Can a person retire at age 58? A guide to early retirement

According to a recent report by Empower, survey respondents believe the ideal retirement age is 58 on average. While this is a popular goal, the feasibility of early retirement depends heavily on careful financial planning and personal circumstances. Before you can confidently say, "I can retire at age 58," you need a comprehensive strategy to manage the years before government benefits begin.

Quick Summary

Retiring at age 58 is financially possible, but it requires substantial savings and strategic planning to bridge the gap before accessing government benefits like Social Security and Medicare. It involves carefully assessing your income sources, managing healthcare costs, and navigating potential penalties for early withdrawals from retirement accounts. A thorough evaluation of personal finances and lifestyle expectations is essential for a successful early retirement.

Key Points

• Early retirement is possible: Retiring at 58 is achievable for those who have planned well and have a substantial nest egg to cover expenses until federal benefits begin.

• Navigating the financial gap: The biggest challenge is funding the period between age 58 and when Social Security (62) and Medicare (65) become available.

• Use the Rule of 55 wisely: The Rule of 55 allows for penalty-free withdrawals from your last employer's 401(k) plan, but only if you left that job at or after age 55.

• Plan for high healthcare costs: Without employer-sponsored insurance, private healthcare premiums can be expensive. Researching marketplace options is crucial.

• Create a sustainable withdrawal strategy: Consider using a more conservative withdrawal rate than the traditional 4% rule to ensure your savings last throughout a potentially longer retirement.

• Delaying Social Security is beneficial: While you can start collecting at 62, delaying benefits until full retirement age (or later) can significantly increase your monthly income for life.

Understanding the financial landscape of early retirement

Retiring before the traditional age brings with it a unique set of financial challenges and considerations. At 58, you are not yet eligible for Social Security (earliest is age 62) or Medicare (eligible at age 65), meaning you must have a solid plan to fund these gaps. The viability of your early retirement hinges on your savings, expenses, and a clear understanding of the rules governing retirement accounts.

The Rule of 55: accessing your 401(k)

One of the most important provisions for anyone considering retirement between the ages of 55 and 59½ is the Rule of 55. Under this IRS rule, you may be able to make penalty-free withdrawals from your 401(k), 403(b), or other qualified retirement plan if you leave your job during or after the calendar year you turn 55. This rule only applies to the plan you were contributing to when you separated from service and does not extend to IRAs. This can be a critical source of income during the first few years of early retirement.

Filling the Social Security and Medicare gaps

Planning for the years before you can claim federal benefits is crucial. Social Security benefits can start as early as age 62, but they will be permanently reduced. Waiting until your full retirement age (67 for those born in 1960 or later) or even age 70 will result in a significantly larger monthly payment. Delaying Social Security could be a wise strategy if your savings can cover the interim years. On the healthcare front, you will need to secure private insurance to cover the period before Medicare eligibility at age 65. Options include COBRA, private marketplace plans through Healthcare.gov, or potentially joining a spouse's plan. Healthcare can be one of the largest and most unpredictable expenses in early retirement, so budgeting for it is essential.

Creating a sustainable budget

To ensure your savings last, you need an accurate picture of your expected retirement expenses. Some expenses may decrease, such as commuting costs and work-related attire, while others, like travel or new hobbies, might increase. Inflation is another factor that can erode your purchasing power over time. A common guideline is the 4% rule, which suggests you can withdraw 4% of your savings in the first year of retirement and adjust for inflation each subsequent year. However, given the long retirement horizon of an age 58 retiree, some financial advisors recommend a more conservative withdrawal rate to ensure longevity of funds.

A comparison of early vs. full retirement

Feature	Retiring at 58 (Early)	Retiring at 67 (Full Retirement Age)
Financial Gap	Significant gap between retirement and access to Social Security/Medicare. Requires bridging funds.	Benefits are immediately available at 100% of your earned amount.
Retirement Accounts	Can access 401(k) penalty-free under the Rule of 55. Need to navigate IRA early withdrawal penalties.	Access is standard and penalty-free at 59½+.
Social Security	Cannot be claimed until age 62 (at a reduced rate). Maximum benefit at 70 is delayed.	Can be claimed at 100% of your calculated benefit. Waiting longer increases benefit.
Healthcare	Must rely on private insurance until age 65. Premiums can be very high.	Eligible for Medicare at 65. Transition from employer-sponsored to Medicare coverage.
Savings Longevity	Your savings must last significantly longer, requiring a higher nest egg and careful withdrawal strategy.	Your nest egg can be smaller as it needs to cover fewer years.
Investment Strategy	Must balance long-term growth with short-term liquidity needs.	Can be more conservative, with a higher percentage of fixed-income assets.

