5 Common Reasons People Retire Early

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By Joe Udo

Some people plan to work until they drop. Saving for retirement is difficult, and some people simply give up on it. A recent Wells Fargo (WFC) survey found that 34 percent of respondents think they will work until at least age 80 before they can retire. An even larger 37 percent said they will never retire and will continue to work until they are too sick or die.

Not having a retirement plan may turn out all right if you die a quick accidental death, but it's not a valid plan for everyone else. Your retirement date is not always under your control, and many people leave the workforce earlier than expected for a variety of reasons. Here are the most common reasons people retire early:

Layoff. The economy is picking up, so layoffs are not a huge problem at the moment. But we all know what will happen when times turn tough. Older workers are often the first to receive their layoff notices. They generally have more seniority and get paid more, so it's an effective way for companies to cut costs. As you get older, it also gets more difficult to find another job with comparable compensation. Older workers spend much more time unemployed, and it's easier for younger workers to bounce back from a layoff. If you are near retirement, it can be tempting to retire early rather than keep going to unsuccessful interviews.

Health. When we are young, we think we'll stay healthy forever. But that's not the case, and many workers retire early due to health problems. A sedentary job can contribute to many long-term illnesses like diabetes and heart disease. Some people may be eligible for the Social Security disability insurance program, but it can be a long, drawn out process.

Caring for family. Another common reason people leave their careers early is to care for their loved ones. As we get older, our parents need more help. Some chronic health issues need a lot of support, and hiring full-time help may not be feasible. Our partner or kids could develop health issues as well. For some people it makes more sense to leave the workforce to care for their loved one than to pay someone else to do it.

Freedom to pursue interests. Some people plan to retire early and are financially ready to do so. Many of us have dreams and goals that can't be satisfied while holding down a full-time job. You might want to travel more, try self-employment by starting a business or join the Peace Corps. The good thing about going after your dream is that it doesn't have to be permanent. If early retirement doesn't work out, it's still possible to go back to work.

Dissatisfaction with your career. Many of us dream of telling our bosses, "I quit!" It's common to be unsatisfied with your job. If you can't tolerate it anymore, then it might be time to retire. If the main motivation for retiring is to get away from a toxic work environment, then retirement can be difficult. A better alternative would be to find a more satisfying career, and then retire when you're really ready. This will give you time to figure out how to have a satisfying retirement.

It's not a good plan to keep working until you drop. That might sound viable now, but you will probably change your mind when you're older. If you put off retirement saving until late in your career, then it will be very difficult to retire comfortably. Most people could save more for retirement. They just need to examine their budget and cut the fat. Don't skimp on your retirement saving, and make a retirement plan if you don't have one.

Joe Udo blogs at Retire By 40 where he writes about passive income, frugal living, retirement investing and the challenges of early retirement. He recently left his corporate job to be a stay at home dad and blogger and is having the time of his life.

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5 Common Reasons People Retire Early
Where you live can have a huge impact on your tax bill in ways that may surprise you. Some states are more tax-friendly for retirees than others -- particularly if you are living on a fixed income -- can have a big impact on how much you have left over to spend.

Click through our gallery to see which states qualify as "heaven" and which are "hell" for income tax, pension, social security benefits, sales tax and property tax.

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Next: States With No Income Tax
Don't assume that a state with no income tax qualifies as a tax haven. High sales and property taxes can more than offset the absence of an income tax.

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South Dakota
(N.H. and Tenn. tax only dividend & interest income that exceeds certain limits.)
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Only three states exempt virtually all retirement income (including public and private pension benefits, 401(k) and other retirement-plan distributions, and IRA withdrawals) from state income taxes.

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Five states are particularly tough on retirees. Not only do they fully tax most pensions and other retirement income, but most of them also have fairly high top tax brackets.

5 Toughest States for Pensions
Rhode Island

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36 states and the District of Columbia don't tax Social Security.

36 States That Are Heaven
Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin and Wyoming
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The remaining 14 states tax Social Security benefits to some extent.

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Colorado, Connecticut, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. (Iowa will gradually phase out its Social Security tax by 2014, starting in 2008)

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These five states have no state sales taxes.

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These five states each have a state sales tax of 7%, the highest in the nation.

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At the other end of the spectrum, these five states have the highest median real estate taxes. (from highest to lowest according to 2006 Census Bureau survey and Tax Foundation)

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