When clients in midlife ask me about early retirement, my answer often surprises them. “Don’t do it!” I say. “Never retire early … or at all.”
My reasons for this viewpoint are plentiful; but let’s start with the financial. Life expectancies have risen over the last century; the average American male will live to be 76 and the average American female will live to be 81, according to the Congress Research Service of the Library of Congress. And beyond the average, many will live well into their 80s and 90s. This means more non-wage-earning years to plan and pay for.
With today’s higher cost of living and more active and affluent lifestyle, paying for that longer life may not be as easy as you think. This is especially true for boomers faced with the triple whammy of supporting themselves, putting their children through college, and caring for elderly parents.
To add to the challenge, many have dipped into their 401(k)s to pay for their kids’ college tuitions and watched their portfolios shrink due to the recent recession. While previous generations might have sold the family home and downsized to finance their retirement, the real estate bust has made this a much more difficult (and much less profitable) alternative.
By delaying retirement you not only continue to earn a paycheck, you increase your savings, accumulate additional Social Security benefits and build more wealth in employer-sponsored pension plans and tax-deferred retirement savings accounts. You also maintain access to employer-sponsored health-care coverage and extend your retirement savings – reducing the years over which Social Security, pensions and other savings are spread.
Continuing to work not only benefits your finances, but your health as well. The famous capitalist and publisher Malcolm Forbes once said, “Retirement kills more people than hard work ever did.” The research supports him. A study by the Productive Aging Laboratory at the University of Texas found that working past age 65 benefits one’s neural and cognitive health, enhances social connectivity across generations and keeps the brain running efficiently.
The RAND Center for the Study of Aging found that early retirees between the ages of 60 and 64 quickly lose some of their “mental keenness.” According to researchers at Cornell University, men who retire from the work force experience low morale and higher rates of depression and death.
My clients’ experiences bear this out as well. Many who retire early miss the sense of passion and purpose their career provided even more than the paycheck. We are experiencing a trend of “encore careers,” where people retire, then come back into the paid workforce for a second act.
Most often this second act involves a consulting role at their prior employer or in some cases in an entirely new field. Good examples include, an anesthesiologist who might work for an insurance company, a former actuary who might set up private practice as a consultant, and a restaurateur who might sign on to run a food bank. These encore careers enable clients to stay physically and mentally active and provide income to fill the shortfall left by social security and pension distributions.
Today’s 60-year-olds see themselves as much younger than their parents or grandparents were at that age, and it’s true that most still have a long, active life to look forward to. However, the real aha! moment that some miss is when they think about early retirement at age 65, they overlook the need to plan and prepare for the next 20 to 30+ years that they will likely live. It will take significant planning and diligence to ride out the various hurdles in the decades ahead, including inflation (which erodes purchasing power) and physical aging and mental decline, punctuated by the increasing frequency of “senior moments." Both of these obstacles are difficult to quantify and make the later years of life a real challenge.
Enjoy the moment, stay active and engaged, and plan carefully for the many wonderful years to come!
This information in this article is general in nature and may not apply to your own financial situation. Please consult your own professional tax advisor regarding this information and your own personal tax needs. For a complete disclosure statement, please see my biography.