Your expenses after leaving the workforce could also be much higher than you project. One potential wild card is health care. Even though the Affordable Care Act has made it easier for early retirees to find affordable health coverage until they qualify for Medicare at age 65, the cost for insurance and health care services can still eat up a lot of your budget. Even after Medicare kicks in, medical expenses can still be quite daunting as AARP’s Health Care Cost Calculator shows.
And let’s not forget you’ve still got those two daughters to raise. Children can wreak havoc on a budget, especially when they move into their teen years. No wonder the U.S. Department of Agriculture recently estimated the average cost of raising a child at $245,000.
To the extent you’ll be relying on money in tax-advantaged accounts like 401(k)s and IRAs for spending cash, early retirement presents another challenge: Can you tap those accounts without shelling out an extra 10% tax for early distributions?
There are ways to do that. The “72(t)” annuity exemption allows you to dodge the early withdrawal tax by taking “substantially equal periodic payments” based on life expectancy.
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