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A generation ago, the concept of retirement was pretty simple: stop working and start playing. Most people assumed they’d flip that particular switch around age 65. But today, retirement is less about retiring from work and more about retiring to a new phase of life - one that promises to be equally or more enriching than what came before. And many people are choosing to make the transition before or after they turn 65.

Whatever you’ve decided to do in retirement, your time will be your own. And that’s great news. Financial planning is, of course, a very important part of preparing for your retirement. But an often overlooked - and arguably more important part of the process - is imagining your future. When you know exactly what you want to do in retirement, it’ll help you determine how much you need to save for it.

Imagine yourself a few years from now

You may want to start by writing down your ideas. Once you have a good picture of your ideal day to day life, you can begin to estimate what it might cost, how long it may last and determine if you have enough money to support it. Create a budget to determine how much income you’ll have and whether you’ll be able to afford the retirement you want. This can also help you decide if you can afford to retire early or if waiting might be a better option.

Does early retirement make sense?

The financial realities of early retirement require some careful planning. If you’re thinking about it, here are some things to consider:

  • Saving stops - Retirement generally means your savings will stop and you’ll start relying on them to generate income. You’ll need to figure out how much monthly income your nest egg will produce and how long it will last.
  • Early retirements last longer - If you retire at 65, your retirement could last 20 years or more. If you retire earlier, your savings will need to last even longer. 
  • Guaranteed income may go down - If you start taking Social Security benefits before your full retirement age, your monthly amount will be reduced. The same may be true for your traditional pension plans.
  • Life insurance considerations – Depending on how you've funded your policy, you may be able to factor your tax-advantaged cash value life insurance into your planning.
  • Retirement account restrictions - If you need withdrawals from an IRA and are under age 59½, you’ll probably pay a 10% penalty in addition to regular taxes. Employer plans like a 401(k) let you take penalty free withdrawals as young as 55 if you’re retired.
  • Health insurance costs may go up - Medicare starts at age 65, so if you don’t have retiree health benefits from your ex-employer, you’ll have to pay your own way for a number of years.

Delaying the day

There are several advantages to delaying retirement:

  • A bigger egg - More money going into your retirement accounts means you’ll probably have a larger nest egg.
  • Fewer withdrawal years - If you delay your retirement by even a few years, you may be able to take larger withdrawals because you’ll make fewer withdrawals over a shorter time. Either you can pay yourself more, make your money last longer or even leave a larger legacy.
  • More time to plan - If you’ve got big plans for retirement - like starting your own business - postponing gives you more time to get everything lined up.

Get an early start

Deciding when to retire requires lots of planning, a little math and a willingness to accept certain tradeoffs. The earlier you begin the planning process, the more flexibility you’ll have on the timing. Should you have any questions, Voya Financial Advisors financial professionals are more than able to help. 

This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice.  All investments are subject to risk.  We recommend that you consult an independent legal or financial advisor for specific advice about your individual situation.

The information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor. 

Securities and investment advisory services offered through Voya Financial Advisors, Inc. member SIPC.

Neither Voya nor its affiliated companies provide tax or legal advice. Please consult with your tax and legal advisors regarding your individual situation.             

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