Practical steps for a successful early retirement at 58

1. Assess your net worth: Get a clear picture of all your assets and liabilities. This includes retirement accounts, investments, savings, and any outstanding debts.
2. Estimate retirement expenses: Create a detailed post-retirement budget. Don't forget to account for inflation and potentially higher healthcare costs.
3. Review your income sources: Determine how much income you can realistically expect from your investment portfolio, potential part-time work, or other sources before Social Security and pension income (if any) become available.
4. Maximize your savings: In the years leading up to retirement, ramp up your contributions to all retirement accounts. If you're 50+, use the catch-up contribution options for your 401(k) and IRA.
5. Develop a healthcare plan: Research private health insurance options to bridge the gap until Medicare. Understand your state's marketplace offerings and associated costs.
6. Optimize your portfolio: Ensure your investment strategy is balanced between growth and stability, considering your longer retirement horizon. It may be wise to keep a more aggressive allocation than a traditional retiree.
7. Consider alternative income: Explore part-time work or side hustles to supplement your savings, reduce the strain on your nest egg, and provide a sense of purpose. Volunteering can also be fulfilling.

Conclusion

Retiring at 58 is a challenging but achievable goal with the right preparation. It is not an option to be taken lightly, as it requires a disciplined approach to saving, a deep understanding of your personal financial situation, and careful navigation of critical issues like healthcare and Social Security. By meticulously planning and consulting with a financial expert, you can transition into your next chapter with confidence. For more detailed retirement planning guidance, including access to various calculators and expert resources, consider visiting the Social Security Administration's website for official information on benefits and planning.

Frequently Asked Questions

Can a person retire at age 58 without an employer pension?

Yes, it is possible, but you will be entirely reliant on your personal savings, investments, and potentially other income sources to fund your living expenses and healthcare until Social Security and Medicare become available.

What is the Rule of 55 and how does it apply to retiring at 58?

The Rule of 55 is an IRS provision that allows employees who leave their jobs at age 55 or later to take distributions from their 401(k) or 403(b) without paying the standard 10% early withdrawal penalty. This is a vital tool for those retiring at age 58 to access funds from their most recent workplace retirement plan.

How will I cover healthcare expenses if I retire at 58?

You will need to purchase private health insurance, either through the federal Health Insurance Marketplace (Healthcare.gov), a COBRA continuation plan, or a spouse's employer plan, until you become eligible for Medicare at age 65. These costs should be a significant part of your retirement budget.

Should I take Social Security benefits at age 62 if I retire at 58?

This is a complex decision. Taking benefits at 62 will result in a permanently reduced monthly payment. You should compare the total amount received over your lifetime with a larger benefit earned by waiting, and determine if your savings can cover the income gap until you claim later.

How do I calculate if I have enough saved to retire at 58?

Start by estimating your annual retirement expenses. A common method is the 4% rule, which suggests your savings should be 25 times your annual expenses. However, for a longer retirement starting at 58, a lower withdrawal rate may be safer. A financial planner can help you with personalized calculations.

What happens if I need to withdraw from my IRA before age 59½?

Unlike the Rule of 55 for 401(k)s, IRA withdrawals before age 59½ are typically subject to a 10% early withdrawal penalty, in addition to regular income tax. There are some exceptions, such as for specific medical expenses or a first-time home purchase, but it is best to avoid early IRA withdrawals if possible.

Can working part-time after retiring at 58 help my finances?

Yes, part-time work can significantly improve your financial security in early retirement. It provides additional income to reduce the strain on your savings, helps cover living expenses, and potentially allows you to delay claiming Social Security for a larger benefit later.