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How to retire at 50

young couple shaking hands with financial advisor
Paperkites/Getty Images/iStockphoto

Rather than working most of their adult life and waiting to finally pursue your passions much later, many younger Americans are thinking more boldly about retirement. More and more people are envisioning a future where they can pursue their best life sooner.

Figuring out how to retire at 50 doesn't require magical thinking. It's an ambitious goal but one you can achieve with proper planning and focus. You may have to make certain sacrifices in the short term, but the reward is spending more of your adult years doing the things you truly love.

Rethinking retirement

The recent growth in the number of books, podcasts and blogs dedicated to the FIRE movement ("financially independent, retire early") is evidence of a marked shift in the way many 20- and 30-somethings are thinking about their careers. Today, younger workers aren't as intent on climbing the corporate ladder. They're more focused on gaining financial freedom early so they can chart their own course.

Thrivent's Retirement Readiness Survey, for example, found that roughly 20% of younger workers are interested in retiring early. That doesn't necessarily mean leaving the workforce entirely—often, it's more about the ability to find work that's simply more fulfilling. That could involve switching to a different field, opening a small business or even doing volunteer work while you're still relatively young.

If the idea of retiring in your 50s sounds out of reach, it shouldn't. Accumulating enough assets to potentially last for a long retirement—perhaps 50 years or more—isn't easy. But it's a milestone you certainly can achieve if you minimize your current expenses and save a large chunk of your paycheck.

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Forecast your expenses

The first step in finding out whether you can retire by age 55, more or less, is to get a handle on your future expenses. That requires a clear vision of how you're going to spend your post-retirement years. Perhaps you're willing to downsize your home and live more frugally after leaving your full-time job. Conversely, you may be thinking about more modest changes to your current lifestyle, which may require building substantially more assets.

To get an accurate picture of your post-retirement budget, details are key. Be sure to account for not only the more obvious costs you'll have to face, but also the ones that are easier to forget or overlook. Among the expenses you may want to include in your budget are:

  • Retirement lifestyle expenses. How much will it cost to cover things like housing, food, gas and utilities where you plan to live?
  • Taxes. Withdrawals from brokerage accounts and even traditional 401(k)s and individual retirement accounts (IRAs) may be subject to taxes. If you plan to start a new business, don't forget that a portion of your net income needs to go to the IRS.
  • Debt payments. If you still owe money on student loans, a mortgage or another major expense, include that in your budget.
  • Health care. You can't enroll in Medicare until age 65, which means you'll need to pay for your own health insurance until then. Even among Medicare participants, the average retiree pays thousands of dollars a year in out-of-pocket expenses.
  • Financial support for your family. Many retirees provide support for their adult children. If that's the case for you, it's an important component of your future budget.
  • Charitable giving. If you're planning to support your church or another nonprofit, be sure to include those gifts in your list of expenses.

Keep in mind that those costs aren't going to stay the same over a period of decades, so you need to build the effect of inflation into your projections. Preparing for future price hikes can help make sure your financial situation is feasible not only at the start but throughout your retirement, as well.

Understand your income sources

Once you have a reliable estimate of your future budget, the question becomes how—and if—you'll have the money you need throughout a long retirement. To answer that key question, you need to understand your sources of income after leaving your career. Often, these come from the following categories:

  • Guaranteed sources. This may include income from any pensions or annuities as well as your Social Security benefit. Keep in mind, however, that you can't claim Social Security until you reach age 62— and even then, you'd get a much smaller benefit at that age than if you were to wait a few more years.
  • Wages. Money from a new full- or part-time job can help defray at least a portion of your expenses. In addition, some early retirees decide to invest in real estate, which can provide a source of income for your lifetime—as well as potential tax breaks.
  • Home equity. If your home is worth substantially more than you owe on your mortgage, you may be able to turn that equity into cash for your retirement. For example, you could sell your house and move somewhere that's less expensive, pocketing the difference. You also can pull money from your home with a reverse mortgage, though you won't be eligible to do that until age 62. Keep in mind that there are pros and cons to these options.
  • Investment income. Should your future expenses fall short of your other income sources, you may need investment income to fill in the gap. This may include money you've contributed to a workplace retirement plan or IRA as well as taxable accounts, which allow you to withdraw funds at any age without penalty.

How much will you need from those investments at age 50? A popular guideline is to take out 4% of your overall balance in your first year of retirement and adjust your withdrawals for inflation every year thereafter. That may work for a more typical adult but probably won't serve you as well if you retire early and have a 50-year retirement. FIRE adherents often find that a more conservative withdrawal rate—3.5% or less—is more sustainable.

Identify the amount you'll need by dividing your annual expenses by your target withdrawal rate. If you think you'll require $30,000 of investment income once you're retired and plan to withdraw 3.5% the first year, for example, you should aim for a starting balance of roughly $857,000.

Figuring out how to save for retirement at 50 is not easy, but it is possible. A financial advisor can help you identify the amount of savings you may want to build and help you put together a tax-efficient portfolio that fits your unique needs. Connect with a local financial advisor today to optimize your savings journey.

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Hypothetical examples are for illustrative purposes. May not be representative of actual results.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Thrivent financial advisors and professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.
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