Early Retirement: Is it for You?

While individuals retire between the ages of 62 and 65, some individuals are able to retire at a younger age. Sometimes, individuals become financially set where they do not have to wait until retirement age. Other times, when an organization is down-sizing, individuals are offered a retirement package. While it might be you dream to hitting golf balls and not having to punch a pay clock, while you are still young, you must consider the pros and cons of taking an an early retirement.

The main thing you need to consider is if you can afford to retire. If you retire early, "you can start collecting Social Security at age 62, although you get docked five-ninths of 1% for every month you are younger than 65. That means you'd get 20% less per month retiring at 62 than you would at 65" (articles.moneycentral.msn.com). Depending on your pension at work, this may not be enough to live on. It actually depends on how much debt you have when you retire. You must determine if you will be able to keep up with your monthly payments. Even if you believe you can live comfortably on your pension, you have to also plan for emegencies such as medical expenses or house repairs.

Another thing to consider is whether you will take your pension in monthly payments or in a chunk payment. "Annuity payments are steady, which is a positive, and they last a lifetime, but you don't know where you're going to be 15 years down the road...You may have a catastrophic need, and a $500-a-month annuity payment isn't going to help you if you have a $20,000 emergency medical bill. (articles.moneycentral.msn.com). Some pensions may give you an option to take a lump sum for a specific amount and allow you to get monthly payments for the manainder. The age at which you retire also has an impact of your Social Security check. If you retire too early, your payment will be reduced.

Inflation is another thing to consider. Project what you will be paying in ten years and twenty years. It is important to attempt pay off the most expensive debt you have such as car loans, personal loans and credit cards. Even if you own a mortgage, many lenders offer a reverse mortgage where "a lender pays you for a portion of the ownership of your home, or through a home equity line of credit" (articles.moneycentral.msn.com).

Then there are the little things you have to consider. For example, you may be planning to join a club or go camping. You have to include those in your monthly living expenses. You also have to consider where you are going to live. You may decide to stay in your current home. Or you may be planning on living in a retirement community.

Let's assume that you completed your financial planning and you determine you will have enough money to live comfortably on. What are you going to do with your free time. Retirement may mean that you will have all the free time you will want. However, it will mean that you may easily get bored with all this free time.

Some people may have a hobby that they want to pursue. Other people may travel. Some people may take a part-time job somewhere for some extra money. "The biggest challenge for some of these people is going to be how to spend that time, because if you get six months into this thing and you find that you're bored, you have no sense of purpose, there's a big void in your life, you're probably at more risk from an emotional point of view than you'll ever be from a financial point of view" (articles.moneycentral.msn.com).

It will take a lot of planning, both financial and personal, to determine if you can afford to take an early retirement. After looking at all your resources, including your savings account and 401k, you can determine if you will have enough money. If you are not sure, you may need to work a couple more years. If you are ready to retire, just ask yourself this question: "Now that I have all this free time, what am I going to do with it?"

References:

http://articles.moneycentral.msn.com/RetirementsandWills/RetireEarly/6KeystoaEarlyRetirement

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