For Mark Roberts’ Use: At some point, most of us dream about an early retirement. And on the surface, it certainly sounds wonderful. Who wouldn’t love to avoid their daily commute, never see the inside of an office again, and spend their days in leisure (or exciting activities, for that matter)?
For some, an early retirement is certainly a very real possibility. But as with all major life decisions, it is important to analyze all possible outcomes of the decision, rather than relying solely upon our hopes and imaginations.
To illustrate our point, take a look at the National Bureau of Economic Research’s study, titled “Early Social Security Claiming and Old-Age Poverty”. Researchers explored a link between early claims for Social Security benefits and poverty in late life. With one-third of Social Security recipients first filing their claims at 62, it was a bit alarming to discover that early claims are associated with a higher chance of poverty in older age.
To some degree, the link can be easily understood. Perhaps some of these early claimants were forced to retire earlier than planned, due to disability, and they hadn’t had time to completely fulfill their retirement savings goals. However, researchers discovered that many of these earlier retirees had taken the leap into retirement simply because they could. At age 62, we all reach the earliest eligibility for Social Security benefits, and for some the temptation to retire early was simply too great. It’s worth noting that among this group were a higher number of individuals who did not consult with a financial planner before making the decision to retire.
Other factors, that likely influenced the outcomes for many early retirees, were inflation and longer retirements. It goes without saying that if you retire earlier, you will spend more time in retirement, and therefore stand a greater chance of exhausting your savings. As for inflation, even at very low rates it will definitely impact your purchasing power over the course of two decades or so.
Having said all of this, statistics can only point to tendencies, and there are exceptions to any general rule. Many early retirees are quite happy with their decision, and do not end up in dire financial straits. These are the individuals who took the time to plan carefully, and consider various scenarios that could affect their long-term outlooks. There’s no reason to believe an early retirement is out of reach entirely, but we do urge you to consult with us before making any drastic decisions. Give us a call, and we’ll be happy to help you plan for this next stage in your life.
