rolled into a 401K. We don’t anticipate having to touch it for a while. Probably most years the interest would amount to what I’m making subbing. Both kids are on their own. It’s only one year plus into retirement, but so far so good.