Can I Retire Early? 8 Questions to Ask Before Leaving the Workforce

I hear this question often, particularly from people who are five to ten years from retirement. They’ve spent decades saving, investing, and building wealth, but transitioning from earning a paycheck to relying on their investments can feel like a significant leap.

The truth is, having enough money is only one part of the equation. A successful early retirement also requires a plan for generating income, managing taxes, covering healthcare costs, preparing for the unexpected, and deciding how you want to spend your time.

Before making the decision to leave the workforce, I encourage everyone to consider these eight questions.

8 Questions to Ask Before Retirement

1. Do I Have Enough Saved and Invested to Retire Early?

This is usually the first question people ask, and for good reason.

Since the rise of defined contribution retirement plans, such as the 401(k), and the decline of traditional pensions, individuals have taken on more responsibility for funding their own retirement. That shift has helped fuel the growth of the modern financial planning and wealth management industry.

Several ways can help you estimate whether you’ve saved enough, from simple back-of-the-napkin calculations to common rules of thumb like the 4% withdrawal rule.

While these approaches can provide a useful starting point, they don’t always capture the complexities of an individual’s financial situation, especially when retirement could last 30 years or longer.

A more comprehensive approach begins with two foundational documents:

• Net Worth Summary: A breakdown of your assets and liabilities, including investment accounts, retirement savings, real estate, and outstanding debts.
• Cash Flow Summary: An overview of your current income and expenses, which helps establish how much money you may need to maintain your lifestyle in retirement.

From there, financial planners can build long-term projections using tools such as a Monte Carlo simulation.

How Can a Monte Carlo Simulation Help Determine Retirement Readiness?

A Monte Carlo simulation is a statistical methodology that uses repeated random sampling to estimate a range of possible financial outcomes.

Because investment markets are unpredictable, we can’t know exactly what returns a portfolio will generate in any given year. Monte Carlo simulations help account for that uncertainty by modeling numerous potential market scenarios and evaluating how a financial plan might perform across them.

These projections aren’t guarantees, but they can help answer questions such as:

• How likely is my portfolio to support my spending throughout retirement?
• What happens if markets decline significantly during my first few years of retirement?
• How would retiring three or five years earlier affect my long-term financial picture?
• Could I afford to spend more in retirement, or should I adjust my expectations?

Today, individuals can build their own retirement projections using online tools from providers like Fidelity or Boldin. Financial planning professionals often use more comprehensive platforms such as eMoney or MoneyGuidePro.

As a planning professional, I’m admittedly biased, but I’ve never been the biggest fan of people building complex financial plans entirely on their own. To me, that feels a little like going to the dentist and having them hand you the drill.

You can certainly do some things yourself, but when the stakes are this high, an experienced professional can be valuable.

2. How Am I Going to Turn My Portfolio Into a Paycheck?

One of the most common things we hear from people entering what I call the retirement red zone—the five years before and five years after retirement—is that they feel confident as investors but less confident about becoming spenders.

They know how to put money to work in the market. What they’re less certain about is what to sell, when to sell it, and how to create a reliable income stream from their investments.

During your working years, you’re generally focused on accumulating assets. In retirement, the objective shifts toward using those assets to support your lifestyle without unnecessarily jeopardizing your long-term financial security.

For many retirees, Social Security and pension income won’t fully cover their expenses. The difference needs to come from their investment portfolios.

A retirement income strategy should address several important considerations, including how much to withdraw annually, which investments to sell, how much liquidity to maintain, and how withdrawals may affect your tax situation.

Which Retirement Accounts Should You Withdraw From First?

Depending on your financial situation, you may have assets in taxable brokerage accounts, traditional IRAs, 401(k)s, Roth IRAs, or other investment vehicles. Each account has different tax characteristics.

For example, withdrawals from traditional retirement accounts are generally subject to ordinary income taxes, while qualified Roth IRA withdrawals are typically tax-free. Taxable brokerage accounts may generate capital gains when appreciated investments are sold.

The order of withdrawals can affect your tax bracket, future required minimum distributions (RMDs), Medicare premiums, and the longevity of your portfolio.

For individuals retiring before age 59½, it’s also important to understand the rules governing early withdrawals from retirement accounts, including potential penalties and available exceptions. The goal isn’t necessarily to minimize taxes in any single year. The goal is to develop a coordinated strategy that considers your lifetime tax picture while supporting your income needs.

