I’m 40 and hoping to retire before I hit 60. Right now, I’ve got six years in civil service and could retire at 30 with full benefits, no matter my age. I could also buy back seven years of service for a higher price. I’ve got $12,000 in my retirement account that I could use for that.
I’ve just started a new job that pays more, but I don’t have any savings set aside for emergencies. I have a retirement account from both my current and a previous job, as well as some stocks that aren’t doing so well lately. The cost to buy back service is based on my salary from the last 12 months. If I wait a year, it’ll mean an extra $10,000, but making monthly payments would cut into my savings and investment opportunities. So, am I too late to think about retiring early? Do I need to get a financial advisor to figure this all out?
It’s definitely possible to retire before 60, though several factors would need to be assessed properly. An advisor could really help you navigate through this. Knowing the costs involved in purchasing service, how much you’re saving, and details like your employer’s match can provide a clearer picture, says Richard Haskell from Western Governors University.
If you buy those extra seven years, you could reach your full pension benefits around age 57 instead of 64. But, there’s a catch. Buying service credits now could save you money, but it might stretch your current resources thin, notes Erika Grunza, a financial planner at Betterment. Plus, withdrawing from your retirement account before 59 and a half might lead to penalties, which could lower your net payout unexpectedly.
And don’t focus too much on a specific retirement age. Instead, concentration should shift toward accumulating the assets and benefits necessary to support yourself without worrying about running out of money. “Assets over age,” emphasizes Gil Baumgarten of Segment Wealth Management.
There’s also concern about individual stocks when the market seems high—reconsidering diversification might be wise. Instead of holding onto individual stocks, look into broad-market index funds, Baumgarten suggests.
In the meantime, try to establish an emergency fund with at least three months’ worth of expenses and set a budget before making any big decisions about buybacks. Stabilizing your savings could make buying back service worthwhile if your pension significantly increases your guaranteed lifetime benefits. It’s important to assess how your expected pension will stack up against your anticipated living costs during retirement. Also, considering liquidity options for purchasing credits is smart if you think you might be better off withdrawing from your retirement fund.
Need help from a financial advisor?
Experts generally say having an advisor can be really beneficial. While retiring early can seem attractive, planning is essential. Turning 40 doesn’t mean 60 is old. If you’re healthy and active, you might be surprised at how long you have left. Haskell notes it’s smart to take your financial future seriously now, with ample time to prepare and take advantage of the next 20 years.
Connecting with a qualified financial advisor can help clarify your situation. They can assist in estimating your Social Security income, adjusting your savings, and addressing your immediate financial needs before retirement. Many will provide insights for free, hoping to establish a lasting relationship.
Considering an hourly or project-based financial planner could work well for you. Hourly planners usually charge between $200 and $500 and can address specific queries without a long-term commitment. Project-based advisors may cost from $1,500 to $7,500 depending on the work required. Just keep in mind that Certified Financial Planners (CFPs) have met rigorous educational standards and operate with fiduciary responsibilities, meaning they prioritize your best interests. You can find advisors through tools and sites dedicated to financial planning.
Question has been edited for brevity and clarity.
