Can You Retire before 55? A 5 Step Checklist.

A retirement checklist that tells you if you can retire early, based on the SHORE Framework: Savings, Healthcare, Outside interests, Risk, Efficient taxes.

Summary: In our working years, we mainly focus on saving enough money to be able to retire. That makes sense (see #1 below). Once you get closer to retirement, it’s time to start understanding a few other things that are going to make your retirement successful. The SHORE framework includes all the essential areas to plan for.

Keep reading to check your retirement readiness. At the end, you will find a 10-minute self-quiz.

Preparation unlocks freedom

I spent two weeks hiking in the Faroe Islands on my mini-retirement. The landscapes are mind-bogglingly beautiful.

I’m writing this at the end of a nine-week mini-retirement where I completely stepped away from work. Wow, life can be so fun and so free!

Part of my mini-retirement was big adventures. I did a two-week safari with my wife, biked across French wine country with old friends, and backpacked in the Yosemite backcountry with my brother. The rest of the mini-retirement was quiet days at home with no schedule at all. The control of my time was priceless.

A career break was right for me at this point in my life. I’m not ready to fully retire yet for quite a few reasons (including #1 below).

Still, even this sabbatical took serious planning. Whether you want to take a career break, to scale back, or to fully retire, it’s all possible with a clear plan.

The SHORE Framework

This framework covers the 5 essential areas that everyone needs to build into their retirement plan.

• Sufficient savings

  • You have enough in your portfolio, including any income streams

• Healthcare plan

  • You have a plan for healthcare up to and through Medicare.

• Outside interests

  • You have something to retire to and a community to share it with.

• Risk Protection

  • You protect your portfolio, particularly in the early years.

• Efficient taxes

  • You have a plan to optimize taxes through withdrawals, Roth, and RMDs.

So, how do you know if you are ready in these areas? Here are 5 ways to check.

1) Savings and Income. You’ve funded spending with a safe withdrawal rate.

You are ready when you have fully covered your annual spending with income and a safe withdrawal rate on your portfolio.

The safe withdrawal rate (SWR) is the percentage of your retirement portfolio you can withdraw each year without running out of money.

Your withdrawal rate should allow you to fund the life you want to live in retirement - including changes to spending. If you plan to spend retirement slow-traveling through Europe while trying to find which cafe has the absolute best terrace for people watching, that sounds fun. But it’s probably going to cost more than spending retirement taking long walks with your dog and writing your book. Which also sounds great.

Check your situation

1. Calculate Core Annual Spend, which is all of your costs, including any changes expected in retirement (like health insurance).

2. Subtract any reliable income you will have right away, such as rental cash flow or a pension.

3. Target a withdrawal rate of 3.5% for early retirees aged 45-60

   1. If you are of traditional retirement age of 60+, use 4% withdrawal rate.

4. Look up your total portfolio of savings and investments.

5. Multiply your total portfolio by your withdrawal rate. You want this amount to exceed your spending. That’s it!

Example

• Your Annual Spend = $90,000.

• And you have $15,000 per year in income from a rental property.

Which means you need to withdraw $75,000 per year ($90,000 - $15,000)

• Your portfolio is $2.5M.

• $2.5M * 3.5% = $87,500. That is the amount you can safely withdraw each year. That exceeds $75,000, so your spending is covered!

Many retirees can be too conservative here. By withdrawing significantly less than 3.5% you could be underspending and underliving. It’s a problem I wrote about here.

2) Healthcare insurance for retirees. You have a bridge to Medicare.

Healthcare is often the single biggest unknown for early retirees. You need coverage that you can afford, that your doctors accept, and that will support you through surprises.

Bridge options to 65: COBRA, ACA, spouse plan

You need a bridge from your last day of work to Medicare at 65. That can be built from a few options, usually COBRA for up to 18 months, an Affordable Care Act (ACA) Marketplace plan, or a spouse’s employer plan.

Your decision is not only about premiums. There are different networks, deductibles, and out-of-pocket maximums, and then price the total for a typical and a bad-case year.

If you use ACA plans, your income drives any subsidies, so your withdrawal plan and your health plan must fit together.

HSAs can be a useful tool here. If you fund them now, while you’re still working, then spend tax-free on qualified costs later. Put real numbers to these choices, then make the coverage switch part of your retirement timeline.

Check your situation

• Choose your path: research COBRA, ACA Marketplace, spousal plan, or employer retiree plan if offered

• Price two ACA plan tiers in your state, determining what the income threshold is for any subsidies

• Decide on an HSA strategy if you have one

• Then research dental and vision

Example

• COBRA for 18 months, then ACA silver plan until 65.

• Your total spending includes your expected premiums, deductible, out-of-pocket max, and routine care.

3: Outside interests. You have passions and hobbies to retire to.

These last two weeks of my career break have been eye-opening because I had absolutely nothing on the calendar. I’ve finished the big adventures. I am home and giving myself space before I jump back into work.

It was my first stretch with no schedule in a long time. What do I do after making breakfast? It’s a cloudy day, so I guess I’ll have a soak in the hot tub. That was nice, OK, now what? I have since cleaned up the yard, done several house projects I’ve been putting off, and even repainted a wall. I’m starting to run out of to-dos…

The structure, purpose, and social contact a job provides is enormous. In retirement, you have to build those intentionally.

Weekly schedule and “time buckets” exercise

So, how do you want to spend your non-working time? One framework I like is Bill Perkins’ “time bucketing” from Die with Zero. Many experiences have expiration windows and diminishing returns. A bike trip through French wine country in your 40s is a very different experience from one in your 70s. If you wait too long, you may miss it altogether.