Social Security timing should also be part of this discussion. Claiming benefits as early as age 62 may provide income sooner, but generally results in a lower monthly benefit than waiting until full retirement age or later. Delaying benefits can increase monthly payments, although the best decision depends on your circumstances.

3. How Much Do I Actually Spend?

At its core, the retirement planning equation is relatively simple: You’ll have a certain amount of money coming in from sources such as Social Security, pensions, and other income. You’ll also have money going out to cover your bills and the things you enjoy doing.

The difference between those two numbers is what your portfolio needs to provide. Of course, determining how much you actually spend can be easier said than done.

Before you retire, you should have a reasonably accurate understanding of your monthly and annual spending, including where that money goes.

I generally encourage people to distinguish between essential expenses and discretionary spending. Essential expenses include housing, insurance, groceries, utilities, taxes, and healthcare. Discretionary expenses may include travel, entertainment, dining out, hobbies, and gifts.

Understanding that distinction becomes especially valuable during periods of market volatility. If markets downturn, flexibility in certain spending categories may reduce pressure on your portfolio.

4. How Will My Expenses Change After I Retire?

A common mistake in retirement planning is assuming spending will stay relatively consistent after you leave the workforce. In reality, some expenses may decline while others increase.

You may no longer have commuting costs, professional wardrobe expenses, or retirement plan contributions. On the other hand, you might spend more on travel, hobbies, entertainment, and activities that you previously didn’t have time to enjoy.

Healthcare can also become a significant expense, particularly for individuals retiring before age 65.

What Happens to Health Insurance If You Retire Before 65?

Most Americans become eligible for Medicare at age 65, meaning those who retire earlier generally need another source of health insurance until they qualify.

Depending on your circumstances, options may include coverage through a spouse’s employer, COBRA continuation coverage, or an individual health insurance plan through the Health Insurance Marketplace. Each option has different costs, eligibility requirements, and coverage considerations.

For early retirees, health insurance premiums and out-of-pocket medical expenses can represent a meaningful addition to the retirement budget.

It’s also important to account for inflation.

Even modest inflation can significantly affect purchasing power over a long retirement. For example, if your annual expenses begin at $120,000 and increase by 3% each year, those same expenses would reach approximately $161,000 after ten years.

And that’s before considering potential changes in lifestyle or healthcare needs.

5. Am I Prepared for the Unexpected?

Markets decline. Homes need repairs. Family members need help. Medical expenses arise. Life happens. The difference in retirement is that you may no longer have employment income to help absorb those unexpected costs.

A few areas deserve particular attention:

• Emergency reserves and liquidity. Keeping enough accessible funds can help cover unexpected expenses without forcing you to sell investments in an unfavorable market.
• Investment risk and market downturns. Retiring immediately before a major market decline can be especially challenging. This is often referred to as sequence of returns risk. Withdrawing funds while a portfolio is declining may reduce the assets available to participate in a future recovery.
• Home maintenance and major purchases. Roof replacements, home renovations, vehicle purchases, and other large expenses don’t disappear in retirement.
• Family support. Some retirees anticipate helping adult children, aging parents, or grandchildren financially. Those commitments should be considered when evaluating retirement readiness.
• Income-oriented investments. Bonds and other income-producing assets may play a role in a retirement portfolio, but they should be evaluated alongside liquidity needs, diversification, interest-rate risk, and overall investment objectives.

The goal isn’t to predict every possible expense. It’s to build enough flexibility into your financial plan that unexpected events don’t automatically derail your retirement.

6. Have I Planned for Long-Term Care?

Long-term care is one of those subjects that many people would rather avoid. And I understand why. No one particularly enjoys thinking about needing assistance with daily activities later in life. But ignoring the possibility doesn’t make the financial risk disappear.

Long-term care may involve assistance at home, adult day services, assisted living, or skilled nursing care. Depending on the type and duration of care required, costs can be substantial.

It’s also important to understand that Medicare generally does not cover ongoing custodial long-term care, such as extended assistance with bathing, dressing, or other activities of daily living.

How Can I Prepare for Potential Long-Term Care Expenses?

Some individuals may choose to self-fund potential care expenses using their existing assets. Others may consider traditional long-term care insurance or certain hybrid insurance products that combine life insurance with long-term care benefits.

For couples, the financial impact deserves particular consideration. If one spouse requires an extended period of care, those expenses could affect the assets available to support the other spouse’s retirement.

Long-term care planning should also involve conversations about personal preferences. Would you prefer to remain in your home as long as possible? Are there family members who may be involved in your care? What resources would you want available if your health circumstances changed?

