Retiring before age 60 is a goal many people work toward — and with the right planning, it can absolutely be achievable. But early retirement comes with financial and tax challenges that don’t always show up in basic retirement calculators. In practice, the difference between a sustainable early retirement and a stressful one often comes down to how well these overlooked issues are addressed.
Below are the most common challenges I see clients miss and why they matter far more than most people expect.
Health Insurance Before Medicare: The Biggest Blind Spot
For most early retirees, the single largest surprise is the cost of health insurance before Medicare begins at age 65. Once employer coverage ends, retirees are typically left with marketplace insurance, COBRA for a limited period (usually very expensive), or coverage tied to part-time or consulting work.
For individuals in their late 50s or early 60s, premiums can easily run well over $1,000 per person per month, depending on income and subsidies. These costs are not temporary inconveniences — they are multi-year expenses that must be funded from savings.
The key takeaway is simple: use your state’s healthcare website, for example coveredca.com, to get actual estimates for your healthcare needs and model these realistic costs year by year in your retirement cash-flow plan through age 65.
Start With Net Income – not the 4% rule
One of the most effective planning tools for early retirement is reviewing net income during working years and using that as a baseline for retirement cash flow needs. The net income number from your paystub (after taxes, after medical premiums, after savings) is how much you are used to spending each month. If you “save” each month but those accumulated savings are spent by the end of the year on travel, property taxes, car repairs, etc., that is responsible timing of expense, not true savings. While these things may be “one-offs”, they happen every year and will continue in retirement.
Spending habits are surprisingly persistent. While retirement brings some changes, most people do not drastically alter their day-to-day lifestyle overnight. A plan that assumes a significant drop in spending without a clear, intentional reason often proves unrealistic.
Common expenses that often decrease or disappear include commuting costs and work-related expenses such as professional clothing. At the same time, other expenses often increase, particularly healthcare costs, out-of-pocket medical spending, travel, hobbies, and home-related expenses as people spend more time at home.
A more reliable approach is to start with current net income, adjust for known changes such as out of pocket healthcare, and test whether the portfolio can sustainably support that level of cash flow.
Debt Reduction: A Quiet but Powerful Early Retirement Strategy
Reducing debt before retiring early is one of the most effective ways to lower risk yet it’s often overlooked in favor of chasing higher investment returns.
Debt creates required cash flow regardless of market performance. Mortgage payments, auto loans, and other fixed obligations don’t pause during downturns. Carrying significant debt into early retirement increases the amount your portfolio must reliably generate every year. For those who wish to retire early, I highly recommend paying down debt as much as possible during working years.
This doesn’t mean everyone must be debt-free to retire early. Low-interest mortgages can still make sense in some cases. But the right question isn’t whether the rate is low — it’s whether your plan remains stable if markets are down and debt payments continue.
Lower fixed expenses create flexibility, reduce stress, and make early retirement more resilient.
Longevity and Sequence-of-Returns Risk
Retiring before 60 often means planning for a retirement that lasts 30 years or longer. That extended timeline increases exposure to market risk, particularly in the early years when withdrawals begin.
Poor market returns early in retirement can have a permanent impact on portfolio sustainability, even if long-term averages look reasonable. This is known as sequence-of-returns risk, and it’s especially important for early retirees to plan for.
A strong early retirement plan should survive unfavorable early market conditions — not just ideal ones.
Bridging Income: How You Fund the Gap Matters
Early retirement usually requires funding several years of spending before traditional income sources such as Social Security, pensions, or RMDs (required minimum distributions from IRAs) begin. Where that income comes from matters far more than many people expect.
Thoughtful sequencing of withdrawals — often starting with taxable assets while allowing tax-deferred accounts to continue growing, or taking taxable distributions to fill lower brackets to help preserve non-retirement savings — can reduce future taxes and preserve flexibility. Coordinating withdrawals with Roth conversions can further improve long-term outcomes.
Early retirement isn’t just about how much you withdraw. It’s about which accounts you use and when.
Roth Conversions: Powerful, but Easy to Mismanage
One advantage of early retirement is the potential window for Roth conversions which mostly work only for those with significant non-retirement savings. With earned income reduced and Social Security and required minimum distributions delayed, some retirees temporarily fall into lower tax brackets.
Strategic Roth conversions can reduce future RMDs, create tax-free income later, and improve long-term tax flexibility. However, conversions also increase taxable income, which can reduce or eliminate ACA health insurance subsidies. Please make sure to confirm with your tax preparer or advisor that any recommended Roth conversions will not impact your healthcare subsidies – this is a very easy mistake to make.
The goal isn’t to convert as much as possible — it’s to coordinate conversions with healthcare costs and long-term tax planning to minimize total lifetime expenses.
Capital Gains Planning in Low-Income Years
Early retirement years can also create opportunities for capital gains planning. When taxable income is lower, some retirees may be able to realize long-term capital gains at very low — or even zero — federal tax rates.
This window often closes once Social Security, pensions, or RMDs begin, making early retirement years especially valuable for repositioning taxable assets and reducing future tax exposure.
Social Security and Medicare: Decisions With Long Tails
Many early retirees benefit from delaying Social Security to earn delayed retirement credits, but delaying only works if portfolio withdrawals are sustainable and taxes are managed carefully during the gap years.
At the same time, income decisions made in the early 60s can affect future Medicare premiums through IRMAA surcharges. Medicare looks back two years when setting premiums, meaning income spikes before age 65 can increase costs later.
These decisions should never be made in isolation. They must be integrated into the broader tax and cash-flow plan.
Final Thoughts: Who Is Best Positioned to Retire Before 60
Early retirement tends to work best for individuals who have a clear understanding of their spending needs, manageable fixed expenses, and flexibility built into their plan. High savings rates during working years, meaningful after-tax assets, and optional income sources such as consulting or part-time work all improve resilience.
Just as important, successful early retirees tend to base their plans on realistic cash-flow expectations, not optimistic assumptions about spending changes or market returns.
Retiring before 60 is about building a flexible, sustainable plan that supports your lifestyle, adapts to change, and provides peace of mind over a very long retirement.
If you get the planning right, early retirement can be not just achievable but genuinely rewarding.
If you are considering early retirement, reach out to us to discuss our holistic financial and tax planning services.