Retirement financial planning requires careful consideration in order to avoid penalties and shortfalls.

If early retirement is calling your name, here are some of the financial factors you need to consider before handing in your resignation letter.

Plan for health insurance

One of the biggest expenses for early retirees is health insurance. The earliest you can get Medicare coverage is age 65.

Before age 65, those without employer-sponsored coverage must pay for health insurance premiums out-of-pocket. According to Forbes, the average cost for a 2022 ACA marketplace plan for an individual at age 50 was $665 a month; for an individual at age 60 it was $994 a month. Eligibility for a federal subsidy could bring down your out-of-pocket cost for health insurance.

Drawing on your retirement account before age 59½ comes at a cost

If you decide to withdraw retirement funds, such as an IRA or 401(k), before age 59½ you’ll get hit with a 10% penalty, plus taxes. As always, we encourage you to consult with a knowledgeable tax advisor about your individual situation.

There are some exceptions to the 10% penalty rule, such as disability.

The earliest you can collect Social Security is age 62

While you can tap into Social Security starting at age 62, you won’t be qualified to receive the maximum funds. In fact, when you collect early, your benefit could be cut by as much as 30%.

Earned income can reduce your Social Security payments

If you begin collecting Social Security at your full retirement age, 67 years old for anyone born after 1960, earnings won’t affect your benefit amount. However, if you start collecting Social Security before full retirement age, there’s a limit on how much you can earn and still receive full benefits.

According to the Social Security Administration, “If you’re younger than full retirement age during all of 2022, we must deduct $1 from your benefits for each $2 you earn above $19,560. If you reach full retirement age during 2022, we must deduct $1 from your benefits for each $3 you earn above $51,960 until the month you reach full retirement age.”

Carefully time when you file for Social Security

If all goes well, your application for Social Security benefits will be processed in about six weeks. However, because this is a government entity and delays are a possibility, it’s recommended that you apply for benefits four months ahead of when you’re eligible.

Also, be sure to understand the timing for Social Security payments. Benefits are paid in the month following the month they are due. For example, January benefits are paid in February. Plan for this one-month lag in your budget.

Get help with your retirement strategy

In addition to Social Security, Medicare and IRS rules, each individual’s situation must be considered when transitioning out of the workforce. You are always welcome to stop by one of our many convenient Consumers offices to discuss any future planning needs.

Consumers provides banking services for more than 131,000 members. If you have banking questions, call us at 800-991-2221. We make it easy to bank how you want, when you want.

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