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Since February, the number of employed workers over age 55 has dropped by 7%, signaling an uptick in people who have decided to retire early.

The COVID-19 pandemic has taken an emotional and physical toll on many Americans, but it also has surfaced stories of resilience and hope and appears to have inspired some adults to live life to the fullest.

Many individuals are taking stock of what matters most — their health, their family, special experiences — and as the world slowly begins to open back up, they are seizing the opportunity to create the space they need to spend time with family, travel as it becomes safe to do so, or simply enjoy the life they have built.

Yet the shortened savings runway that comes with accelerating retirement holds many monetary implications, even for those who are financially welloff. When considering whether to retire early, there are a number of financial planning factors to think about, including how to match expenses to income, evaluate your health insurance options, and think strategically about your retirement accounts and Social Security benefits.

If You’re Weighing the Option of Early Retirement, Keep These Five Financial Tips in Mind:

1. Match Expenses to Income

Managing cash flow is critical in retirement. Retirement planner calculators can help you benchmark how much to withdraw annually against your holdings, while considering investment returns, inflation, and Social Security. Though you may see reduced expenses in some categories, such as reduced transportation costs due to no longer commuting, you may experience some pressure on your budget in early retirement. Having a clear understanding of your new baseline income will help you identify any gaps to close and can serve as a solid starting point in determining potential lifestyle adjustments to consider.

2. Evaluate Your Retirement Accounts

It can be a challenge to manage your investments holistically when assets are spread across multiple portfolios — not to mention that fact that you may be paying too much in fees by having funds with multiple investment providers. Consider consolidating your retirement balances into fewer accounts for easier management. If you prefer to use multiple financial services providers, make sure to work with a trusted financial advisor who can take all your holdings into consideration when making decisions about early retirement.

3. Protect Your Investment Portfolio

As your focus shifts from saving for retirement to spending in retirement, you may find yourself performing a delicate balancing act to ensure you derive sufficient income from your investments. Avoid making common mistakes that could set your early retirement plans back, such as failing to rebalance your investment portfolio regularly, being overly reactive to market dynamics, and neglecting to ensure you have the right target allocation in place. Then, determine a sustainable withdrawal rate that will provide a consistent and reliable flow of income for your lifetime.

4. Think Strategically about Social Security benefits

While you may not be planning to tap Social Security benefits until later in life, if you’re retiring early, you may want to think about using a reduced projection of Social Security benefits as one scenario in your financial planning. The most recent Social Security Trust Funds report indicates that the combined trust fund reserves are projected to deplete in 2034, which would result in a drop of scheduled benefits payable at that time. That said, there are several variables to consider when deciding the right time to receive Social Security benefits, including your health, family health history, financial need, and retirement assets or income sources available to you, among other factors. Your advisor can help you conduct a thorough Social Security analysis to pressure test different scenarios.

5. Consider Your Health Insurance Options

Retiring before age 65 means you will be responsible for paying for your healthcare until Medicare kicks in. Healthcare will remain a priority for the rest of your life, so understanding your health insurance options is extremely important. You may have a few choices available to you, such as purchasing a private health insurance policy, buying an individual policy through a state-based or federal health insurance Exchange Marketplace, or extending your employer-sponsored coverage through COBRA.

If you’re considering whether to accelerate your retirement, take the opportunity to review your financial picture and connect with your team at Key Private Bank to help you assess your options.

For more information, please visit key.com/kpb or contact your Key Private Bank Advisor.

Sources: 1 - Summary: Actuarial Status of the Social Security Trust, Social Security Agency. Posted: 21 August, 2021. Accessed: 7 September, 2021. URL: https://www.ssa.gov/policy/trust-funds-summary.html

This piece is not intended to provide specific tax or legal advice. You should consult with your own advisors about your particular situation.

Any opinions, projections, or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.

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