8 Signs You're Ready to Retire Early

With the traditional retirement age of 65 being many years away, early retirement is an option that appeals to many Americans. As nice as it sounds to cut your years of labor short, are you really ready for early retirement?

Here are 8 signs that you are ready to retire early…

1. You have calculated the amount needed to retire early

People spend years savings for retirement. And when the day finally comes, no one wants to be concerned about not being able to afford their monthly bills. Since you will no longer be working and will be living mostly off of your savings, you need to have enough money to cover these expenses for many years to come.

One thing you should have done by now is calculate the amount of money needed. This can be done by reviewing the many expenses that you will need to cover during this period in your life, such as rent/mortgage, property taxes, utilities and food. Not everyone is sure of the amount of money they need to save for retirement, but a review of your current and future expenses can give you a clearer picture of just how much money you will need.

2. Your retirement savings will cover your expenses throughout retirement

How much money do you have saved for retirement? If you were to retire tomorrow, would you have enough to live comfortably and happily for the rest of your life? Once you’ve sat down and calculated how much money you will need to save for retirement, you’ll want to confirm that your savings is where it needs to be.

If you need to save a bit more, how long will it take you to save the additional cash? The answers to these questions are important because if you don’t have enough to cover your expenses throughout retirement, you simply aren’t ready to retire young.

Taking an early withdrawal from your 401k or IRA may result in tax penalties, so it’s important to be aware of these implications before dipping in.

3. Debts have been paid

Many consumers carry credit card, student, home and auto loan debt. You are obligated to repay these debts, even if it takes you 30 or 40 years. The real issue comes when these debts have not been repaid by the time you retire.

Whether you retire young or at the traditional age of retirement, you will already have a long list of monthly expenses that will need to be covered. If you have to factor in $40,000 worth of student loan payments or a $25,000 auto loan, that means the money you have saved for your retirement will be used to pay your debts instead of to pay for vacations abroad or that home renovation you have been planning for years.

4. You have established a reliable source of income

Once you retire, you won’t have a source of income from a job; however, there are several alternative sources of income that will allow your bank account to continue to grow after you stop punching the clock.

For example, investing in real estate, stocks and bonds are popular ways that retirees continue to build their wealth. Additionally, once you reach the age of 62, you’ll be eligible to receive Social Security benefits every month. If you do plan to claim these benefits, you’ll have to decide how soon you will do so because the amount you receive if you claim benefits at the age of 62 is less than what you will receive if you claim benefits at the age of 65.

5. You have no financial dependents

You may have a healthy amount in savings, but would it be enough to cover your dependent’s needs as well as your own needs?

It is best for you to be free of financial dependents if you are planning for early retirement. Having children, grandchildren, parents or other family members who depend on you financially can delay retirement because you will need more money saved. Even if it is only for a few years, what you have saved may not cut it when you were only prepared to cover your own expenses. Rather than retire, maximizing your income by continuing to work would be best in this situation.

6. You have a plan for your healthcare

Will your employer offer you health insurance once you retire? How much will you need to cover your insurance premium and copays? During your retirement, you will still have regular visits to the doctor, medications and even trips to the emergency room. It would be wise to have a plan in place for your healthcare because medical-related expenses can be costly.

7. You have an emergency fund

Even though you may have calculated how much money you need to retire, you never know what can happen over the next few decades of your life. Your car may need a major repair or your furnace may need to be replaced, and if either of these things happens, you’ll have to pull the money from your retirement savings to cover the cost.

An emergency fund will allow you to handle those unexpected expenses without having an impact on your retirement fund. Having this financial safety net in place means you get to spend your retirement savings they way you intended to spend it.

8. You have created a schedule for withdrawals

You want to avoid depleting your savings in the first two or three years of retirement, so you need to be careful how much you spend. Creating a schedule for withdrawals from your retirement savings will allow you to better manage your money because you’ll only be taking out a little at a time.

For example, if your monthly expenses total $2,500, you can withdraw $3,000 every month. This will give you enough to pay your bills and enough to have some fun. Of course, this amount can always be adjusted if you are spending less than what you planned to spend.

You may have plans to retire early, but you have to be realistic about your decision. No one wants to retire only to rejoin the workforce a few years later because they weren’t properly prepared. You don’t have to wait until you’re 65, but whenever you decide to retire, you have to be sure you are ready for it.