Leaving the Workforce Early? 3 Things to Get Right Before You Go

There's a moment we hear about a lot.

Someone is sitting across from their financial advisor, or maybe just sitting quietly at their desk one afternoon, and they do the math again. Not because they're anxious. Because they want to confirm what they already suspect: I could actually leave.

Not at 65. Not at 62. Now. Or close to it.

For a certain kind of person who's built real wealth, lived carefully, and never really stopped thinking about the future, this moment can arrive earlier than the traditional script suggest.

Sometimes it's a buyout that makes the decision easy. Sometimes it's a growing sense that their time is worth more than any compensation package. Sometimes it's just clarity: they've done the work, they've saved well, and continuing to grind feels more like inertia than purpose.

But between the day you leave and the day you can start pulling the traditional retirement levers—401(k) withdrawals as early as 55 in some cases, IRAs at age 59 ½, Social Security as early as 62—there's a stretch of road that catches a lot of otherwise well-prepared people off guard.

Not because they didn't save enough. Because they didn't plan for the shape of early retirement, only the size of it.

In our experience working with clients, three gaps tend to show up the most for those leaving the workforce early. Here's what they actually look like.

Gap 1: The Healthcare Years Nobody Budgets For

Medicare begins at 65. For someone leaving work at 57 or 58, which is more common than most people realize, that's the better part of a decade without employer-sponsored coverage.

Most people assume the gap is manageable. And it can be. But the cost of quality coverage on the open market tends to surprise even people who've spent careers navigating complex financial decisions.

Premiums are real. Deductibles are real. And when that coverage is coming out of portfolio withdrawals rather than a paycheck, it lands differently.

What catches people most off guard, though, isn't the premium itself. It's losing access to subsidies. ACA marketplace subsidies are income-based, and for someone with significant wealth drawing down investments, executing Roth conversions, or harvesting gains, crossing certain income thresholds can eliminate subsidy eligibility entirely.

And the difference between careful income management and careless income management isn't a rounding error. It can be thousands of dollars a year, sustained over years.

A few things worth understanding before you leave:

• COBRA can bridge the immediate gap, but it's typically expensive and time-limited
• ACA coverage is workable, but only with deliberate income management around subsidy thresholds
• Healthcare costs need to be modeled as a real line item in your drawdown strategy, not estimated loosely after the fact

The point isn't that early retirement breaks the healthcare math. It's that healthcare has to be part of the math from the beginning.

Gap 2: The Window Most People Overlook

Here's a question worth sitting with: what actually happens to your taxes in the years between your last paycheck and your first Social Security check?

For many early retirees, those years are unusually quiet from an income standpoint. Earned income is gone. Required Minimum Distributions (RMDs) haven't started yet since they don't kick in until age 73. Social Security hasn't begun.

If your portfolio is constructed thoughtfully, there's real flexibility in how much taxable income you're recognizing in any given year.

That window isn't dead air. For people who recognize it, it's one of the most valuable planning periods of their financial life. Specifically, it's the prime opportunity for:

• Roth conversions. Moving pre-tax dollars into tax-free accounts at lower marginal rates than you'll likely face once RMDs and Social Security layer in
• Capital gains harvesting. Realizing gains strategically while your taxable income is at a relative low point
• Income sculpting. Deliberately shaping what your tax picture looks like at 73, 78, 83, before the more rigid rules of later retirement take over

Miss the window, and you don't get it back. Use it well, and the compounding tax benefit can be significant over a long retirement. (For a closer look at using this planning window to your advantage, we invite you to download our free guide, Tax Planning for Complex Wealth.)

Gap 3: The Risk That Doesn't Show Up In Your Projections

Here's a scenario that illustrates something we see often in practice.

Two people retire with identical portfolios. Say, $4 million each, allocated similarly, with the same projected average return over 30 years.

One experiences strong market performance in the early years of retirement. The other faces a meaningful downturn in years two and three.

Same portfolio. Same average return. But the outcomes diverge sharply, and the reason is deceptively simple: when you're withdrawing from a portfolio and the market drops, you're selling more shares at lower prices to fund the same level of spending. That permanently reduces the base available to recover. The portfolio that gets hit early may never fully catch up, even if markets roar back.

This is called sequence of returns risk, and it's one of the most underappreciated threats in early retirement planning precisely because it doesn't show up in a standard projection.

After all, projections use averages. Real life doesn't deliver them in order.

Managing this risk isn't about abandoning growth. It's about structure. A few approaches that tend to work well together:

• A cash buffer. Keeping one to two years of living expenses in stable, accessible holdings means you're not forced to sell equities at a low point
• Income-generating assets. Dividend strategies, municipal bonds, and laddered fixed income can fund ongoing expenses without requiring you to touch the growth side of the portfolio
• Downside management tools: Certain investment vehicles, such as buffered ETFs, protective put strategies, and direct indexing, are designed to give you more control over how volatility affects your portfolio—whether that’s capping downside exposure, protecting specific positions, or turning market swings into tax-planning opportunities.

The goal isn't to eliminate risk entirely but instead to make sure a bad year in the market doesn't permanently alter a 30-year income strategy. (Want to learn more about how to engineer sustainable income for your next chapter? Watch this free webinar hosted by one of our top wealth planners.)

Final Thoughts

The years between your last day of work and the arrival of traditional retirement structures aren't a holding pattern. They're an opportunity. Getting healthcare, income, and market risk right during that stretch doesn't just protect what you've built. It determines the entire arc of what comes next.

If you're thinking about an early exit, or already navigating one, our in-house team of wealth planners and specialists can help you map the gaps, model the tradeoffs, and build a wealth strategy that makes the most of this window.

It’s a conversation worth having before you walk out the door.

The information presented is for educational purposes only and is not intended to be a comprehensive analysis of the topics discussed. It should not be interpreted as personalized investment advice or relied upon as such.

Allworth Financial, LP (“Allworth”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of the information presented. While efforts are made to ensure the information’s accuracy, it is subject to change without notice. Allworth conducts a reasonable inquiry to determine that information provided by third party sources is reasonable, but cannot guarantee its accuracy or completeness. Opinions expressed are also subject to change without notice and should not be construed as investment advice.

The information is not intended to convey any implicit or explicit guarantee or sense of assurance that, if followed, any investment strategies referenced will produce a positive or desired outcome. All investments involve risk, including the potential loss of principal. There can be no assurance that any investment strategy or decision will achieve its intended objectives or result in a positive return. It is important to carefully consider your investment goals, risk tolerance, and seek professional advice before making any investment decisions.