Dreaming of Retiring Early in 2025? 6 Steps Not to Forget

Dreaming of Retiring Early in 2025? 6 Steps Not to Forget

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  • If you’re considering retirement soon, financial advisors have a few words of advice.
  • First of all, get a plan together for healthcare costs.
  • Then, look up the rule of 55 and start strategizing about taxes.

Stocks have mostly roared throughout all of 2024, with the S&P 500 hitting nearly 50 all-time highs throughout the year. The S&P 500 is also up more than 27% for the year as of this writing, and this is after returning more than 26% in 2023.

If you’ve been wanting to retire for the last few years and you’re heavily invested in the stock market, now may seem like the perfect time to step away from work.

But, financial advisors agree early retirees shouldn’t jump ship until they have all their financial ducks in a row. Before you end a long career to sail off into the sunset, experts recommend the following steps at a minimum to prepare.

1. Plan for healthcare costs

Financial planner Kyle Newell of Newell Wealth Management says you’ll want to have a plan for health insurance if you’ve been relying on workplace coverage and you’re not old enough to qualify for Medicare. You can start by seeing if you’re eligible for subsidies through the Affordable Care Act, which can lead to lower premiums and out-of-pocket costs for healthcare.

Fortunately, Newell says ACA subsidies are based on income and not assets, which means early retirees may have some power over how much they pay in premiums. For example, Newell says retirees can use funds from Roth IRA accounts, cash savings, or brokerage account funds to cover all or part of their living expenses, reduce their taxable income, and keep healthcare costs down.

2. Look into the rule of 55

Brandon Renfro, PhD, who is also a financial advisor, says the rule of 55 can be helpful for early retirees who want to access workplace retirement funds early. Essentially, this rule lets individuals access 401(k) funds without a 10% penalty before the age of 59 ½ if they leave their job during the year they turn 55 or older.

Renfro adds that it’s common for many people who retire to transfer their retirement accounts to an IRA elsewhere, but it’s important to remember that the rule of 55 doesn’t apply to IRAs. Thus, early retirees should make sure they don’t need to access retirement account funds before 59 ½ before they move their retirement account from their former employer.

3. Have a plan for taxes

Financial advisor R.J. Weiss of The Ways to Wealth says early retirees have a lot of room for tax optimization with tax-advantaged accounts like 401(k) plans, IRAs, and Health Savings Accounts (HSAs). He adds that strategies like Roth conversions can be worth exploring in the first few years of retirement when your income is low. 

“While there’s no single best strategy, there are often opportunities for significant tax savings,” he said. 

Many early retirees hire a tax advisor to help them figure out the most advantageous ways to fund their retirement now, as well as how to minimize taxes in the future.

4. Have an emergency fund and pay off debt

Financial advisor Jordan Mangaliman of Goldline Financial Services says individuals planning to retire in 2025 should have an emergency fund that’s kept outside their regular investments. Ideally, this money will be kept in an account that’s easy to access and pays interest, like a high-yield savings account.

“Maintaining a liquid emergency fund that is six to 12 months’ worth of expenses is still crucial to keep in the event of a medical emergency or unexpected car repair,” he said.

Mangaliman adds that high-interest debt can cost you hundreds to thousands of dollars a year. Having to service debt will make early retirement more difficult and expensive. 

“By paying down personal debt, you can free up cash flow to increase your savings and buying power,” he said.

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5. Look at your investment fees

Early retirees will also want to take a closer look at their investment fees, says financial advisor Doug Carey of WealthTrace. Not only do many investors have no idea they’re paying fees on their funds, but some think that paying 1% in investment fees each year won’t make much of a difference.

Carey says this isn’t the case at all, and that investment fees can add up immensely over the years. He gives the example of an investor saving $20,000 a year with the option to pay three different sets of fees: 0.1% (typical of index funds), 1%, or 1.5%. With the same return of 8% over a 25-year timeline, Carey notes that the lowest-cost fund would have $1.5 million, the account paying 1% in fees would end with $1.3 million, and the account with 1.5% in fees would end with $1.2 million. 

“These are very large differences and most people don’t even understand how big the impact can be,” he said.

6. Have a game plan for your life

Not working can be part of your retirement plan, but what will you actually do with your time? Financial advisor Alyssa Zagrobski of Shelton Capital Management says successfully retiring requires some sort of plan on how to keep yourself physically and mentally sharp — and how to spend your days.

Zagrobski says it may be beneficial to look into volunteering or teaching using your expertise in your background. You could also lean into your hobbies and even find new ones to fill your time.

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