I lost my job at 52 and have $3 million saved — can I retire now, even before Social Security and Medicare?

According to Allianz Life Insurance, about 42% of Americans end up retiring earlier than they planned. In many cases, it is not a choice at all; health problems and sudden job loss are among the main reasons people leave work ahead of schedule.

When a layoff happens later in life, it makes sense to think about stepping away from the workforce rather than starting over somewhere else. Still, anyone in that position needs to be sure that leaving paid work early will not create a shortfall later on.

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Consider Joshua, who was let go from his job at 52. He has $3 million saved and would rather stop working than begin another job search. Even so, he is unsure whether retiring now is wise, especially with so many years left before he can collect Social Security and sign up for Medicare.

The real question is whether Joshua should retire or keep working a while longer to protect his financial future.

It’s all about the spending

Although $3 million sounds substantial, that figure alone does not determine whether Joshua can retire at 52.

“Three million isn’t the answer,” Niels Buksik, a CFP professional and founder of ANCHORY, told Moneywise. “Your spending is.”

Haleh Moddasser, a CPA and senior wealth advisor at Hightower Signature Wealth, agreed, telling Moneywise that he would need to account for regular living costs, taxes on investment earnings, healthcare expenses and home upkeep, which she said is “typically higher than people assume.”

He also has to factor in inflation, since his portfolio would need to support him for many years. Moddasser suggested planning for “3% inflation for normal living expenses, on average, and 5% or more on healthcare costs.”

She added that deductibles, prescriptions and other out-of-pocket medical costs cannot be overlooked, especially because Medicare would not be available until age 65. Before then, Joshua might be able to use spousal coverage if his wife has access through work, or he may need to buy an individual health insurance plan.

Determine if your income can cover you

After Joshua estimates the costs that would come with retiring now, he will need to see whether his savings can support them for long enough.

The 4% rule is one common way to reduce the risk of running out of money in retirement. It suggests withdrawing 4% of savings in the first year. Under that approach, Joshua’s $3 million would generate $120,000 in the first year of retirement, with withdrawals then rising alongside inflation.

“If you can live on that, retiring is realistic. If you’re used to spending $200,000, it isn’t, yet,” Buksik said. He also emphasized the need to confirm that the savings plan can last for the long haul.

“With the progress in medicine, and now AI speeding up healthcare research, I’d plan to age 100 rather than 90,” Buksik said. “That could mean 45 to 50 years of withdrawals.”

Deal with the logistical challenges

Joshua also has practical issues to solve beyond matching his spending with his savings. One of them is how he would access his money.

Usually, withdrawals from retirement accounts before age 59½ trigger penalties, and Joshua still has years before reaching that threshold. He is also too young to take advantage of an early-withdrawal exception tied to age 55.

“At 52, the ‘rule of 55’ for 401(k)s doesn’t apply yet,” Buksik said. “Money in a regular brokerage account, cash, and Roth contributions must become the bridge.”

Bad timing in the stock market could also create serious damage, since Joshua might have to sell after a downturn and lock in losses early.

He would also need to think carefully before claiming Social Security early. If he claims before full retirement age, which is 67 for someone born in 1960 or later, his monthly benefit would be permanently smaller. Claiming at 62 could cut that standard benefit by as much as 30%.

Joshua can address some of these concerns by waiting until 67 to claim Social Security, even if he retires early, and by keeping cash available to live on during market declines. If he has that kind of plan in place and believes the income from his $3 million will more than cover his needs, retirement could be an option.

He would also need a plan for how to spend his time, since he is still relatively young. Making thoughtful choices about both finances and lifestyle can improve his chances of making early retirement work.