The raging bull market, the longest in history, some estimate, has inspired in some people a very old dream—early retirement. As people in their 50s accumulate growing pots of assets thanks to the S&P 500, they could be forgiven for starry visions of golf courses and beaches, and living through 30, maybe 40 years without their day jobs.

The question is: Is that vision a mirage? Do they really have enough? Are they still in denial about what the market can suddenly do? Don’t they worry about outliving their money?

Millennials have even coined their own term, the “Fire” movement (financial independence, retire early). Often, these are in fact plans to take extended sabbaticals that will allow them to make flexible life choices, take a gap year, enjoy a Wanderjahr on another continent and then take up working again when they feel like it. They might be thinking, “What the hell, I’m not going to have enough to retire anyway, and Social Security is going to be gone.”

Not surprisingly, the early retirement movement has spawned a backlash (it’s criticized by many advisors and Suze Orman), who say that people who start taking cash distributions earlier in life have snubbed the holiest of concepts: compounding and the time value of money. The whole point of having money inside retirement accounts for years and years is that asset growth helps you beat inflation. Squandering your savings in your prime human capital years is flaky at best, catastrophic at worst. Your short-term money will lose its advantage and be frittered away amid market fluctuations and inflation. If you stop earning before 65, your money is working against you as you spend, not for you as you save.

Still others like Financial Advisor columnist Mitch Anthony say that retirement is almost a death sentence of boredom, inactivity and desuetude that should be avoided at all costs. Quit your job if you don’t like it, but find another way to work.

Yet many clients in their mid-50s have indeed benefited from the bull market and do in fact have the wherewithal to retire. They’ve saved enough money to last them into their 90s by most reasonable measures. If they live modest lifestyles, take thoughtful Social Security and 401(k) withdrawal strategies—maybe even have the pluck to keep working under new circumstances—then early retirement is within sight.

The most important question to ask clients is familiar: What are their goals in the first place? Perhaps it’s doing nothing, or more likely pursuing hobbies or joining social groups, but they might also want to start doing something new and liberating. Something that gives tonic to the soul. Like starting another business.

To know whether your clients can do it, you must look at their entire financial picture, including benefits they might not know that they have.

Jennifer Failla with Strada Wealth in Austin, Texas, specializes in clients in crisis, including clients in their mid-50s who are forced into retirement. She says the firm has gotten creative and looked at what it’s like to leave the country. Austin has seen huge growth in house prices, property taxes are a killer, and clients are facing down huge health-care costs.

“So I’ve had three clients in the last year retire early before the age 60 to Honduras, Mexico and Costa Rica,” she says. She says a three-bedroom house on the water in many countries can cost $300,000 and the health care is cheap or free depending on what services, public or private, that you use. While she would avoid mainland Honduras, she says the island of Roatán has just built a new hospital. By reducing housing and health-care costs, the client facing penury at 82 could stretch retirement savings to his early 90s, Failla says.

Taxable Vs. Qualified Plans

One of the most important things to know if you want to retire early is whether you have adequate cash flow before qualified retirement plans start paying out. It’s often better to have large reserves outside those plans to help with tax planning, says Mike Salmon, a principal at Moisand Fitzgerald Tamayo in Orlando, Fla.

Salmon says that he helped two different federal government law enforcement employees retire early two years ago. One was 51, the other 52, both with pensions, and both had contributed to the Thrift Savings Plan. “They were able to use the public safety employee clause in retirement plans that allowed them to access TSP money at age 50 without the 10% penalty.”

In one case, Salmon rolled over part of one plan into an IRA so that the client got more diversification. Since the TSP money is being used sooner and being paid out, it’s allocated more conservatively. The Roth IRAs in these cases are usually allocated most aggressively since those are usually the last touched in a plan, Salmon says.

