Planning to retire before claiming Social Security can be a smart move, but it also comes with unique financial challenge that many retirees overlook until it’s too late.
If you’re considering retiring before your Social Security benefits kick in, your financial portfolio needs to be structured strategically to bridge this income gap.
Otherwise, you risk running out of money too soon or being forced to sell investments at a loss during market downturns.
Let’s look at a case study of Emily, a 60-year-old former marketing executive who has always dreamed of retiring early to travel and pursue her passion for photography.
Emily plans to retire next year but doesn’t want to claim her Social Security benefits until she turns 70, when her monthly checks will be at their maximum.
This means she needs to find ways to fund her lifestyle for the next decade without relying on Social Security.
The Challenge of Early Retirement
Retiring early can be amazing, but it often means claiming Social Security benefits prematurely, which can mean a permanent reduction in monthly payouts.
For instance, if you start claiming benefits at age 62, your monthly checks could be about 30% less than if you waited until your full retirement age, which is between 66 and 67 depending on your birth year.
However, waiting until age 70 can increase your benefits by more than 30% compared to claiming at full retirement age.
Strategies to Bridge the Income Gap
To avoid financial strain, Emily and others in similar situations can use some strategies to bridge the income gap:
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- Work Part-Time: Many retirees find part-time work to be a fulfilling way to supplement their income. Emily could consider freelancing in marketing or teaching photography classes.
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- Withdrawals from Retirement Accounts: Emily can use withdrawals from her 401(k) or other retirement accounts to cover living expenses. It’s important to manage these withdrawals carefully to avoid depleting her savings too quickly.
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- Investments for Growth: Allocating a portion of her portfolio to investments with growth potential, such as stocks stock ETFs, can help Emily keep up with inflation and unexpected expenses.
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- Budgeting and Planning: Creating a detailed budget and regularly reviewing her financial plan with a financial advisor can help Emily ensure she’s on track to meet her retirement goals without running out of money.
By implementing such strategies, Emily can enjoy her early retirement while having the confidence that she’ll have sustainable foundation for the years ahead.
Whether you’re like Emily or have different circumstances, planning ahead is key to bridging the income gap and securing a comfortable retirement.
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