After decades of building wealth, leading teams, and juggling responsibilities, the pull toward more time, travel, and freedom sooner is real. The reality, though, is more complex than most imagine. Being ready for retirement isn’t just about a big number in your portfolio, it’s about the plan behind it, and the risks of retiring too soon without a strong plan are real.
The foundation of a successful early retirement plan starts with a well-constructed, evidence-based investment portfolio that produces consistent and continuous retirement income over decades of market cycles—but that’s not where it ends.
This article is going to unpack the other considerations you’ll need to account for, including (but not limited to!):
- Having a thoughtful plan for bridging the gap before you’re old enough to withdraw from IRAs,
- Timing withdrawals strategically and paying the associated tax,
- Tax-loss harvesting when the opportunity presents itself,
- Consistently being aware of—and compliant in—the tax and regulatory environment,
- Strategizing healthcare costs before you’re eligible for Medicare,
- Deciding when to claim Social Security,
- Making tax-savvy moves (especially in taxable accounts), and
- Updating your plan for changing assumptions such as new shifting priorities, inflation, healthcare costs, and cost of living.
We know—it’s a lot.
At Hendershott Wealth Management, we’ve worked with many clients who name early retirement as a goal. After reviewing their financial picture and long-term lifestyle ideals, they saw that early retirement wasn’t unrealistic—but that making it a reality required a smarter plan: one that answered for healthcare, taxes, “how to pay yourself” for potentially 3+ decades, and all the curveballs that might be thrown their way.
This article lays out what it really takes to retire early, and how a well-designed retirement strategy can help your money last:
Your retirement date is potentially the most important day in your financial life.
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The Challenges of Early Retirement: Why Retiring at 55 Takes More Than a Big Number
It’s easy to assume a healthy portfolio balance means you’re ready to retire, but making that transition 10 years earlier than “traditional” retirement brings some challenges that change the math:
- Longer timeline. You may need 30+ years of retirement income, spanning multiple market cycles and recessions. Your plan has to fund your longevity and your lifestyle goals—even if they change.
- Taxes & access. Withdrawals before age 59½ can trigger penalties if they’re not carefully structured and timed. Even without penalties, uncoordinated withdrawals can push you into higher tax brackets, inflate Medicare premiums later, and reduce what you keep. This is a common issue for people following the popular “Financial Independence, Retire Early” (FIRE) movement: Strategizing to have enough money in after-tax accounts to pay you until you’re old enough to distribute from IRAs and 401(k)s.
- Healthcare gap (55–65). Medicare starts at age 65. Until then, you’ll need private insurance, ACA marketplace coverage, or COBRA—which is often a five-figure annual line item for couples.
- Sequence of returns risk. If a market downturn hits early in retirement, withdrawing from a falling portfolio can permanently reduce future income if you’re not using guardrails.
With those realities on the table, planning the financially-secure path forward can’t be based on guesswork or assumptions—it needs to be rooted in evidence-based strategy and tailored to your circumstances. You need an early retirement plan that works on paper and in real life.
Designing a Plan For Early Retirement—On Your Terms
You want the freedom to design your life, and live in ways that fit your resources, abilities, and desires. We’ll help you plan for that outcome with a retirement strategy that supports your unique needs, time horizon, and risk tolerance… so you can continue to thrive.
Retiring at 55 is about engineering sustainable, after-tax income across a longer timeline; through up markets, down markets, and everything life brings in between.
Here’s how we design retirement strategies for long-term sustainability:
1. Build the Right Investment Portfolio for a Longer Runway
- Broad diversification. Our portfolios include a mix of U.S. and International stocks paired with high-quality bonds to help reduce concentration risk and smooth returns.
- Right-sized market risk. We align your stock/bond mix to your Annual Spending Number (ASN), time horizon, and risk capacity.
- Minimize liquidity risk. Liquidity risk is the risk that your money is tied up in an investment and not readily available when life requires flexibility. This risk can be associated with alternative investments, private equity investments, and even some individual bonds. At HWM, we avoid liquidity risk by only selecting investments for client portfolios that consistently offer overnight liquidity.
- Disciplined rebalancing. We use strategic calendar/threshold rules and a withdrawal hierarchy to keep your portfolio aligned with your targets and help preserve your long-term spending power.
