Surprise! It’s Early Retirement!
There is a movement known as FIRE - Financially Independent Retire Early. This is one of those types of ideas that makes us feel like retirement is not only possible but that it is within our control.
If you've paid enough attention you can probably guess my view of the possibility of a financially stable retirement, let alone many people being able to do it earlier than the magic age of 65. But that leaves out the other factor - that it is within our control and we choose when to retire.
Unfortunately, many do not get to pick when they retire and most financial planning around retirement fails to take this into consideration.
Why would you not be able to decide when to retire?
Isn’t that my choice based on when I want to exit the workforce and how much I have saved up?
Yes, if you take the narrow view of what it takes to retire and that there are no other variables that could get in the way. It is the variability that makes financial planning challenging and doesn’t sell many financial products. But it is the truth and we must consider it.
CNBC took a look at some data around this and the surprise that many are forced to retire because of things outside their control. It is a fact of our retirement system that many are forced to retire due to illness, the job market, other responsibilities or other variables that make working non-optional. These also are unprepared for circumstances that further complicate the reality of forced retirement.
It is akin to disability. Most of us think we won’t become disabled or that we don’t work in dangerous jobs so it is unlikely. The truth is that the majority of people become disabled due to health and illness rather than a physical injury at work.
In a study by the Transamerica Center for Retirement Studies shows that 58% of people retired earlier than they planned and only 21% of those note that it was because of financial stability.
46% name health-related issues as the reason.
43% said it was employment issues.
20% had to because of family reasons.
It isn’t always fun to think about this aspect of early retirement but given the reality of life it is a must and potentially expensive.
The article highlights a few of these forgotten aspects like if you have to pay for healthcare before being eligible for Medicare. There is also lost wages, savings and other benefits that we get from work. Savings needs to be depleted earlier and for longer. Social Security may need to be taken earlier at a lower rate.
Whether you are doing retirement planning with me or any other financial professional, one thing that must be part of the equation is planning for the surprise of an unexpected early retirement. That is a bit more challenging than projecting what your nest egg might be at 65 but it is the work that needs to be done.
Here is a link to the CNBC article,
As always, if you come across a financially related article you’d like to send my way please do!
Best place to send them is to me.
More next time!
Jonathan