Whether you built up enough savings to step away early, or you’re simply burned out from your job, early retirement can sound appealing. In fact, 3 in 5 Americans retire before age 65, according to the Employee Benefit Research Institute.1 But leaving work behind for good requires careful thought and planning, stresses Jennifer R. Lee. She’s a wealth advisor and founder of Modern Wealth in Sarasota, Florida.
“I often find that my clients in their early 50s come to me in a bit of a panic. They want to retire early, but they aren’t sure they have the means to do it. I call this crunch time,” she explains. This is one decision you don’t want to make lightly.
That’s why planning ahead matters, even if early retirement isn’t on your radar yet. Here are six boxes to check off before you take the plunge.
1. Avoid retirement fund penalties
While you might think you’ll just tap into retirement accounts, doing so early could cost you. “If you withdraw from an IRA retirement account before the age of 59½, you’ll be charged a 10% penalty fee as well as income tax,” points out Lee.
If you plan to retire before then, make sure you have other sources of passive income that can pay your yearly living expenses. You’ll also want to plan for an additional 3% to 5% to cover inflation, she notes.
There are ways to draw from retirement accounts without incurring a penalty. If you have a 401(k), you can withdraw money from it once you turn 55 without having to pay any penalty, notes Lee. “This is called the rule of 55. You cannot do this once you have rolled your 401(k) into an IRA.”
If you only have an IRA, you may also be able to use some of the money before age 59½ without penalty in certain circumstances. For instance: You can use it to pay for major healthcare costs that aren’t covered by your insurance. (Note the costs must exceed 7.5% of your adjusted gross income).2
A little planning goes a long way. Explore short term health insurance plans in your area to help you bridge the gap between major medical insurance plans until you’re eligible for Medicare.
2. Secure a line of credit while you’re still employed
“Most borrowing is primarily based on income,” points out Rebecca Awram, a mortgage broker at Indi Mortgage in Calgary, Alberta. “Once you retire, your borrowing power will dramatically reduce, unless you have a considerably large pension.”
One good option, she suggests, is opening a line of credit: “It doesn’t incur any monthly interest expense if you don’t use it. But it’s there as a safety net if you require it,” she explains. “Yes, if you tap into it in the future, it will incur an interest expense. But if an emergency arises, or if you need to help your family, then it’s there for you.”
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3. Consider shifting your investments to protect your savings
As you near retirement, shifting more of your investments toward lower-risk options like bonds and CDs (certificates of deposit) — and less toward volatile stocks — can help protect your savings, according to the U.S. Securities and Exchange Commission.3
But there’s no single rule that works for everyone. Your investment account mix is dependent on your individual needs. That includes when you plan to retire and how much you expect to withdraw each year. It may be useful to meet with a financial professional who can help guide your decisions.
4. Calculate your life insurance needs for early retirement
Only a little more than half of all American adults reported having life insurance in 2025, according to LIMRA’s 2025 Facts About Life Insurance.4
If you’re considering retiring early, make sure you have a life insurance policy worth 20 times your annual salary, advises Christopher Liew. He’s a certified financial analyst in Vancouver and founder of Blueprint Financial. This way, your family will still be protected if something happens to you.
Retiring early and need health insurance for a limited time? Learn how short term health insurance may help.
5. Eliminate debt to lower your monthly expenses
Many of us carry our mortgages well into our golden years. In fact, 43 percent of older owners with mortgages spend more than 30 percent of their income for housing, compared to 19 percent of those who own without a mortgage, according to a 2025 Harvard University report.5
If you can afford to pay it off now, do it: It can help ensure that you retire stress-free because you’re debt-free, says Liew. This is especially important if you don’t have any active sources of income once you quit your job. “You don’t want to risk not being able to afford to pay the balance of your mortgage loan,” he says.
6. Explore health insurance options for early retirees under 65
If you retire before you’re 65, you won’t be eligible for Medicare. That makes it important to have private health insurance. Healthcare options if you retire early include:
COBRA
You can continue your employer-sponsored health plan through The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). It’s a federal law that allows you to continue your coverage when you leave your job, usually for up to 18 months. Certain life events can extend that to 36 months.6
COBRA is often more expensive because you will be paying your employer’s contribution and any additional fees.
