Jeff Bezos is now retired. Somehow, somehow, that is.
Bezos officially stepped down from his role as Amazon CEO on July 5, after announcing his resignation in February. When he retires from running the company, which was founded in 1994, his net worth is $ 211 billion, making him the richest person in the world.
At 57, Bezos is seven years younger than the average retiree in America who quits at 64. The average net worth for someone between the ages of 55 and 64 is $ 212,500. That means Bezos has roughly $ 210,999,787,500 more than his counterparts.
To be clear, Bezos is not retiring entirely. Like many early retirees, he switches to a different type of work. He will continue to serve as Amazon’s CEO. He will devote more of his time to passionate projects like fighting climate change and monitoring the Washington Post.
He will also celebrate his new chapter with a big trip: He is planning an 11-minute trip into space when his rocket company Blue Origin undertakes its first manned space flight this month.
So yes, suffice it to say that Bezos’ retirement will look very different than yours. Still, it is possible for ordinary people to retire early like the founder of Amazon.
5 things to expect when you retire early (and you’re not Jeff Bezos)
Early retirement used to be much cheaper for the middle class because old-age provision was widespread. However, these days, however, the most likely way to retire is with a defined benefit plan – which means you are guaranteed a retirement benefit – if you work in the public sector. Otherwise, you will have to live on your retirement benefits, social security benefits, and any other sources of income you have, such as income from a part-time job.
If you are planning to retire early, you need to be prepared for the financial realities that three point club members shouldn’t have to worry about. Here are five things to expect if you are a non-billionaire looking to retire early.
1. Health care costs become expensive
Obviously, billionaires like Bezos don’t have to worry about paying for health care. But for ordinary people, retirement medical expenses are a big problem. Ordinarily, you are not eligible for Medicare until you are 65 years of age. Paying for private health insurance between the ages of 50 and 60 can put a heavy strain on your budget.
According to ValuePenguin, an Affordable Care Act Silver Plan costs an average 60-year-old $ 1,016 a month. Someone who is 64 years old can expect a monthly premium of $ 1,123. Health care costs tend to rise faster than headline inflation. So if you want to retire early, it is important to budget for medical expenses.
2. You actually have to pay taxes
Billionaires like Bezos, Warren Buffett and Elon Musk made headlines recently when ProPublica reported that the richest Americans pay only a tiny fraction of their income in taxes. According to the report, Bezos’ “true tax rate” – the amount he paid on his wealth growth – was just 0.98% per year from 2014 to 2018.
Ordinary people can expect to be taxed much more heavily than Bezos even in retirement. Withdrawals from traditional 401 (k) s and traditional IRAs are taxed at normal income rates. In many cases you will be fined 10% if you make a distribution from your retirement account before the age of 59½.
Your social security benefits are not taboo either. Up to 85% of your benefit is taxable if you are a single applicant with income greater than $ 34,000 or are married and co-file with income in excess of $ 44,000. Of course, you can also work with social security, but there are limits.
3. Planning social security is difficult
Bezos probably didn’t think much about his social security claim strategy. It’s a luxury that normal people don’t have. About half of seniors depend on social security for at least 50% of their income, according to the Center on Budget and Policy Priorities. The average Social Security check in 2021 is $ 1,543 per month.
Deciding when to get social security benefits becomes especially complicated when you retire early. Financial planners often recommend waiting as long as possible for services to begin. If you wait until you are 70, you will receive a 76% higher monthly benefit than you would if you started the benefit as early as possible. However, if you run out of paychecks, you may have no choice but to start benefits early.
Remember, the cost of living adjustments from Social Security are measly compared to the actual cost increases seniors face. In 2021, social security benefits increased by only 1.3%. Taking advantage of early benefits could push your budget to the limit in your later retirement years. Your benefits will not keep up with inflation, so over time they will pay less and less.
4. You may have to choose between early retirement or helping your children
Billionaires don’t have to make difficult decisions like saving more for retirement or helping your kids save for college. But you probably do.
Most people only have so much money that they can afford to invest. If you are planning on retiring early, you need a nest egg that can hold you for at least 30 to 40 years. As a rule of thumb, you should plan to replace 70 to 80% of your early retirement income.
If you’re serious about retiring early, it may mean you can’t contribute to a 529 plan for your children or grandchildren or help with their tuition fees. It is important to be ahead of time in this situation and to talk to your children about your plans as early as possible.
5. Early retirement is not always an option
No matter how carefully you’ve tailored your retirement plans, life can throw a spanner in the works. It is estimated that up to half of all older workers will have to retire earlier than planned due to illness, layoffs and care responsibilities.
If you’re not rich, forced retirement can ruin your finances. Even if you want to work as long as possible, you should definitely plan for early retirement. That means saving and investing as much as your budget allows during your working years as your retirement can take longer than you anticipate.
Robin Hartill is a certified financial planner and senior writer at The Penny Hoarder. She writes Dear Penny, a personal financial advisor. Send your tricky money questions to [email protected].