Knowing how much to keep in a retirement plan is tricky. Employee plans aren’t usually as good in their investment choices as an IRA would be, but if you roll it all over, you lose the ability you would have under the employer’s retirement plan to start withdrawing at age 55 without a 10% penalty under IRS rule 72(t). That means you might want to keep a buffer within an employer’s plan you can withdraw from to meet cash flow needs and roll over only a portion.

Cash flow planning is important before the client is retiring before 591/2, Salmon says—knowing where you can take assets from before retirement assets and Social Security kicks in. For tax planning, it helps to have funds outside qualified plans so that you can harvest tax losses and gains. Sometimes, clients at age 71 hit the “tax torpedo”—when higher required minimum distributions kick in and all of a sudden clients have to pay tax on their Social Security, too.

Health Care And Insurance

Not only could a big downturn in the market destroy the dream, a health crisis can derail an early retirement plan as well, advisors say. Even without an emergency, different sources put the entire cost of health care for a couple at somewhere between $245,000 and $280,000 over their total retirement years.

“It’s the first couple of years of retirement that are going to set the stage for whether the retirement is successful or not,” says Michelle Maton, a partner at the Planning Center in Chicago. How much clients keep in cash on hand depends on their risk tolerance. Some people might need six months to a year of spending in cash, or they might otherwise keep it in bonds.

“In the last few years, plenty of clients who retire early have health insurance expenses to deal with, and if they don’t have retiree health insurance available to them maybe this cash flow and tax planning revolves around getting maximum subsidies from the Affordable Care Act,” says Salmon.

It’s an expense no one likes to bring up, but there’s a huge gap in care awaiting those who retire early without reaching Medicare age (where you get relief from costs). “If you’re retired now and you’re 58, you’re having to spend $15,000 or $20,000 a year on health insurance,” Salmon says. It could be higher or lower, depending on your health and plan. But if you can’t handle such costs for five to 10 years, you probably aren’t in the position to retire in the first place.

In some cases, clients will have to cut back on discretionary items like travel. Sometimes they’ll have to do some job part time to help with health insurance. This is where spending becomes key. How can you cut your expenses? Hike instead of joining a gym? Get an airstream and camp free on Bureau of Land Management areas?

Stress-Test Spending

It’s important to stress-test the spending, says Salmon. “Maybe the client is spending $50,000 or $80,000 a year … on all expenses and taxes. We’ll be able to model: Can you do $12,000 more than that per year? And if you’re still in our comfort zone, then we’ll kind of put a band around expenses. … We’ll throw in a bear market or recession and if your assets go down 15% or 20% or 25% tomorrow, how much that will eat into this extra spending that you might be considering? Does that eat through all of it and dip into what you’re currently projected to have in normal retirement expenses?”

Sometimes, Salmon says, it’s even better to take Social Security benefits as soon as they are available, at age 62, say, if you have retired earlier—he reasons that a bird in the hand is worth two in the bush. It helps a client keep money at work in the market, maybe $20,000 a year, where it would perform better than it would if stuck in a government program. “If everything works out in the markets, then you would expect there to be more assets in the end, even though you’ve begun collecting a lower [Social Security] benefit,” he says. On the other hand, you might not want to do that when a spouse will depend on extended program benefits in the future. 

If clients have a lot in an IRA, on the other hand, they might get caught in a higher tax bracket with required minimum distributions, which means they have to analyze which funds they pull from first. “Some of that could be Roth converting, so we’re just creating income on the tax return and saving it for later, or meeting cash needs but also potential cap gain harvesting,” Salmon says.

Getting Antsy

Eric Furey at RegentAtlantic in Jersey City, N.J., had a client in Massachusetts who worked as a middle man between health insurance agents and private health insurance companies. The client sold his business to a major corporation at age 55 and retired two years later with about $3.5 million in net worth. He had taxable assets, a traditional IRA and a Roth. “He and his wife thought they were going to go into retirement; they were going to remodel their vacation home [on the Cape] and they were going to split time between their vacation home and their retirement home.”