Affordable Care Act (ACA)
You can use the Health Insurance Marketplace to buy an Affordable Care Act (ACA) plan. Since retirement usually means you’ve lost your job-based health coverage, you automatically qualify for a Special Enrollment Period.7 This means you won’t have to wait for the annual Open Enrollment Period to enroll in coverage.
When you fill out a Marketplace application, you’ll also find out if your income and household size qualify you for any premium tax credits.
Short Term Health Insurance
If you’re in good health, you can apply for short term health insurance if you qualify.
These medically underwritten plans tend to have broad networks of doctors and hospitals and lower premiums, says Jeff Baechle. He’s vice president of Carrier Relations at HealthMarkets Insurance Agency.
Short term health insurance can provide temporary health insurance coverage for up to 12 months (less one day), depending on state.
Some plans also offer extended short term health insurance that can offer insurance up to three years minus one day.
Be sure to check any plan you’re interested in for its exclusions, limitations and plan provisions before you buy.
It’s important to note that short term insurance plans do not cover preexisting conditions. Short term health insurance does not meet all federal requirements to qualify as “minimum essential coverage” and the plans do not include all the essential health benefits.
Frequently asked questions
What is the “Rule of 55” for early retirement?
If you leave your job in or after the year you turn 55, the Rule of 55 allows you to withdraw from your current 401(k) penalty-free. This does not apply to IRAs, which typically require you to be 59½ to avoid the 10% penalty.
How do I get health insurance before age 65?
Since Medicare starts at 65, early retirees can use the Health Insurance Marketplace. Losing job-based coverage triggers a Special Enrollment Period, allowing you to enroll in an Affordable Care Act (ACA) plan immediately without waiting for the annual window. Other options include extending your employer-sponsored coverage through COBRA and short term health insurance.
Should I pay off my mortgage before I retire?
While it depends on your interest rate and your personal financial situation, paying off a mortgage eliminates your largest monthly fixed expense. This reduces the amount of passive income you need to generate to live comfortably while debt-free. Speaking with a financial professional can help.
Is short term health insurance a good option for early retirees?
Short term health insurance can fill a gap between major medical policies for a limited period of time, if you are healthy and between plans. These plans often have lower premiums but do not cover preexisting conditions, so review plan provisions carefully before applying.
Have questions about finding a health insurance option to support your early retirement plans? Call 1-844-211-7730 to speak to a licensed insurance agent or browse plans online.
Meet the experts
Jennifer R. Lee is a wealth advisor and founder of Modern Wealth in Sarasota, Florida.
Rebecca Awram is a mortgage broker at Indi Mortgage in Calgary, Alberta.
Christopher Liew is a certified financial analyst and founder of Blueprint Financial.
Jeff Baechle is the vice president of Carrier Relations at HealthMarkets Insurance Agency.
For informational purposes only. This information is compiled by UnitedHealthcare, and/or one of its affiliates, and does not diagnose problems or recommend specific treatment. Services and medical technologies referenced herein may not be covered under your plan. Please consult directly with your primary care physician if you need medical advice.
Sources:
- Employee Benefit Research Institute. “2025 EBRI/Greenwald Retirement Confidence Survey.” April 24, 2025. Retrieved from https://www.ebri.org/docs/default-source/rcs/2025-rcs/2025-rcs-release-report.pdf?sfvrsn=f5e3042f_5
- Internal Revenue Service. “Retirement topics - exceptions to tax on early distributions.” Updated December 11, 2025. Retrieved from https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions
- Investor.gov. “Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing.” Retrieved from https://www.investor.gov/additional-resources/general-resources/publications-research/info-sheets/beginners-guide-asset
- LIMRA. “2025 Facts About Life Insurance.” Retrieved from https://www.limra.com/siteassets/newsroom/liam/2025/2025_facts_about_life_insurance.pdf
- Harvard University Joint Center for Housing Studies. “One in Three Older Households Is Cost Burdened.” August 11, 2025. Retrieved from https://www.jchs.harvard.edu/blog/one-three-older-households-cost-burdened
- U.S. Department of Labor Employee Benefits Security Administration. “COBRA Continuation Coverage.” Accessed June 4, 2026. Retrieved from https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra
- Healthcare.gov. “Qualifying Life Event.” Accessed June 4, 2026. Retrieved from https://www.healthcare.gov/glossary/qualifying-life-event/
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