Sep 23, 2024
Retirement can seem tantalizingly close in your mid-50s, especially if you’ve built a good-sized nest egg. If you're feeling burned out at work and are tempted to hand in your notice, you may want to think twice — especially if you've been offered a promotion.
Before you decide to leave your job instead of accepting a new opportunity, be sure to consider these key factors to make the best choice for you.
How long will your savings last?
Before even thinking about quitting, your first consideration should be whether your savings will provide enough income to last for life.
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A nest egg of $1.2 million may sound like plenty, but you can't forget that you need this money to last as long as you do — hopefully, a very long time if you retire at 57.
There's a common rule of thumb called the 4% rule, which suggests you can make your money last at least 30 years by withdrawing just 4% of your nest egg annually. If you follow it, your $1.2 million would generate $48,000 per year — not exactly a princely sum. Plus, if you retire at 57, there's a good chance you'll need more than 30 years' worth of income from investments.
Online calculators can help you estimate how long your savings will last at different withdrawal rates. Play with the numbers to see how much money you could safely take out while ensuring your retirement funds last 35 to 40 years or more. Whether you can live on that amount will determine if early retirement is even feasible.
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What will you do about health insurance?
If you're considering retiring at 57, healthcare costs are a major factor to consider. Medicare doesn't become available until age 65, so you'll likely need to pay for private insurance in the meantime, which can be really expensive.
The cost of private insurance will cut into your savings, leaving you with less to spend and making it harder to maintain a safe withdrawal rate. Research what insurance might cost you before leaving your job early to ensure it's affordable.
How will your Social Security benefits be affected
Quitting work at 57 could have a big impact on Social Security benefits.
You won’t be able to claim benefits until age 62, and starting that early comes with filing penalties. These penalties apply if you claim even one month before your designated full retirement age.
For anyone born in 1960 or after, the full retirement age is 67. So, if you don’t want a reduced benefit, you'll need to wait a decade. Plus, if you wanted to maximize your benefits, you'd need to wait until 70 to earn delayed retirement credits. That's a lot of years to live off savings without Social Security.
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Leaving work early also affects how your benefits are calculated. Social Security is based on a percentage of average wages in your 35 highest earning years. If you started working at 18 and quit at 57, your career spans just 39 years, meaning nearly every year counts — including years of lower earnings. If you started working later, say at 24 because you went to grad school, you'd only have 33 years of earnings, leaving two years of $0 income in the formula.
You'd likely end up with a far bigger check if you stayed on the job at your new promotion and had a few of these top-earning years replace low-earning ones in your benefits formula.
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How much more could you save for a better future?
Retiring early also means giving up extra years of savings and investment opportunities.
Not only do you start draining your money sooner but you also miss out on prime years for making larger tax-advantaged contributions, like catch-up contributions that kick in once you're 50.
If you work for an extra few years and put a lot more money in the bank, this will have a big impact on your retirement income. You could end up with enough money to enjoy life rather than just getting by — especially if a promotion is on the table. You could invest your entire raise, earn extra 401(k) matching funds, and set yourself up for the retirement of your dreams.
For all of these reasons, sticking it out for longer likely makes good sense. Think seriously about taking the promotion, saving the extra income and focusing not on your current burnout but instead on how sweet retirement will be with a healthy savings account and a larger Social Security check.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