2. Map Retirement Income and Cashflow in Specific Age Ranges
- 55–59½: Prioritize taxable accounts and penalty-free options like the Rule of 55 (some 401(k)s allow penalty-free distributions if you separate from service in or after the year you turn 55). A 72(t) penalty-free IRA distribution can work, but it’s relatively rigid—use with caution.
- 59½–65: Begin IRA distributions depending upon the balance of the taxable account; continue bridging healthcare; consider large Roth conversions to avoid unwanted RMDs—but balance these recommendations against ACA subsidy cliffs, which can dramatically increase healthcare premiums, and IRMAA limits starting 2 tax years before you turn 65. Some investors may consider a liquidity buffer to protect withdrawals in down markets, where 12–24 months of spending is kept in cash to calm nerves, however, in practice most abandon this strategy when they see their cash under-deployed during ensuing bull markets.
- 65–73: Medicare coverage starts, and you may need to reevaluate your income and tax strategy because you may move into higher tax brackets if Social Security payments begin. Continue to balance total taxable income against IRMAA brackets to avoid Medicare premium increases. Plan for RMDs to start at age 73 from pre-tax accounts.
3. Healthcare at 55: Bridging the Gap to 65
- Purchase additional coverage: You’ll likely need to turn to COBRA (typically up to 18 months), ACA marketplace plans, or private policies. Build premiums, deductibles, and out-of-pocket maximums into your plan. Also plan for vision and dental coverage as those are typically separate insurance policies.
- Income awareness: ACA subsidies depend on household Modified Adjusted Gross Income (MAGI). Large taxable IRA conversions or capital gains can unintentionally reduce any subsidy you would have been due. Plan conversions to your Roth and sales of taxable assets (including real estate) intentionally.
- HSA tactics: If you’re on a high-deductible plan, maximize contributions to your HSA before retirement and build up the balance of that account; later, HSA dollars can fund tax-free qualified medical expenses. If eligible, HSAs can act as a triple tax-advantaged, stealth medical bucket.
4. Use Smart, Sequenced Tax Planning for Withdrawals
- Roth conversions in low-income years. For early retirees, the 55–64 window can be prime time to shift pre-tax assets to Roth accounts at controlled rates. Balance against ACA subsidies pre-65, and future Income-Related Monthly Adjustment Amount (IRMAA) exposure starting two tax years before you start Medicare (age 65).
- Withdraw in a tax-aware order. Typically: taxable → pre-tax → Roth. Coordinate with charitable giving/donor-advised funds, future RMD management, and capital gains harvesting (selling taxable assets at a gain)—especially if you have large, taxable, appreciated account balances, for qualified investors, our firm can offer significant tax alpha by implementing a tax-aware long-short strategy.
- Add flexible spending “guardrails”. When possible, pre-agree to raise or trim withdrawals based on portfolio level and market conditions—rather than holding a fixed dollar target through all weather—and consider pausing inflation raises after down years. Remember, flexibility is what protects lifestyle and principal.
When you connect portfolio design, cash-flow rules, and tax sequencing to your long-term needs, the question shifts from “can I?” to “how, when, and what will it look like?”
Retirement Calculations That Create Confidence
Use these steps to move from guesswork to grounded as you plan for an early retirement:
- Define the life you want. When do you want to retire? Where will you live? How will you spend your time? What changes for you as work obligations fall away? Let yourself dream here–and then get as specific as you can.
- Calculate your Annual Spending Number (ASN). Convert your monthly lifestyle and the large expenses that happen less frequently (vacations, vehicle purchases and repairs, home improvements, etc.) into an Annual Spending Number. This becomes the anchor for your investment mix, withdrawal order, Roth conversions, RMD strategy, and Social Security timing.
- Test your range. Model 30-year scenarios with realistic returns, inflation, healthcare, and early-retirement sequence stress. (Your financial advisor can help you through this.) Then set spending parameters you can commit to.
- Coordinate taxes. Map a multi-year plan for withdrawals, conversions, and capital gains management—especially in the age 55-65 window. Remember, the more tax-efficient you are in both your savings and withdrawals, the more money you get to keep—and that money keeps compounding as long as it’s invested.
