We’ve all seen the articles, usually accompanied by beautiful photos of attractive middle-aged couples on an exotic beach at sunset. “This could be you,” the caption reads. “Simply follow our advice and you can retire early!” But while early retirement may be the dream of many people, there’s an old saying that goes, “Be careful what you wish for.” Early retirement may not turn out to be all that you thought it would be.
Retiring Early Might Not Bring the Fulfillment You Had Expected
We just discovered this article by reporter Rachel Hartman on the USNews website that explores why the so-called dream of early retirement might not be all that it’s cracked up to be. “Many people dream of an early retirement at age 50, 40 or even younger,” says Hartman. “But those who leave behind the office at such a young age might not find retirement fulfilling.” Lack of fulfillment is only part of the problem, the article goes on to say: the bigger worry is that, by retiring too soon, you might be far less prepared financially for the long years ahead than you thought.
Hartman talks about something called “the FIRE movement” – financial independence, retire early – described in this Investopedia article from late 2019. FIRE, she states, “has caught the attention of many workers, but some are quick to say it’s not a surefire solution.” Hartman quotes a Maryland wealth manager who expresses skepticism. “Early retirement is a common ambition among today’s workforce,” he told USNews. “However, in my experience, few are actually ready for it.”
Retiring Early Cuts Retirement Contributions and Inhibits Savings
The USNews article brings up a number of reasons why retiring early might be a mistake – and as might be expected, the biggest concerns expressed in the article are financial. First on the list of drawbacks is the damage early retirement does to your savings. “If you have a 401(k) plan through your employer, you’ll be able to put an extra $6,000 into it every year once you turn 50,” says Hartman, in addition to your regular maximum contribution and any employer match. “By leaving the workforce too early, you will be leaving those options behind,” one planner said. By his estimate, an average worker who works an extra five years and maximizes contributions would add $179,000 to retirement savings, assuming a 7 percent return.
This extra money can make a huge difference in retirement security. “The average lifespan in the U.S. in 2020 is just shy of 80 years,” says Hartman. “If you retire in your 50s or earlier, your savings may need to last for more than three decades.” After many years working to save money for retirement, a withdrawal strategy that’s too aggressive combined with a savings balance that’s too skimpy can spell retirement disaster.
Retiring Early Cuts Social Security Income and Hikes Health Care Costs
The impact of early retirement on Social Security benefits is often overlooked, Hartman suggests. Benefits “are calculated based on 35 years of earnings,” she writes. “If you don’t work for at least 35 years, zeros are averaged in and result in smaller retirement payments.” Early retirees often start taking benefits as early as age 62, further reducing monthly income. Compounding the problem, people on early benefits are limited in how much income they can earn before it starts cutting into their Social Security payments. “Social Security beneficiaries who are younger than their full retirement age can only earn $18,240 a year before Social Security benefits are temporarily reduced,” says USNews.
People who retire early also have to start paying health care premiums until Medicare kicks in at age 65. “If your spouse still works, he or she may have a plan that will cover you,” Hartman writes. “Otherwise, you may have to purchase a policy through the health insurance marketplace, which could lead to much higher premiums and out-of-pocket costs than you had to pay during your working years.” COBRA health coverage purchased through your former employer is often available for a limited time, but the premiums can be shockingly expensive.
Retiring Early Can Leave You Bored and Lonely
Many early retirees find out too late that they failed to plan how to fill their time in meaningful ways, the USNews article says. “Not reporting to a boss or carrying out job responsibilities on a regular basis could lead to months or years filled with a sense of loss. Stepping away from a job might involve a feeling of being cast aside or removed from society.” This can put a strain on friendships with those still punching the proverbial timeclock. “Peers, friends and coworkers who are close to you in age but remain in the workforce could have very different lifestyles,” says Hartman. Eventually you could lose relationships that may have taken years to build up.
Apart from sociability, stopping work early might not be good for your health. “Health-related issues can be a concern for early retirees who don’t stay active,” says USNews. Finding ourselves with too much leisure time and no sense of purpose can trigger both mental and physical decline. “An inactive lifestyle can lead to a number of chronic illnesses, including heart disease, high blood pressure, diabetes, depression and anxiety,” Hartman writes. Our work life, by contrast, typically keeps us active mentally, physically and socially, and tends to enhance our feelings of self-worth.
Bottom line: early retirement may be a worthy goal. Just make certain you count the cost and make your plans wisely. You don’t want your retirement dreams to become nightmares.
Two Important Retirement-Planning Announcements from AgingOptions
At AgingOptions our chief desire is to help you prepare for the kind of retirement you’ve always dreamed of having. Toward that end, we want to share two important announcements that are designed to facilitate your LifePlanning process even during this period when most of us are required to avoid gathering in groups.
First, Rajiv Nagaich has scheduled several of his popular, free LifePlanning Seminars in the form of webinars that you can watch conveniently at home. Simply visit our Events Page and register for the webinar of your choice.
Our second announcement: in cooperation with our partners at LifePoint Law, we are excited to launch a ground-breaking new service called the LifePoint Law Emergency Legal Kit. Without leaving your home, you can now consult with a LifePoint Law attorney who will work with you to prepare and sign a complete set of vitally important legal documents including both Financial and Healthcare Powers of Attorney, a Living Will/Advance Directive, a Will or Trust, and much more. Click on the link or call us at AgingOptions and we’ll explain this excellent service to you.
Reliable information has never been more important – and that’s our promise to you at AgingOptions and LifePoint Law. Age on!
(originally reported at https://money.usnews.com)
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