How to Retire in Your 50s

For many, retiring in their 50s is an appealing idea. It can mean more time to pursue hobbies, travel, or spend time with friends and family while in good health. However, leaving the workforce this early also comes with unique considerations. Your savings may need to last for several decades, you could face a gap before Medicare eligibility, and some accounts have withdrawal restrictions before age 59 1⁄2.

While everyone’s financial situation is different, careful preparation and awareness of the available options can help you build a plan that supports your vision for early retirement.

Know Your Retirement Number

A starting point for early retirement planning is to estimate how much you might need each year and for how long you may need it. A retirement beginning at 65 might last 20 to 30 years. If you retire at 55, your plan may need to cover 30 to 40 years.

There are a number of ways to assess how much you can withdraw from your accounts in retirement. The most detailed and thorough is to utilize a Monte Carlo based tool. The simplest guideline often discussed is the 4% rule. This suggests withdrawing 4% of your retirement savings in the first year, then adjusting that amount for inflation each year afterward. For example, with $1 million in retirement savings, this would mean withdrawing about $40,000 in the first year.

(i.e.,: $1,000,000 x 0.04 = $40,000)

When estimating your retirement number, consider:

• Everyday living expenses

• Travel or leisure activities

• Inflation

• A buffer for unexpected expenses

Another important factor to consider is healthcare. Medicare begins at age 65, so early retirees often need to explore other coverage options, such as:

• ACA marketplace plans (subsidies may be available depending on income)

• COBRA coverage from a former employer

• Private health insurance plans

• Health Savings Accounts (HSAs) for qualified medical expenses

Healthcare costs can be a significant expense, so factoring them into your budget early is important.

What’s Your Investment Strategy?

When you plan to retire in your 50s, your investment strategy may look different than it would for someone working into their 60s or beyond. The reason is straightforward: your money may need to cover a longer retirement horizon, and withdrawals may begin sooner.

That can create two important challenges:

1. Longevity risk – the possibility that savings may need to last 30 to 40 years or more.

2. Sequence of returns risk – the potential impact if market downturns occur in the early years of retirement while you are also drawing down savings.

Because of these risks, some early retirees choose to take a more conservative approach than peers who are still working. In this stage, the emphasis often shifts from seeking the highest returns to helping manage downside risk and portfolio volatility.

Considerations that may be part of the discussion include:

• Balancing growth with stability: Maintaining some allocation to equities for long-term growth potential, while also holding conservative assets such as bonds or cash equivalents that may help offset volatility.

• Establishing a withdrawal “buffer”: Keeping a portion of assets in more liquid, lower-risk vehicles may reduce the need to sell equities during market declines.

• Adjusting allocation over time: What feels appropriate in your 50s may look different in your 60s, 70s, or 80s. Reviewing and adjusting periodically can help keep investments aligned with evolving goals and circumstances.

• Maintaining flexibility in spending: Being open to scaling back discretionary expenses in certain years may help preserve portfolio longevity.

The key takeaway is that retiring early often means planning not only for longer timelines but also for the impact of market fluctuations on withdrawals. Working with a financial professional can help you assess which strategies may be most appropriate for your individual situation.

Plan for Early Withdrawals Without Penalties

One of the biggest challenges of retiring in your 50s is figuring out how to access retirement accounts before age 59½ without triggering the standard 10% early withdrawal penalty. While many assume their savings are completely off-limits until then, there are exceptions worth understanding.

• Rule of 55: If you leave your job in the calendar year you turn 55 or later, the IRS allows withdrawals from your current employer's 401(k) or 403(b) without the early withdrawal penalty provided it's allowed by your employer sponsored plan. A few key points:

  • It applies only to the retirement plan of the employer you just left, not old accounts you may still hold elsewhere, unless those accounts were rolled into the employer sponsored plan.

  • The exception applies regardless of whether you were laid off, quit, or retired.

  • Regular income taxes still apply to withdrawals.

  • Public Safety employees (Police, Fire, EMT, etc.) have a lower limit of age 50, rather than 55.

• 72(t) Substantially Equal Periodic Payments (SEPP): Another option is to set up what’s called a 72(t) SEPP arrangement, which allows penalty-free withdrawals from certain retirement accounts before age 59½. Here’s how it works:

  • You agree to take equal unchangeable withdrawals (based on one of several IRS-approved calculation methods) for at least five years or until you reach age 59½, whichever is longer.

  • Once started, you must continue the withdrawals as scheduled — stopping early or changing the amounts can trigger retroactive penalties.

  • The calculation methods are based on IRS life expectancy tables and prevailing interest rates.

• Roth contributions: If you’ve been contributing to a Roth account, you can usually withdraw your original contributions (but not investment earnings) at any time, tax- and penalty-free. This flexibility makes Roth accounts a useful source of liquidity for some early retirees.

• Other exceptions: Certain situations also qualify for penalty-free withdrawals, such as using funds for qualified medical expenses, health insurance premiums while unemployed, or higher education costs.

Each option has specific rules, so reviewing them with a qualified professional can help avoid unintended tax consequences. For additional perspective, you may also find our article on how to retire without running out of money helpful.

Time Social Security Carefully

Social Security benefits can start as early as age 62, though claiming before your full retirement age results in permanently reduced monthly benefits. If you retire in your 50s, you will likely have several years before eligibility. Planning for how to bridge that gap can be important.

Some people choose to delay claiming benefits to increase their monthly amount, while others take them as soon as they are eligible. Coordinating the timing with withdrawals from other accounts may help manage taxes and extend savings.

What to Consider

Retiring in your 50s can be a rewarding choice for some, but it requires careful planning, a sustainable withdrawal strategy, and attention to healthcare and tax considerations. Since every situation is unique, working with a financial professional can help you evaluate your options. Our retirement experts at RetireAdvisers℠ are here to provide resources and guidance to help you stay informed every step of the way.

The concepts expressed herein represent the views and opinions of Pension Consultants, Inc., and are not intended as legal, tax, or investment advice for any specific individual, account, or plan.