So you’re looking to retire at the ripe age of 55? That’s great! It’s something that more and more people are starting to do. This guide will cover everything you need to know to retire efficiently at age 55. How much money do you need to have saved up? What are the best retirement options for someone your age? We’ll answer all of those questions and more!
- Can I Retire At 55?
- How To Retire At 55 Comfortably
- Things To Plan For When Retiring At 55
- How Much Do I Need To Retire At 55?
- Retire At 55 Calculator
- Which Plans Should I Contribute Ongoingly To Retire At 55?
- How To Retire At 55 Paying Little To No Taxes For Life?
- How Do I Avoid The 10% Penalty From The IRS If I Retire When I’m 55?
- I’m 55, And I Want To Retire Now. What Can I Do?
- Safely Investing Your Retirement Savings
- Plan For Long-Term Care
- Protecting Your Loved Ones
- Next Steps
- Frequently Asked Questions
- Related Reading
- Request A Quote
Can I Retire At 55?
The short answer is: maybe. It depends on a few factors, such as how much money you have saved up and your retirement goals. If you’re looking to retire comfortably and still have a good lifestyle, you’ll need to save some money. Experts typically recommend having at least $500,000 saved up before you retire.
Of course, everyone’s retirement goals are different. Some people are content with a more modest lifestyle, while others want to continue living the lifestyle they did before they retired. So it all depends on your circumstances.
For help with budgeting, we recommend the following:
How To Retire At 55 Comfortably
If you want to retire at 55, you must have a plan. Like anything else, if you want to achieve something, you need to have a plan and put that plan into action. The first step is figuring out how much money you’ll need to save to live comfortably.
This can be difficult to answer because everyone’s definition of “comfortable” differs. However, a good rule of thumb is to have at least enough saved to cover your basic living expenses for at least five years. This will ensure you have a cushion in case anything unexpected arises.
Once you know how much money you’ll need to save, you can start working on a retirement plan. There are a few different options when it comes to retirement plans, but the three most popular are 401(k)s, IRAs, and annuities.
Things To Plan For When Retiring At 55
When you’re planning for retirement, there are a few things you need to take into consideration.
The first is determining how much monthly income you need to cover your basic living expenses. This includes your mortgage, rent, food, utilities, transportation, and healthcare. Inflation is another factor you need to account for, as your costs will likely increase over time.
Next, consider how much income you’ll need to cover additional expenses. This could include travel, entertainment, hobbies, or anything else that brings joy to your life.
Finally, you need to make sure you have enough saved up to cover any unexpected costs that may arise. This could include medical bills, home repairs, or anything else that comes up unexpectedly.
How Much Do I Need To Retire At 55?
This is a great question and does not have a simple answer. It depends on your lifestyle and how much money you want to have to come in every month. However, a good rule of thumb is to try and generate at least 75% of your current pre-retirement income.
Since you can’t collect Social Security until you’re 62, you’ll likely need other sources of income to cover your retirement expenses. An annuity can be a great option to supplement your income until you start collecting Social Security Income and for the rest of your life.
- Annuities guarantee an income for the rest of your life, even after the account spends down to zero.
- Some annuities can increase your “retirement paycheck” to keep up or surpass the inflation rate.
- Deferred annuities with lifetime income riders can earn interest while collecting income.
- Any balances left over from deferred annuities will pass down to beneficiaries in a lump sum at the time of the owner’s death.
Once you turn age 62, you are eligible to collect Social Security Income. Annuity and Social Security income together can create a well-rounded monthly retirement paycheck.
Understanding Lifetime Income Riders
Retire At 55 Calculator
Find out how much retirement income you can generate starting at age 55 for the rest of your life.
Which Plans Should I Contribute Ongoingly To Retire At 55?
If you’re younger and your desired retirement age is 55, you might wonder how to retire efficiently.
The first step to retiring at 55 is saving money. It would be best if you started putting away money to save enough by retiring.
- Start by contributing to a Roth IRA or a Roth IRA annuity. A Roth IRA annuity will provide a tax-free income for the rest of your life.
- After you’ve maxed out a Roth IRA, start contributing to a non-qualified deferred annuity.
- Consider a permanent life insurance policy like index universal life insurance if you need a third account.
Why are these plans first?
Because taxes owed in retirement will be minimal or none at all.
After contributions are made to these three plans, then contribute to a 401k or traditional IRA account.
You should also start setting aside money each month for a savings account. The more you can save now, the easier it will be to retire later.
How To Retire At 55 Paying Little To No Taxes For Life?
If you want to retire at 55 and pay little to no taxes, you must start planning now. There are a few ways to do this, but the most important thing is to make sure you contribute to suitable accounts.
- Roth IRA: IRS rules state owners are at least 59½ when they take money out of their Roth IRA and must wait for five years before taking a distribution. In turn, all retirement income will be tax-free. Utilizing a Roth IRA Annuity will pay an owner a tax-free income for life.
- Permanent life insurance: Similar to a ROTH IRA, you can pull money out of your policy without paying taxes. Unlike qualified accounts such as 401(k) and IRAs, you can access the policy via loans, pre-59.5, without incurring taxes or penalties. In addition, your beneficiary receives the death benefit income tax-free.
- Non-Qualified Annuities: Only the interest earned is taxed as ordinary income, and once all the interest is spent, all payments are tax-free.
How Do I Avoid The 10% Penalty From The IRS If I Retire When I’m 55?
Most retirement accounts have an early withdrawal penalty for any withdrawals made before retirement age. This penalty is usually 10% of the amount withdrawn, and it can significantly impact your ability to retire.
