I hate my job. Can I retire early?

By Walter Updegrave, senior editor

(Money Magazine) -- Question: I'm 50 years old and absolutely hate my job. It's stressful, requires long hours and I have a tough boss. So I'm wondering about early retirement.

Fortunately, I have about $1.6 million dollars saved up and the only debt I have is a mortgage on my house that equates to less than half its value. I also lead a very frugal lifestyle. Any thoughts or recommendations that would help me more quickly achieve my fantasy of walking into my boss's office and saying "I quit!"? -- Anonymous

Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005).

Answer: It's been more than 30 years since the late country singer Johnny Paycheck's "Take This Job and Shove It" zoomed to the top of the music charts. I'm sure, though, that the sentiment expressed in the title still resonates with many people today (although let's not forget that plenty of people would like to have any type of job these days).

But whether you choose to end your career with a polite resignation letter, a handshake and a warm send-off from your colleagues or something, shall we say, more dramatic, before you leave you want to be sure that you're prepared.

Otherwise, you could find yourself in the uncomfortable position of having left work without adequate resources to support yourself only to realize that finding another job with comparable pay and benefits may be harder than you think, especially when you're 50 or older.

This isn't a decision you want to make on impulse, no matter how much you may detest your job. Step back and do a clear-eyed and methodical analysis of whether you're prepared to retire.

Here are the three steps I recommend you take:

1. Do a status report. You say you've got $1.6 million saved for retirement. Using an initial 4% withdrawal rate and a reasonable investing strategy, you have roughly an 80% or better chance of turning that size nest egg into a real, or inflation-adjusted, income of about $64,000 a year for 30 or more years.

At age 62 or later, you would also be able to supplement that income with your Social Security benefits.

I think most people would figure that someone who leads a very frugal lifestyle should be able to get by quite nicely on 64 thousand bucks a year plus Social Security. But what really matters is whether the savings you've accumulated can provide what you feel you'll need to maintain an acceptable standard of living.

The only way to really know is to crunch the numbers. A good financial adviser can do that for you. Or you can go online calculators like T. Rowe Price's Retirement Income Calculator or Fidelity's Retirement Income Planner and get an estimate of the odds that your retirement resources will last for the next 30 to 40 years.

I suggest you run a variety of scenarios -- different withdrawal rates, investment strategies, retirement dates and expense levels. (The Fidelity tool allows you to break down your spending into dozens of different categories and assign different inflation rates to them.)

Don't forget to factor in health care costs. You won't qualify for Medicare until you hit 65. So unless your employer provides insurance for early retirees, you'll have to buy insurance on your own in the meantime.

Estimating down health care costs in retirement is always difficult, and that hasn't changed just because of the new health reform law. Theoretically, the new legislation will put a brake on rising health-care costs and make coverage less expensive for some people by providing subsidies.

In theory, it will also improve Medicare. I wouldn't take any of this as a given. But I would assume that the cost of insurance coverage will be the same as it is now, if not more. If it turns out you have to spend less, fine. But I wouldn't count on it at this point.

2. Make an exit plan. If, after going through the analysis above, you find that leaving your job at age 50 wouldn't give you the comfort level you need, the single most effective thing you can do is continue to work and save.

Each year you stay on the job gives your $1.6 mill a chance to grow, and you also get to fatten your retirement accounts with new contributions (up to $22,000 this year in a 401(k) and up to $6,000 to an IRA, if you're 50 or older).

You should also re-assess your investment strategy. But unless you're doing something terribly wrong -- like plowing all your dough into money-market funds or choosing expensive investments -- any performance boost is likely to be modest. The last thing you want to do is start investing very aggressively. The problem is that if you run into another year like 2008, you may end up having to spend even more time on the job.

If going over the numbers convinces you that you can afford to retire now, you still don't want to immediately march into your boss's office say, "I'm outta here!"

First consider whether you could improve your situation by holding out a bit longer. Maybe you've got stock options that will vest. Or perhaps working an extra year or two could mean a larger pension. Maybe there's the chance your company could downsize, in which case you could collect a nice severance package. The point is that you don't want to leave any easy money behind by making too hasty an exit.

3. Make an entrance plan. Here, I'm talking about a plan for entering retirement. You'll boost your odds of having a fulfilling retirement if you think about how you're actually going to live once you leave the workaday world.

Will you sell your house and downsize (or relocate, leaving you with lower annual housing costs and some spare cash to boot? How about working occasionally at a less stressful job, if not for the money, then to stay socially engaged? You should mull over these and other issues before you check out.

Speaking of socially engaged, you'll definitely want to consider the nonfinancial aspects of retiring before you leave your job. Recent research shows that factors like one's health, number of relationships and even attendance at worship services can have a big effect on retirement happiness.

Finally, ask yourself whether you're really interested in early retirement or just want out of your present job. It's easy to confuse the two when you're dissatisfied at work late in your career.

Whatever you decide, you'll still be better off by having gone through this process, as you'll now have a more accurate sense of whether you're ready to retire and, if not, how much longer until you will be.

Note: An alert reader pointed out -- as I should have -- that to the extent to which our 50-year-old's retirement savings are in tax-advantaged accounts like 401(k)s and IRAs, early withdrawals could result in a 10% penalty on top of income taxes. Although there are exceptionsto early distribution penalties --including taking substantially equal payments based on your life expectancy under Section 72 (t) of the Internal Revenue code -- these levies can make it tougher to retire early if you have all or nearly all of your retirement stash in tax-advantaged accounts. All the more reason to carefully assess your situation before deciding whether to bid your employer adieu. ?Walter Updegrave

Need to figure out your financial future? Upload your video or send us an email and tell us why your family needs a money makeover and you could be profiled in an upcoming story in Money Magazine.
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