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Do not retire early, unless you can answer yes to these 4 questions – The Motley Fool

Early retirement is a dream for many. However, if you stop too soon, at the end of your life, you can pin down a few pennies when your savings run dry. Before you decide to retire, you must make sure that all your financial resources are available to avoid this grim picture.

Here are four questions to which you should answer "yes" if you are really prepared for premature birth.

. 1 Are your debts settled?

It's not that you can not retire with debt, it's a risk.

You must pay these balances with your retirement savings and there are several ways to backfire. When it comes to revolving debt such as credit cards, it could make the debt run out of control and you could end up spending the savings of your life to get rid of the balance. If you still pay off your house and incur unexpected expenses, such as a sudden illness, you may have no choice but to empty your retirement account so you do not lose the roof over your head.

  Senior man with hammock drink

Source: Getty Images.

It is best to retire without debt. So, before you turn in, if you still have a mortgage or a credit card bill, consider retirement until you repay the debt.

. 2 Do you have more savings than you need for your retirement?

It's impossible to say exactly how much you'll need for retirement because there are so many variables, including your life expectancy, return and inflation. However, you can and should make a realistic assessment of how much you need to live.

Start by estimating your life expectancy. The average life expectancy is currently 78.7 years. However, their life expectancy can be lower or higher.

Next we look at inflation. Your money will not go that far today. A good estimate for inflation is 3% per year.

After you receive these numbers, you calculate your expected annual retirement cost of living. Remember to add 3% to inflation each year. If your cost of living was $ 35,000 this year, they would be $ 36,050 next year and so on. Continue this process from now until the end of your estimated life expectancy. Or you can simply use a retirement calculator. Add some extra cushion to this amount if your money does not turn out the way you hoped it would or cost you unexpectedly.

Finally, subtract the amount you expect from Social Security and any employer (401

) (k) to find out how much you need to save yourself.

. 3 Do you have a plan for health care?

Your retirement plan is not just about the cost of living. It must also be sufficient to protect you when unexpected costs arise, such as a serious illness or long-term care. The average married couple who retire today at the age of 65 require $ 280,000 to cover their healthcare costs throughout their retirement, according to Fidelity. If you want to retire before the age of 65, you need more.

Medicare pays part of your retirement medical expenses, but you will not be qualified until you reach the age of 65. You need health insurance, either through a spouse or by purchasing your own insurance.

Even if you qualify for Medicare, not everything is covered. There are still deductibles and copies that could add up to thousands of dollars if you get seriously ill or injured. If you have not thought much about the cost of medical care in the past, you should reassess your retirement savings goal to make sure your health costs are covered and postpone retirement until you've saved so much.

4. Can you withdraw money without penalty?

With few exceptions, you can not withdraw money from your retirement savings account unless you are 59 1/2 years or older. A breach of this rule will result in a 10% prepayment penalty, in addition to income tax on the distribution. If you do not have to, this is not a good idea. If 59 1/2 is far away for you, it might be better to open a non-retirement investment account and deposit some money or otherwise leave it in your savings account. You can live on it until you are entitled to pay retirement savings without penalty.

If you can definitely answer these four questions with "yes", congratulations! They are on the right track for a happy early retirement. If not, you should wait a little longer until you are really financially ready.

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