If you’re aged 45 and looking at retirement in seven years, you’d be leaving the workforce at 52. That’s a pretty young age to retire. The big question is, will it be feasible for you to leave the workforce at that point and begin enjoying life? And what will that life look like if you have kids?
Is it really possible to achieve a passive income of, say, $90,000 by the time you retire?
Here’s what you need to know to find out.
Before you decide if you can retire early, you need to consider all of the extra costs that are going to come along with leaving work so soon.
First and foremost, you aren’t going to qualify for Social Security retirement benefits for at least a decade — and if you want to max out your benefits, you’d have to wait almost two decades until age 70. So, you’ll be completely reliant on your investments to support you until that time.
You’re also going to have 13 years until you become eligible for Medicare. Since you’re a single parent, you can’t count on a spouse to provide access to a workplace health plan. You’ll need to buy coverage on the individual market, which can be expensive and may not be as comprehensive as you’re used to if you’ve always had a plan at work.
If you have three kids, you may also want to contribute to their college costs in addition to any other type of support. The younger they are, the more dependent on you they may be.
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Before you determine if you can generate $90,000 in passive annual income from your savings, it’s really important to make sure that you can afford all of these costs on top of your routine spending.
There’s also an added obstacle: You typically can’t take money out of tax-advantaged retirement plans until you’re aged 59.5 without paying a penalty for early withdrawals. If you have a 401(k), the IRS rule of 55 may allow you to begin withdrawals earlier — but still not at age 52.
The next thing you’d need to look at is whether your savings can produce the desired $90,000 (or whatever amount you need after a careful look at expenses).