Time bucketing is simple. List the experiences you want and place them in the decade when they will mean the most to you. Maybe a big family vacation in your 50s, a cross-country RV trip in your 60s, and quieter travel in your 70s. Pair that with a simple weekly template so your normal days feel the right amount of full without being busy.

And if you want to continue working in some capacity, think through what that will look like. Write down what you will do, how many hours, and the boundaries that protect your time.

Check your situation

• Write one typical weekday and one ideal week.

• Choose three experiences or goals per decade for how you envision spending your retirement.

• Decide if you want zero income or transition to part-time, consulting, seasonal work, or a passion project where you will have light income.

4: Risk Protection -> You can avoid running out of money in retirement.

The first years after you leave work are the most risky. A cash and short-term bond buffer reduces the risk that a stock market decline forces you to sell your investments at a loss.

Just about the worst thing that could happen to your retirement financially is a stock market crash soon after you quit. If that happens, you have to pull from your investments when they are down, depleting your nest egg even further. Your portfolio may never be able to recover, and you could run out of money.

Remember, financial freedom also means freedom from worrying about your finances! What’s the point of finally having full control over your time if you are so worried about it that you can’t enjoy it?

Having 3-5 years in very safe investments can reduce stress and give you peace of mind. It’s even more important when stock market valuations are as high as they are today, and returns may not be too hot in the next 10 years.

Check your situation

• Are you holding 3 to 5 years of annual spending in very safe investments, primarily cash and short-term bonds?

• Example target: 2 years in cash savings plus 1 to 3 years in short-term Treasuries.

Example

• Annual Spending = 90,000.

• Buffer target 4 years. $90,000 x 4 = 360,000. We split $360,000 into $180,000 in cash for years 1-2 and $180,000 in short-term bonds for years 3-4.

5: Efficient Taxes. You have a plan for a tax-advantaged retirement account

The first decade after you leave work sets up your lifetime tax bill. Without a plan, you can trigger penalties, push yourself into higher brackets, or lose valuable credits, like the Affordable Care Act. With the right plan, you turn low-income years into an opportunity to do Roth conversions, which can lower your taxes over time.

Roth conversions, Rule of 55, 72(t), order of withdrawals

You have some useful tools available to you to make sure you don’t overpay in taxes. Broadly, those tools are:

• The accounts you use, like Roth, Traditional, HSA, and Taxable

• The order of withdrawals

• The special rules that unlock accounts.

For example, the Rule of 55 allows penalty-free 401(k) withdrawals if you separate from service in the year you turn 55. A 72(t) SEPP can create structured IRA income. Roth conversion ladders can move pretax balances into Roth while you are in lower brackets and make the deposits accessible within 5 years, even before age 59½.

Design the withdrawal plan to minimize your lifetime taxes. Aim at a target tax bracket, watch Medicare thresholds and ACA subsidy cliffs, and harvest gains or losses when it helps. The goal is to fund spending without penalties and reduce taxes. If you create a well thought out plan that leverages all the tools available to you, you will often save thousands or even tens of thousands.

Check your situation

• You understand and have a plan for which of these you will use and in what order:

  • Taxable brokerage

  • Roth conversion ladder to move pretax funds into Roth during low-income years

  • Harvest capital gains within lower brackets where possible

  • Employer plan Rule of 55 if leaving work in or after the year you turn 55

  • 72(t) Substantially Equal Periodic Payment (SEPP) plan for structured penalty-free IRA withdrawals

• Put your plan onto a map between your retirement date and when Required Minimum distributions start at age 73.

An example sequence might look like this

Remember that everyone’s situation will be different, and this is just one example. Notice there is an overlap where, in some years, this person is drawing from multiple accounts. That’s not unusual.

• Years 1 to 5: taxable brokerage plus dividends and interest. Drawing down taxable accounts first will reduce taxable gains and tax on dividends.

• Years 2 to 6: annual Roth conversions up to a chosen bracket. In retirement, our tax brackets are often lower, and Roth conversions allow us to utilize those lower brackets to mitigate future taxes.

• Year 5 onward: blend Roth, traditional IRA, and taxable to stay within target tax brackets.

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10-Minute Readiness Quiz

Give yourself a score of 0 to 2 for each line.

0 = not done, 1 = partial, 2 = complete.

1. I can list my annual spending by major category.

2. I’ve included all new and lumpy costs in retirement in my annual spending.

3. I have any additional income in my withdrawal plan.

4. My portfolio funds cover my spending at 3.5 percent.

5. I hold 3 to 5 years of core spending in cash and short-term bonds.

6. I have a year-by-year plan for withdrawals and conversions up to RMD age.

7. I know exactly how I will get healthcare until 65 and what it costs.

8. I have a clear first year and weekly plan that excites me.

9. I have at least three experiences or goals per decade for how I want to spend my retirement.

10. My partner, if any, agrees with the plan.

17 to 20: You’re just about there! Close any of the final gaps and start getting excited! Keep reading educational materials like this blog. If you are stuck, consider getting some direct help to solidify your plan.

13 to 16: Dig into the areas that are not done or partial to move them more along. If you want help in any of these areas, consider getting help from a financial professional or further investing in your retirement financial education.

12 or below: Keep building. Focus on spending clarity and building your portfolio to cover your spending first. Consider getting help from a financial professional or investing in your retirement financial education. You don’t have to figure it all out on your own!

Want more resources or support?

If you want expert support to ensure you have a retirement plan that covers you from all angles, you can join the waitlist for our upcoming Freedom to Retire course. As a Founding Member, you’ll get access and bonuses that will only be available this one time.