The best way to avoid the IRS penalty is to withdraw from the permanent life insurance policy, 72(t) distribution, or utilize an immediate annuity as a “stepping stone” for income until you reach age 59 ½.
Permanent Life Insurance Policy
A permanent life insurance policy is an excellent way to invest in the future. Not only are the contributions tax-free, but the loans taken from the cash value are also tax-free. This makes permanent life insurance a desirable option for those looking to save for retirement. The only time that taxes come into play is when there is a gain in the cash value.
This method avoids the IRS penalty on qualified retirement plans such as a 401(k) or traditional IRA. You can take distributions from your retirement account without paying the early withdrawal penalty if you:
- Are you age 59½ or older
- Have a life expectancy of at least 20 years
- Take substantially equal periodic payments (SEPPs) for at least five years or until you reach age 59½, whichever is longer.
The rule of thumb is to withdraw about four percent of your nest egg each year without worrying about the IRS penalty. So, if you have $500,000 saved for retirement, you could withdraw $20,000 per year without paying the early withdrawal penalty.
The same rule applies to 72(t) but the interest earned on a non-qualified retirement plan.
Exclusion Ratio: If the non-qualified annuity is annuitized, only a portion of the payments will be subject to ordinary taxes and a 10% IRS penalty. At age 59.5, the penalty will go away, and payments will be taxed as ordinary income.
Because immediate annuities earn little to no interest, the penalties and taxes won’t dent the payment amount leading up to 59½.
I’m 55, And I Want To Retire Now. What Can I Do?
Split your retirement funds into two annuities, an immediate annuity and a deferred annuity with a guaranteed lifetime withdrawal benefit.
- Step #1: Utilize your after-tax retirement savings to fund an immediate annuity for five years or longer. This annuity will supplement your retirement income until you reach 60. Because there is little to no interest involved, the early withdrawal benefit won’t affect your income much.
- Step #2: Utilize the remaining retirement savings (enough to supplement your future income), purchase a deferred annuity with a guaranteed lifetime withdrawal benefit today, and leave it alone until age 60. At age 60 or later, turn on the lifetime income from the annuity. Now you have an income for the rest of your life, and you’ve avoided penalties.
Use our retirement calculator to determine how much future retirement income you can generate. Then contact us to reverse engineer how much money you need to save going forward if you don’t have enough saved at age 55.
Safely Investing Your Retirement Savings
Now that we’ve put a plan in place to replace your pre-retirement income, the next step is to plan for additional funds used for investing.
Our rule of thumb is if you can’t afford to lose money, you shouldn’t be in a position to lose money. This is where fixed index annuities come into play.
Fixed index annuities provide the potential to earn interest based on the performance of an underlying market index (S&P 500, Dow Jones, Nasdaq), but with a 0% floor, which means your account can never go down, no matter how low the market goes.
With a fixed index annuity, you can earn interest while your money is safely invested and not subject to market volatility.
Plan For Long-Term Care
No one likes to think about needing long-term care, but it’s an essential part of retirement planning. Unfortunately, long-term care can be expensive, and if you don’t have the right coverage in place, it could deplete your retirement savings.
There are a few different plans for long-term care costs. One option is to purchase a long-term care insurance policy. This will ensure you have the funds to cover any long-term care costs.
Another option is to purchase a life insurance policy or annuity with a long-term care rider. This rider provides benefits that can be used to cover the cost of long-term care. In most cases, the benefits paid out will not be taxable.
The best way to plan for long-term care costs is to purchase a long-term care annuity or a life insurance policy with a long-term care rider because it cuts the cost of a nursing home, assisted living, or home health care down to a fraction of the actual cost. Also, remember that this isn’t “use or lose it” insurance (think auto insurance), which means you can recoup some of the money back or pass it down to beneficiaries.
For example, one long-term care annuity will triple your investment to pay for your LTC expenses in the future. $50,000 investment = $150,000 of long-term care benefits (tax-free)
Protecting Your Loved Ones
Once you plan to replace your income and cover long-term care costs, the next step is to protect your loved ones.
One way to do this is to purchase life insurance. Life insurance can provide peace of mind knowing that your loved ones will be taken care of financially if something happens to you.
Another way to protect your loved ones is to create trust. A trust can help you manage your assets and ensure they are distributed according to your wishes.
A trust can also help you avoid probate, a legal process that can be time-consuming and expensive.
Annuities With An Enhanced Death Benefit
Finally, consider an annuity with an enhanced death benefit rider. This rider provides a death benefit more significant than the account value of the annuity. In most cases, the death benefit will cover most of the tax burden to your beneficiaries.
For example, one deferred annuity currently offers a 30% bonus on the annuity’s total value at the time of your death, which will pay most, if not all, of your beneficiary’s taxes.
Retirement planning can seem daunting, but it doesn’t have to be. If you take the time to plan and use the strategies in this guide, you can retire comfortably at age 55. Contact us today for a complimentary retirement quote, and let us help you get started on your path to a worry-free retirement.
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Frequently Asked Questions
Can I Retire At 55 With My 401(k)?
The answer to this question depends on a few factors, including the balance of your 401(k) and your current income. Also, remember that early withdrawal penalties may apply if you withdraw from your 401(k) before age 59 ½.
How much money do I need to retire at 55?
This answer also depends on a few factors, including your desired lifestyle in retirement and the age at which you plan to retire. But, generally speaking, you will need enough money to cover your essential expenses and have some left over for discretionary spending.
Is it too early to retire at 55?
No, it is not too early to retire at 55. However, you will need to make sure you have a solid retirement plan before deciding to retire.
Can I retire at 55 and collect Social Security?
Yes, you can retire at 55. However, you must wait until age 62 (unless disabled) to collect your Social Security benefits.
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