How to Retire at 55: 5 Things You Have to Get Right

Early retirement is a goal that's become a very common plot point in the comprehensive financial plans we put together at Keen Wealth. Young Boomers and older Gen Xers who have the means to stop working or downshift into part-time employment want to enjoy the wealth they've worked so hard for while they're still young enough and able-bodied enough to play their favorite sports, see the world, and spend more quality time with family and friends.

But there's much more to early retirement than just hitting a number. Several aspects of your financial plan should be fine-tuned and coordinated to ensure that your nest egg supports today's goals while also ensuring your long-term security in the latter years of retirement.

Let's take a look at Keen Wealth's five-point checklist for retiring at 55.

1. Financial Readiness and Longevity

Again, health is often a major factor in early retirement goals. Today's younger and about-to-be seniors tend to have good eating and exercise habits that will keep them active for decades.

Of course, "decades," plural, is a long time! According to the Social Security Administration's actuary table, a 55-year-old retiree has a life expectancy of almost 28 additional years. I'll bet those numbers are only going to trend higher as these figures continue to recover from the pandemic, and as science and medicine continue to advance.

Also, keep in mind that while traditional retirement planning might say that your spending is the least at the beginning of retirement and will rise as you get older due to inflation, an early retirement goal could give that "retirement smile" some crooked teeth. A 55-year-old retiree might actually spend more upon retiring to relocate, enjoy more leisure time, or check off some bucket list goals. At 55 you might also still have some financial responsibility for children and your own parents.

So, is your nest egg ready for a thirty or forty-year retirement?

That depends more on you than on any single number or calculation. That's why step one in Keen Wealth's comprehensive financial planning process is getting to know you, not just your account balances. Once we understand what your short-term and long-term goals are, we can take a big-picture approach to balancing those goals and planning for your retirement, your way.

2. Health Insurance Coverage

If you retire at 55 you won't be eligible for Medicare for ten years. Married retirees whose spouses are still working usually jump on insurance subsidized by their spouse's employer, if they're not using that plan already.

Folks who retire closer to 65 often elect to pay for COBRA until they're eligible for Medicare, but that option typically expires after 18-36 months, depending on your employer.

So that leaves you with your state of residence's Affordable Care Act (ACA) Marketplace. The costs for these plans and the quality of coverage vary from state-to-state, and also depend on factors like your health and which doctors you want to see. But, in general, premiums tend to rise with age. By 55, you could be paying $1,000 or more per month for insurance. And an unexpected diagnosis or an accident could put a significant dent in your nest egg.

Once we factor monthly premiums into an early retirement spending plan, Keen Wealth often encourages folks to set up an emergency healthcare savings bucket. If the unexpected happens, you have additional resources. If not, you can reallocate those funds once you're on Medicare, or keep adding to that bucket to prepare for your needs in the second half of retirement.

3. Social Security Benefits

We usually advise anyone who doesn't need Social Security to pay their monthly bills to delay their benefits for as long as possible -- ideally until you reach your full retirement age. For folks born in 1960 or later, that's age 67. Beyond that, your Social Security benefits will keep growing until you have to start taking them at age 70.

However, a 55-year-old retiree won't be able to start taking Social Security until age 62. In a way, that could be advantageous. If you get used to sticking to a budget without relying on Social Security, you might be able to wait longer and maximize your benefits. Those checks might come in handy in your 80s and 90s if you need long-term care or want to relocate to be closer to family.

4. Withdrawal Strategies and Tax Implications 

Keen Wealth uses a careful analysis of a retiree's account balances and account types to formulate a withdrawal plan sequence. To maximize value and minimize tax liability, we typically start with taxable accounts (like brokerage accounts), then move on to tax-deferred accounts (401(k) and traditional IRA), and save tax-exempt accounts for last so that they can keep accruing.

But if you make withdrawals from retirement accounts before age 59½, you typically have to pay early withdrawal penalties. To avoid those penalties and keep those retirement accounts growing, a 55-year-old retiree might lean more on brokerage accounts and cash reserves for the first four or five years of retirement. Working part-time or starting your own business could also give you an extra cushion and add some structure to your new retirement schedule.

5. Lifestyle Adjustments and Purpose

That sense of structure and purpose can be extremely important to a successful early retirement. I've worked with many weekend golfers who found out that daily tee times in retirement just weren't as much fun as they thought they'd be.

Retiring at 55 can also put you on a very different timetable than the rest of your friends and family. Who are you going to grab a cup of coffee with if all your buddies are still working? Moving closer to your kids and grandkids might sound fulfilling, but how much time will they really have for you while they're balancing work, school, extracurriculars, and their own social lives?

And unless you're in the very highest percentage of earners, it's likely that retiring at 55 is going to be a financial adjustment as well. Your transition to a fixed income will come with the usual give and take between covering essentials and budgeting for nonessentials, which means everything from extra streaming subscriptions to your dream vacation itineraries. And, all the while, you'll have to keep thinking about your future self and making sure that older version of you will be taken care of as well.

At Keen Wealth we want folks to start enjoying retirement as soon as they can. But most retirement goals require careful and comprehensive financial planning to make sure your nest egg lasts as long as you’ll need it without sacrificing the fun and fulfillment you deserve. Let’s meet and discuss how Keen Wealth could help ready your financial plan for retirement at 55.

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About Bill

Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

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