Are you contemplating retiring in your 50s? Even with a $1 million nest egg to work with, there are future expenses you might want to consider as you plan for early retirement.

For decades, the standard retirement date most people have had in mind is the age of 65. Yet some people aren’t ready to retire at 65 — and others don’t want to wait that long.

Are you a soon-to-be empty nester with substantial assets contemplating an early retirement? Or are you someone with a long-range goal to be ready for retirement when you hit your early 50s? In either instance, let’s look at what you need to consider.

Can I retire at 50?

The short answer to that question — or retirement at any age — is it depends.

Your ability to retire early depends on a variety of factors. Variables to consider include your household spending, your life expectancy, where you want to retire and the kind of life you want to live post-retirement.

For example, someone whose dream retirement is to cultivate roses in their backyard and take long walks with their dog will have vastly different future expenses compared with someone who wants to spend their post-work years traveling — or living — internationally.

There are a number of ways to explore how much money you would need to retire early. For instance, you can get a good estimate by using the 4% rule,¹ which suggests you should only draw on 4% of your assets each year in retirement.

Four percent of $1 million is $40,000 per year. Is that sufficient income to cover your retirement annually for 20 or 30 years beyond age 50? How might other income (e.g., from rental property, a partner's salary, inheritance, sale of a business or, eventually, monthly Social Security Retirement benefits) factor into your plans? 

» Insight: If you're approaching 40 or 50 years of age and currently have $750,000 or more in liquid assets, a conversation with a wealth management team member may pave the way for you to identify other strategies and solutions to advance your early retirement goals.

Where do you want to retire?

As you contemplate the idea of an early retirement, you'll want to look not only at your financial future but also what sort of life you want to live. Indeed, your lifestyle goals are big factors in aligning your finances with your retirement ambitions.

For example, if you’re longing for a seaside lifestyle, the Gulf Coast, Hawaii, the Caribbean, Central America or the Mediterranean could be your future address. A walkable urban retirement could happen in downtown San Antonio, New York, Chicago, Paris or another destination city. 

As tempting as those locales may sound, you'll also want to consider other desires, such as:

• Proximity to family and friends
• Quality of life
• Cost of living
• Ease of access for travel and visitors
• How much time, money and effort you’re willing to spend on relocation

» Insight: Remember that economic shifts (including inflation) can significantly impact costs of living. Or, if you plan to shift from your current residence to a home now used as a vacation property, there may be fiscal and tax considerations. Fortunately, a financial advisor experienced with managing significant assets can help you puzzle through and address those possibilities as well.

How long will you spend in retirement?

One of the biggest concerns for any retiree — especially those who retire early — is having enough money to continue enjoying a good quality of life. That means taking a realistic look at how long you might expect to live, and then adding on some extra time in case you outperform your expectations.

A useful resource is the Social Security Administration’s life expectancy calculator,² through which you can see a range of average life expectancies based on your gender and age. Of course, your own estimated life expectancy will depend upon your overall health, family history and other factors. So don't forget to start taking care of your health alongside your financial well-being as you plan for the future.

Factoring in health care and eldercare costs

If you currently have employer-sponsored health insurance, you’ll need to find individual coverage when you retire — at least until you’re eligible for Medicare³ at age 65.

As you compare plans, look for those whose networks include your doctors — and make sure you understand co-pay, deductible and network usage requirements.

At some point, most of us will also need eldercare, whether that’s in-home assistance with aging in place, an apartment in an assisted living community or more intensive help like a nursing home or dementia-care facility. A financial advisor can help you plan for these expenses, too, as part of your overall wealth management strategy.

Early retirement and Social Security 

Retiring at 50 could impact your Social Security Retirement benefits in a couple of important ways.

First, because you can only start receiving your Social Security benefits between ages 62 and 70,⁴ you’ll have a gap of at least 12 years between the time you retire and the time you’re eligible to start receiving your benefits. That may require you to draw on more of your assets until your eligibility kicks in.

Second, retiring at 50 means you’ll have at least 12 fewer years of Social Security contributions — unless you continue to work part-time or seasonally after retirement. Make sure to account for this contribution cutoff as you estimate your eventual monthly Social Security Retirement benefit.

Planning your legacy

As you consider how your expenses and spending patterns may change over the course of your retirement, it’s also wise to think about whether you want to leave any of your assets to heirs or organizations that matter to you.

Is leaving a financial legacy on your wish list? If yes, you may want to set aside those assets separately from your retirement living expenses. It’s also a good idea to talk with a tax professional about how to structure those assets in tax-savvy ways.

If you don’t foresee having assets to pass on, consider talking with your children or other potential heirs to make sure everyone’s expectations align with your retirement reality.

The takeaway

The ability to retire early is contingent upon many factors, including optimizing your asset portfolio, identifying insurance options, strategizing your post-retirement spending and planning your legacy.

The friendly and experienced team at RBFCU Wealth Management, The Garner Davis Group is ready to talk with you about your retirement goals and help you map a path to reaching them.