- Plan to automate your cash flow. Our job is to make sure our clients’ retirement income is consistent. We turn your plan into a regular quarterly or monthly “paycheck” that supports your ASN in retirement, so you don’t have to worry about running out of money.
- Define the life you want. When do you want to retire? Where will you live? How will you spend your time? What changes for you as work obligations fall away? Let yourself dream here–and then get as specific as you can.
Once your numbers are mapped and tested, the difference comes from execution: ongoing monitoring, tax moves at the right time, and disciplined adjustments. That’s where a tax-savvy fiduciary partner matters.
The Hendershott Wealth Management Retirement Planning Advantage
We specialize in helping high-net-worth women and couples design tax-aware early-retirement strategies.
At Hendershott Wealth, we define true financial freedom as the day you continue working only because you want to, not because you have to. Whether that day is when you’re 45, 55, or 65, we want you to enjoy the fruits of your labor in retirement—spending your income on the things that bring you happiness.
That’s why we build customized financial plans that protect our clients’ nest eggs and maximize their wealth by taking tax efficiency into consideration all year long, year after year.
At HWM, we pair day-to-day wealth management best practices with advanced strategies to maximize your wealth and minimize your tax erosion.
Within our services are two core tax-efficient offerings designed to minimize tax drag and keep more of your returns compounding:
- Ultra Tax Efficient Wealth Management® (UTEWM®). In addition to traditional tax minimization services such as tax-aware investment selection, smart asset location, tax-loss harvesting, tax bracket management, and ensuring you’re deferring the most tax you’re legally allowed each year, our UTEWM® suite (available to all HWM clients) also includes a Custom Annual Tax Letter & Tax Return Review and Equity Compensation and IPO Planning.
The goal? For you to legally pay less tax, preserve more of your capital, and experience the freedom your wealth should provide, through multi-layered tax reduction strategies. - For suitable investors with $1.25M+ in taxable assets: We may incorporate a sophisticated tax-aware long-short overlay (powered in partnership with AQR Capital Management’s Flex SMA) that strategically realizes investment losses and defers capital gains taxes, generating tax savings that can continue to compound for as long as the gains are deferred—always within a comprehensive plan focused on your goals and risk.
If early retirement is your goal, mitigating your tax burden to keep more of your money compounding is one of the best (and most overlooked) ways to grow your money for the long term. We’ll help you approach it deliberately—so more of your effort shows up in your future spending power, and less of your spending goes to unexpected (and often unavoidable!) tax bills.
The result? You have more control over your wealth, and more spending power in retirement.
Turning Early Retirement Goals From a Dream to Reality
It bears repeating: Retiring at 55 isn’t just about hitting a big number in your investment accounts. It’s about putting the right pieces of your wealth plan in the right order and keeping them coordinated over time.
Your plan needs to produce consistent and continuous retirement income over decades of market cycles—especially if you’re considering retiring early.
You need a portfolio designed for a longer runway, including tax-aware withdrawals (and a plan for paying the associated tax when it does come due), a healthcare bridge before you’re old enough for Medicare, and spending flexibility. At the same time, you need to be responsive to changing rules and regulations, be flexible in updating your plan based on what actually happens in the markets, and be informed on whether you can confidently pivot when your life and priorities change.
With those considerations—and more—looked after, your early retirement plan shifts from fragile to feasible.
The right support makes all the difference in your retirement experience, and the payoff is confidence: You know how your income will show up, what will trigger adjustments, and who’s managing the details with you.
Hendershott Wealth Management is a fiduciary, women-led firm that specializes in coordinating the moving parts early retirees can’t afford to get wrong—like taxes, healthcare planning, withdrawal sequencing, RMDs, and portfolio design.
Our goal is to build long-term relationships with our clients, so we can help in the planning of their retirement—whatever age that might be at—as well as the execution, and ultimately, in coordinating the legacy they leave behind.
If you want experienced guides who can turn your assets into a durable, early retirement income plan, we’d love to help you build the plan that gets you from “what if” to “let’s do this.” We work virtually across all 50 states, and our goal is to make the complex feel manageable.
You spent your whole life working towards retirement, and should spend those years enjoying yourself—not worrying about whether you can afford to.
If early retirement is your goal, we’re here to help you make it a reality
Don’t let taxes, timing, or uncertainty derail your early retirement goals.
