Deciding when to retire is a big decision. It can take years of planning, not to mention the many years of saving. 2021 was the year of the ‘Great Resignation.’ If you haven’t heard of it before, it is the phenomenon of people choosing to leave their jobs in mass quantities. Some of these individuals have chosen to move on to something different, while others decided to retire early. Whatever the next course of action for these people, the thought is that the strain of the Covid pandemic has prompted them to rethink their current status and make a change. Now, it is understandable that people are re-thinking priorities in light of all we have experienced in the past 2 years, but deciding to accelerate that retirement date 5, 10 or 15 years, is an even bigger decision.
When it comes to an early retirement, there are a few key factors to consider when making your decision. First, what about healthcare? If you retire before age 65, the age for Medicare eligibility, healthcare costs can be extraordinary. Will you be covered by a spouse’s employer healthcare plan, or will you need to go to the marketplace to purchase healthcare? Too often, people who retire early think their current healthy state will not require healthcare coverage, but then unforeseen health concerns arise bringing about unplanned expenses.
Secondly, how long are you going to live? If you can share your magical number, we can certainly plan accordingly so that your money is gone when you are. The bad news is, most of us can’t make that prediction very accurately, and thus we risk outliving our money. Think about it, if you are retiring early, let’s say at age 55, you could feasibly live another 35-40 years! This means that if you began work at age 22, your savings will need to last you longer than the years you worked to accumulate it. Consider, however, modern medicine. We are living longer year after year, and while 90 years old seems like a long life to us now, those in their 30’s, 40’s or 50’s could potential live to 100 or beyond. This long life puts additional pressure on your savings to last. This is what we call longevity risk; the risk of outliving your money. According to the life tables of social security*, half of all people in their 50’s will live into their 80’s and a quarter will live into their 90’s.
Speaking of social security, it just isn’t what it used to be. Back in 1935, the life expectancy for a white male was 61 years old and 65 years old for a white woman. Your social security full retirement age was age 65 and most people received their benefits for only a few years. It has always been a way to supplement your retirement income and was never meant to be your only source of income. Back in the day many people had employer paid pensions. As we know, those are mostly a thing of the past, and so today we must save during our working years to provide for our retirement and let social security help fill in the gaps. While social security helps, you cannot rely on it to be your only source of retirement income and expect it to cover all of your needs.
Retirement is a goal we want to help you achieve, but it doesn’t happen in a day. If you or someone you know (friend, family member, co-worker) are considering your jump into the Great Resignation, talk to us first. Let’s look at your plan. Let’s evaluate your needs, your savings and your spending, to make sure you are set up for success now and for the rest of your years. Retirement is great when the time is right.
– Paul Reilly | Chairman and CEO, Raymond James Financial