These aren’t always easy conversations, but they’re worth having before a need arises.

7. Am I Really Ready to Retire?

Here’s a question that doesn’t always show up in a retirement calculator.

Are you actually ready to stop working?

For some people, the answer is an enthusiastic yes. They’ve been counting down the years and have a clear picture of what comes next.

For others, it’s more complicated.

Work provides more than a paycheck. It can offer structure, purpose, social connections, intellectual stimulation, and a sense of accomplishment. Leaving those things behind can be a bigger adjustment than expected, especially for individuals who have spent decades building a career or business.

I’ve seen situations where someone is financially prepared to retire but isn’t quite ready to make the transition personally.

And that’s okay. Retirement doesn’t necessarily need to be an all-or-nothing decision.

Some people benefit from gradually reducing their workload, transitioning into consulting, serving on boards, mentoring others, or pursuing part-time opportunities.

A phased retirement can offer more financial flexibility while letting you explore what life outside a traditional career might look like.

Before deciding on a retirement date, ask yourself whether you’re leaving work because you’re genuinely ready for the next chapter or simply ready for a break.

Those can be two very different things.

8. What Will I Do With All My New Free Time?

I like to end with this question because it’s arguably one of the most overlooked parts of retirement planning. Most people spend a tremendous amount of time thinking about how much money they’ll need in retirement.

They spend considerably less time thinking about what they’ll actually do once they get there.

Retirement can create opportunities that weren’t available during your working years. Travel, volunteering, spending time with family, learning new skills, or pursuing long-delayed interests can all become meaningful parts of the next chapter. But having more free time doesn’t automatically translate into greater fulfillment.

I encourage people to think beyond the first six months of retirement.

The initial excitement of not setting an alarm or answering work emails may be wonderful, but what does an ordinary Tuesday look like two years from now?

What activities will give your days structure? How will you maintain social connections? What goals or interests will keep you engaged?

These questions may seem unrelated to financial planning, but they’re closely connected.

After all, the purpose of building wealth isn’t simply to accumulate the largest possible portfolio. It’s to support the life you want to live.

Frequently Asked Questions About Early Retirement

These answers address common questions people ask when evaluating whether they can afford to retire before age 65.

How much money do I need to retire early?

The amount needed depends on your expected spending, retirement age, investment portfolio, other income sources, healthcare costs, and anticipated longevity. Rather than relying on a single savings target, a comprehensive retirement projection can help estimate how much you may need to support your specific lifestyle.

Is $2 million enough to retire at age 60?

A $2 million portfolio may be sufficient for some individuals, but not for others. For example, a hypothetical 4% initial withdrawal rate would provide $80,000 in the first year before taxes, in addition to any other income sources. Whether that amount is sustainable depends on spending, market conditions, inflation, taxes, and how long retirement lasts. The 4% rule is a planning guideline, not a guarantee.

What are the biggest risks of retiring before age 65?

Common risks include healthcare costs before Medicare eligibility, a longer retirement horizon, inflation, market downturns early in retirement, and unexpected expenses. Early retirees may also face restrictions or penalties when accessing certain retirement accounts before age 59½.

Can I retire at 60 and collect Social Security?

You generally cannot begin collecting Social Security retirement benefits until age 62. Claiming benefits before full retirement age typically results in permanently reduced monthly payments. Retiring at 60 may require relying on other income sources until Social Security benefits begin.

How do I pay for health insurance if I retire before 65?

Early retirees may obtain coverage through a spouse’s employer, COBRA, or the Health Insurance Marketplace. Costs vary based on coverage, household income, location, and eligibility for available subsidies. Healthcare expenses should be incorporated into your retirement budget before leaving employer-sponsored coverage.

How can I tell if I’m financially ready to retire?

Start by evaluating your net worth, spending, expected retirement income, investment allocation, tax exposure, healthcare needs, and potential long-term care expenses. A comprehensive financial plan can model different retirement dates and market scenarios to help assess whether your resources align with your goals.

How Mission Wealth Can Help You Prepare for Early Retirement

Deciding when to retire is one of the most significant financial and personal decisions you’ll make.

At Mission Wealth, we work with individuals and families to evaluate retirement readiness through comprehensive financial planning that considers investments, retirement income, tax strategies, risk management, and long-term goals.

Wondering if you’re ready to retire early? Schedule an introductory conversation with Mission Wealth to explore your retirement goals and learn how our team can help you plan for your next chapter.