Book a complimentary Discover Meeting with one of our lead advisors and
get a clear picture of what’s possible—backed by smart strategy,
tax-aware planning, and a team that’s with you every step of the way.
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Retirement Resources
- Try | Retirement Calculator
- Download | Retirement Guide
- Read | How Long Will My Money Last? Smarter Retirement Withdrawal Strategies to Protect Your Wealth
- Read | Personal Retirement Planning: A Fiduciary Guide to Knowing When You Can Retire
- Read | The Entrepreneur’s Guide to Saving for Retirement: SEP IRAs, Solo 401(k)s, and Tax-Smart Strategies
Frequently Asked Questions
Can I retire at 55 with $2 million?
Whether $2M is enough depends on your after-tax spending needs, taxes, healthcare costs before Medicare, and market returns. Convert your lifestyle into an Annual Spending Number (ASN), model taxes and a 40-year horizon, then stress-test with different scenarios with the guidance of a financial advisor.
How do I access retirement money before 59½ without penalties?
Common paths include distributions from taxable accounts, Rule of 55 distributions (from a 401(k) account when you separate from your current employer in or after the year you turn 55), withdrawing Roth IRA contributions/basis, or using 72(t) distributions (with caution—they come with relatively rigid, long-term payment schedules). Coordinate withdrawals with taxes and ACA subsidy rules.
What’s the best withdrawal order if I retire at 55?
A typical sequence is: taxable accounts first (manage gains/losses), then distribute from a mix of IRA and Roth accounts depending on your ASN and current tax regime (your net effective tax rate on distributions). The exact order is personal to your plan, and should adapt to markets, ACA/Medicare thresholds and other regulatory environments, and the parameters you’ve set.
How much will healthcare cost between 55 and 65?
Given changing levels of federal involvement and funding in healthcare, this is very difficult to predict. Some sources estimate married 55-64 year olds will pay between $18,000 and $50,000+ per year for ACA marketplace premiums in 2026, depending on age, household income, policy selection, and state of residence. Plan for private/ACA marketplace or COBRA premiums plus deductibles and out-of-pocket maximums—often a five-figure annual line item for couples. Your modified adjusted gross income (MAGI) affects ACA subsidies, so coordinate Roth conversions and capital-gains realization. Consider costs of additional policies like dental and vision in addition to health insurance.
What is sequence of returns risk, and why is it worse for early retirees?
Poor markets early in retirement can force selling at low prices, shrinking the portfolio and cannibalizing the portfolio’s future income capacity. Consider whether a liquidity buffer is right for you, then implement disciplined rebalancing and spending guardrails to reduce the pressure to sell after a drop.
What safe withdrawal rate works if I stop working at 55?
The “4% rule” is a rule-of-thumb starting point—not a promise. Early retirees can use a more conservative rate, i.e. 3%, as a more flexible, guardrails-based approach—and be prepared to raise or trim withdrawals as markets change. Test ranges (not a single rate) against taxes and inflation.
How should my portfolio change if I retire at 55?
Prioritize broad diversification, right-sized equity/bond mix tied to your Annual Spending Number (ASN) and risk capacity, a near-term cash/short-term bond reserve, timely tax loss harvesting and rules-based rebalancing. The goal is sustainable, after-tax income—not chasing returns.
Can tax-aware strategies really extend my retirement spending power?
Yes. Coordinated gain/loss harvesting, tax bracket management, and multi-year withdrawal planning can meaningfully reduce what you owe in taxes—meaning more of your money stays invested. For suitable investors with $1.25M+ in taxable assets, Hendershott Wealth Management’s Ultra Tax Efficient Wealth Management® suite of services may include a tax-aware long-short overlay (Flex SMA) within a comprehensive plan to mitigate, and in some cases eliminate, how much of your hard earned nest egg goes to paying taxes.
Disclaimer:
All investing involves risk, including the potential loss of principal. There is no guarantee that any investment plan or strategy will be successful. Advisory services provided by Hendershott Wealth Management, LLC (“HWM”), an investment advisor registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.
All written content in this article is for information purposes only and does not constitute an offer, or solicitation of an offer, or any advice, or recommendation to purchase any securities or other financial instruments–and may not be construed as such. Opinions expressed herein are solely those of HWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.
