You've certainly laid a nice foundation for a secure early retirement by repaying your mortgage and getting rid of your debt. The fact that you can also rely on steady income from your pension only improves your prospects for calling it a career in your 50s.
But before you give your boss notice, you need to make sure you'll actually have enough resources to sustain you for the long run. Here are three things you should do to see whether that's the case.
1. Make a retirement budget. Before you can seriously contemplate leaving your job, you must first get a handle on how much you'll need in order to maintain something close to your current standard of living over the next 30 to 40 years.
The rule of thumb that says you'll require between 70% and 90% of your pre-retirement income may have been okay for rough planning purposes earlier in your career. But now that you may be on the verge of calling it quits, you need to take a deeper look at your spending needs.
The best way to do that is to create a budget that details your best estimate of your potential future spending. You can do that with a pencil and paper, but you're better off using the interactive Retirement Budget Worksheet in Fidelity's Retirement Income Planner tool.
As you're going through this process, remember to factor in health insurance costs. You and your wife won't qualify for Medicare until you turn 65. So unless you'll receive retiree benefits from your current or a former employer, you'll need to factor the insurance coverage into your budget.
2. Review your sources of income. Normally, the next step for retirees is to gauge whether they'll have enough income to cover projected expenses. Since you're retiring early, however, you also need to consider possible restrictions on your ability to gain access to certain income sources.
For example, the earliest you and your wife can claim Social Security benefits is age 62. So it will be at least six years until you're eligible for payments, and another four years before your wife can start collecting (although you may be better off delaying).
You say you'll also receive a pension, but you'd better check with your HR department to be sure it's available now. Some pensions don't begin making payments until you reach the plan's full retirement age, typically 65. And if they do make earlier payouts, they usually cut the amount they pay.
So find out how much you may be leaving behind by checking out early. If it's a sizable amount, you might want to consider staying on the job a while longer to gain more income and long-term financial security.
As for your $800,000 in savings, your ability to tap that depends in large part on where that money sits. Balances in taxable accounts you can tap at any time. You may even be able to hold your tax bill down by tapping investments that have experienced little or no gain or investments with gains that will be taxed at the more favorable long-term capital gains rates (although you'll need to stay abreast of possible tax changes in the coming year).
But things get more complicated for money that's in tax-advantaged accounts. If your money is in a 401(k) and you're 55 or older when you leave your company, IRS rules will allow you to tap the 401(k) you have with that employer without paying the usual 10% penalty for withdrawals before age 59 ½.
If your money is in a traditional IRA, however, you'll face the 10% penalty for withdrawals prior to age 59 ½ unless you qualify for an exemption, such as a "72(t)" distribution in which you take a series of "substantially equal payments" based on life expectancy.
You have a bit more leeway with a Roth IRA in that you can always withdraw any annual contributions you made without tax or penalty. But if you have substantial balances in a Roth account, you'll want to take a look at the distribution rules so you'll know of any restrictions.
And since you and your wife could easily be spending 30 to 40 years in retirement, you also need to take care not to go through your savings too quickly. Getting the income you need without prematurely depleting your nest egg can be a daunting challenge. But it's certainly doable if you're willing to invest sensibly, consider different withdrawal strategies and periodically re-evaluate how much you can safely pull from savings given your age and the amount of money you have left.
If you feel uncomfortable doing this sort of analysis, then you may want to consider going to an adviser for help.
3. Do some lifestyle planning. Aside from financial issues, there's another crucial question you and your wife must answer: How do you plan to spend the rest of your life?
Our jobs provide a focal point around which we can organize the rest of our lives. Without the work routine -- and the sense of purpose and social connections a career provides -- some people begin to feel adrift.
So before you leave your job, try to envision your retirement lifestyle. Will you stay in your current digs? Downsize? Relocate to another part of the country? Travel? You'll make a far better transition to retired life and likely enjoy your newfound freedom more if you and your wife discuss these issues and do some planning ahead of time.
Considering that you're debt free, eligible for a pension and have a cool $800,000 in savings, you certainly seem to be on the inside track to early retirement. But the only way to be sure is to do the kind of thorough assessment I've just outlined.
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