Financial advisors often see clients seeking to retire early; Here’s what they tell them

Retiring well before the age of 65 – and not running out of money thereafter – is a financial goal that is easier said than done. More than that, it’s a goal that takes a level of planning to achieve that many financial advisory clients may not fully appreciate.

Here’s the rub. According to wealth managers, a lot of that planning will take place when those very same clients are in their 50s . So they better not delay making some serious financial maneuvers before it’s too late.

“In your 50’s, it’s not just about saving more, but about structuring your money to last. Those are good years to plan for Roth conversions to do these at the lowest tax rate possible,” said Sue Gardiner, founder of South County Wealth Planning.

As that Roth retirement account grows, clients will have lowered their RMDs, according to Gardiner, giving them more control over their taxable income in the future. Gardiner also points out that Roth and brokerage accounts give clients, especially high earners, more flexibility over their income from a tax perspective.

Furthermore, she points out that retiring before 65 means planning for a health insurance gap since Medicare doesn’t start until 65.

“COBRA will cover an initial 18-month period after retirement, or 36 months for certain individuals. Know how you will pay for this important coverage, whether it’s through COBRA, a family/spousal healthcare plan, or pricing it out in the healthcare marketplace,” Gardiner said.

Mallon FitzPatrick, head of wealth planning at Robertson Stephens, meanwhile, counsels clients in their 50’s to stay focused on their own financial stability, resisting pressures to overextend themselves financially for adult children or aging parents. In his view, Generation X, often described as the “sandwich generation,” is uniquely challenged by the need to support both children and older parents amid rising living costs.

“Adjusting spending habits is a powerful first step. Small cuts to discretionary expenses can lead to significant savings, and reevaluating needs versus obligations can create greater financial flexibility. Retiring too early increases the risk of outliving your assets,” Fitzpatrick said.

Moderately delaying retirement can also provide substantial benefits, according to Fitzpatrick, allowing for continued savings, extending access to employer-sponsored benefits such as health insurance, and delaying Social Security, which increases future monthly payments.

“Those not wanting to work full-time can explore part-time or lower-stress jobs that still offer income and fulfillment,” Fitzpatrick said.

Maxing out tax-advantaged funds is a must, but getting client spending under control can be equally as important, said Aaron Leak, founder of ECL Wealth Management. Clients can aggressively manage expenses by downsizing debt—mortgage, car loans, credit cards.

“Start tracking expenses and building a retirement budget based on your desired lifestyle. Also, prioritize healthcare planning, including how you’ll cover insurance before Medicare eligibility at 65,” Leak said.

Home may be where the retirement is 

Rental properties can be a source of tax-advantaged cash flow, but rental real estate is far from passive. It demands market knowledge, time, and often substantial ongoing expenses – property taxes, maintenance, insurance, and HOA fees.

And, as FitzPatrick points out, managing distant properties can be especially burdensome, and hiring a property manager doesn’t fully remove the challenges.

“Indirect real estate exposure through diversified funds offers similar returns with fewer complications,” FitzPatrick said.

On the topic of real estate, Leak notes that home equity can be used later through downsizing or a reverse mortgage. He suggests setting up a HELOC ahead of time to avoid tapping one’s investment portfolio in a downturn.

“Rental properties can provide steady income and inflation protection. REITs in brokerage accounts offer access to income before age 59½ too,” Leak said.

Model out Social Security scenarios 

When it comes to Social Security, early retirees should model out a delayed claiming strategy, according to Gardiner.

“Your portfolio has to do more heavy lifting in your 60’s, but locking in a higher benefit at age 70 can provide lifelong protection against outliving your money,” Gardiner said.

That said, there is a point when claimants break even. So, longevity plays a part in a client’s claiming strategy, too. 

“If claiming early means you won’t have to touch your retirement investment accounts for eight years, allowing them to grow significantly, or letting you fund Roth conversions without touching cash reserves, it might be a reason to claim early,” Gardiner said.

When to claim Social Security can also be a joint decision.

FitzPatrick points out that for married couples the higher-earning spouse might delay claiming until age 70 to maximize their benefit and the potential survivor benefit for their spouse. The lower-earning spouse might claim earlier, potentially at their full retirement age or 62, to provide immediate income without impacting the higher earner’s survivor benefit.

“Spousal benefits, up to half of the higher earner’s full retirement amount, are available for those with limited work history once the higher earner claims. Divorced individuals married for more than 10 years may claim benefits on an ex-spouse’s record if they are at least 62, unmarried, and the divorce was finalized at least two years prior,” FitzPatrick said.

Finally, ECL’s Leak reminds clients with early retirement on their minds that long term care insurance gets expensive or unavailable the longer they wait and older they get. His recommendation is to explore hybrid long-term care policies that combine life insurance with LTC benefits. Some people may also choose to self-insure by setting aside a dedicated bucket of funds.

For Social Security, Leak said the ideal plan is to claim at 70, although earlier may work better for some people depending on their circumstances.

“This requires sufficient income or assets to bridge the early retirement years,” Lead said.