Is It Possible to Retire Young

    Some local and state government employees — such as our police officers, firefighters, and public administrators — tend to retire at an earlier age than employees in the private sector. How? They usually have a defined benefit plan that promises income payments for life.

    Many also have the added benefit of a supplemental retirement savings account such as a 457 deferred compensation or a 401 defined contribution plan that their employer sponsors — and they may even have an IRA, further boosting potential retirement savings. By saving diligently through these options, some can afford to retire from their public service career in their 50s. But, does it mean that they should?

    If you maintain relatively good health and start saving early and consistently, then maybe you can “semi-retire” and land your dream job pursuing your passion (whatever it may be). On the flip side, retiring young could mean not having money for the comfortable lifestyle you imagined. Then what do you do? Working, perhaps on a part-time basis, is an option; but the opportunities to do so are not guaranteed and neither is good health.

    One of the best starting points to determining the “right” time to retire is to figure out just how much you’ll need to save in order to retire. While you don’t have a crystal ball to see many years into the future, you can certainly develop a plan. Here are a few things to consider as you decide how much money you’ll need to retire, when you might want to retire, and which factors can impact your plan:

    • Calculate how much money you’ll potentially need in retirement, taking into account your future income and expenses. Consider how inflation can impact the value of your savings. For example, 3 percent inflation would cut the purchasing power of your dollars by half in 24 years. Test drive different scenarios at www.icmarc.org/ontrack.
    • Maximize the advantage of contributions to your employer’s retirement savings plan and other tax-advantaged savings options, such as an IRA.
    • Pay down debt and aim to retire debt-free for maximum flexibility. The older you get, the less debt you want to have because in retirement you’ll most likely have less income to cover debts.
    • Factor in health care costs and ensure you have access to adequate health insurance before Medicare eligibility at age 65. Health care is one of the largest expenses in retirement and it can pinch into your savings, even if you are healthy.
    • Look into guaranteed income streams that can be stretched over your retirement years, no matter how long you live, and other investment and withdrawal strategies. Check out these tips at www.icmarc.org/incomegap.
    • Keep up with Social Security’s rules. The age at which you retire could have a negative or positive impact on the benefits you receive. Younger employees should prepare for the possibility that Congress pushes back the age at which you can begin benefits.
    • Consult with your ICMA-RC representative. Get professional help along the way, as you sort out your savings strategies and retirement goals.

    Finally, consider more than just your finances; think about how you’d spend your time in retirement. Will you focus on hobbies, travel, other activities? Prepare now for the retirement you envision.

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