We want to retire at 55 – an expert gave three tips to help us get there

A FINANCIAL expert has shared his top three tips for couples looking to retire early.

Healthcare is a huge factor that must be accounted for when planning for those golden years.

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Many Americans dream of retiring early, but making it happen requires some careful financial planning.

That’s where James Conole comes in.

He’s a certified financial planner (CFP) and the creator of the retirement-planning tool Root.

In a recent YouTube video, he looked at the hypothetical scenario of a 50-year-old couple, Matthew and Sarah, who wanted to retire at 55.

James pointed out that planning for an early retirement can be quite different from planning for retirement at a regular age.

He said: “In general, there are three core things that need to be addressed because they might be substantially different than if you retire at a more traditional age.”

1. HEALTH INSURANCE

First, Matthew and Sarah would have to consider how they would pay for healthcare when they lost access to their employer-subsidized plans.

Americans do not qualify for Medicare until they are 65, meaning the couple had a potential 10-year gap during which they would have to buy their own insurance plans.

“This is one of they key differentiators between an early retirement strategy, and a traditional retirement strategy,” said James.

2. INVESTMENT STRATEGY

Matthew and Sarah had decided they wanted a gross income of $7,500 to live off in retirement.

Fortunately, they had nearly $2,000,000 invested in the market.

To make this last, James advised to be “hyper-focussed” on having a portfolio that would outpace inflation over time.

“One of your risks with retiring early is actually being too conservative with your investments,” he said.

“If you’re too conservative, and you have 40, 50 years of retirement in front of you, you’re not going to outpace inflation.”

3. TAX STRATEGY

Finally, Matthew and Sarah would need to be strategic about how they withdrew their retirement funds to avoid paying more than necessary in taxes.

In the early years of their retirement, they would be in a low tax bracket.

Where to save your retirement money

There are several different places where you can put the money you save for retirement. Each has different tax advantages, but not all of them are available to everyone.

401(k) – an employer-sponsored retirement account. Contributions are made pre-tax and many employers will match a certain percentage of your contributions. Taxes are paid when the funds are withdrawn in retirement.

Roth IRA – an individual retirement account. Contributions are made post-tax but withdrawals in retirement are not taxed.

TSP (thrift savings plan) – a retirement savings and investment plan for Federal employees and members of the uniformed services. They work similarly to 401(k)s but may have more limited investment options.

Pension – an employee benefit that commits the employer to make payments to the employee in retirement. Pensions are becoming increasingly rare.

But when Social Security checks and required minimum distributions kicked in, they could face a six-figure tax bill.

However, they could make use of the married-filing-jointly standard deduction of $29, 200 a year.

James estimated that this and other tax planning strategies could put an additional $1.7 million in their tax-adjusted ending portfolio.

See how another couple retired in their 30s with just $870,000.

And check out the answer to 13 Social Security questions that could help prevent you from making “tragic mistakes.”