But the client couldn’t stay retired; six months later, “he got really antsy and he basically started up a similar business to what he just sold.” Furey had anticipated this and set aside a part of the portfolio, $300,000 or $400,000—carved out of taxable assets, invested conservatively—that would go toward a new business. The couple’s IRA was to be delayed for as long as possible, and the couple’s Roth IRA would ideally never be touched at all. The kids would inherit it, Furey says.

Maton worked with a news broadcaster in his late 50s with $3 million to $4 million in investable assets and another million in property who wanted to stop the daily grind of his stressful job and needed to ramp up savings for that and test out living on the amount he and his spouse would need for a year. “We had some years to prepare,” she says. “Getting him to that place really was all about expectations of how much they really had to spend, which was less than they had been spending, and really ramping up being more aggressive about saving.”  

Being mindful of spending is important for this kind of planning, Maton says. “If people can have that discipline earlier, that would be better.” Another question is what they are going to do with their time. “Work was their identity. They worked hard; they worked a lot of hours. What’s going to fill that time and purpose of life? So I spent a fair amount of time talking about that kind of thing.”

“I find women make the transition better than men,” says Maton, who has a lot of single female clients who often better find time for family and causes.

Unexpected Retirement

Sometimes early retirement isn’t the client’s decision. Diane Pearson of Legend Financial Advisors had a client couple—a physician and her husband, who was a business executive with an industrial materials company. They had their plans all set up with all their retirement projections in place when the husband got pink slipped five years ago. He was 60. To Pearson’s surprise, he said, “Nope this is perfect. I know exactly where we are financially. I know what we can and cannot do. I’d like to go out and start a photography business. What do you think?”

The fact that they had already gone through the full financial planning process allowed the couple to make the switch. The couple still had $3 million in net worth, including their house and $2 million in qualified retirement assets, and the wife’s income and benefits. The clients also had kids in college. Most of Legend’s clients are not “house heavy” in net worth, Pearson says. “They must have liquidity.”

Longevity must be a bigger part of the discussion now, Pearson says. “Cancer doesn’t kill you anymore, you can have a heart attack, you can have valves replaced. You can live another 20, 30 years. So we are spending a lot more time strategizing about Social Security and what is the best age to take that.

“We’ve even this year had the first two conversations about reverse mortgages that I’ve never had before.” She thinks that alternative income sources, including reverse mortgages, are going to have to be on the table, she says, since interest rates are still low. Salmon at Moisand Fitzgerald says that he has a couple of aces up his sleeve for retirees to make plans work—not only reverse mortgages, but also a plan to reduce a retiree’s spending in later life—by 10% at age 70, perhaps and 15% by age 80.

Much of the advice is common sense: If you want to retire early, start saving early. Jeremy Heckman at Accredited Investors in Edina, Minn., had a 20-year physician client who just retired at 55 with a net worth of $7 million—$6 million of that in investable assets, the rest in real estate. He and his stay-at-home wife and two kids hadn’t started off with wealth but through his decent income as a doctor, he early on created a vision of early retirement and wanted the flexibility to move away from work. So he accumulated.

“He was really engaged, but never did anything outside of the lines. Said no to a lot of risky types of investments. And yet also wasn’t so conservative [shunning equities] that he wasn’t going to be able to accumulate the level of wealth that they did at the age that they are.” Heckman says the couple had a consistent savings plan and lived below their means. They also saved in advance of large purchases for cars and a home remodeling. The couple had $100,000 in cash reserves and that grew to $200,000; these were used to invest for market pullbacks. A second house offered a small bit of seasonal rental income. The growth-oriented portfolio was 80% tilted toward equity, and comprised mutual funds, then later on ETFs.

When the market pulls back, there’s a worry about another 2009, and the important thing is not to react to that, Heckman says. Their goal in retirement was to enjoy their financial security and pursue their hobbies—horses and cycling and time with their children.