Many people lately have been electing retirement before they expected to. This growing trend is referred to as “The Great Resignation”. The trend, influenced by the COVID-19 pandemic, has made a lot of folks reconsider their plans for the future.
People no longer want to spend their time working a job where they aren’t treated well or don’t find fulfillment. They want to travel, spend more time with their families, or just do what they enjoy doing. While this sounds great on paper, the financial implications may be anything but.
Brendan and I talked on a recent podcast about how retiring involves weighing two BIG questions: do I want to spend my money while I still can or do I want to risk having money left over?
Hopefully, with the help of a good retirement plan, you can thread this needle.
A lot of people are feeling the urgency of life more than ever before. Yes, you should live your life how you want today. But you should also do the responsible thing and not forget about your future self and your future family.
With that, here are four questions to ask if you’re considering retirement.
Are you retiring before “normal retirement age”?
The average retirement age is 62. But the “normal retirement age” according to the Social Security administration is 67 (if you were born after 1960). It is 66 if you were born before 1960, and 65 if you were born in the early 1940’s and earlier.
Does bridging the gap between your retirement and when you elect to receive Social Security benefits put too much stress on your portfolio?
Are there other sources of income you can tap into?
There is potentially more of a benefit to wait until you are at “full retirement age” to receive Social Security. How does retiring early change this dynamic?
Are you retiring together or separately?
If you’re married, or in a relationship with two separate incomes, the timing of both retirements is crucial.
One spouse retiring while the other continues to work will be a positive for the plan. As opposed to both spouses deciding to retire at the same time.
Often times folks retire to spend more time with loved ones. So this is something that needs to be considered well ahead of time.
The longer a portfolio can go without being drawn down, the higher the likelihood of “retirement success”.
Is there an age gap?
An age gap can either be a good thing or a bad thing for couples that want to retire. It is a good thing if one spouse wants to retire, while the other one wants to continue working.
That way, some of the expenses can be supplemented by the working spouse’s income. And hopefully the working spouse can receive healthcare coverage through their employer.
It gets tricky if there is an age gap, and neither spouse is 65. 65 is the age folks can enroll in Medicare.
One of the most common issues with retiring early is the cost of healthcare. In this situation, the younger spouse would need health insurance for an extended period of time.
Our retirement plans are largely based on projected cash flow need. If early retirees need to purchase health insurance in the private market place, that cash flow need is likely to increase. Which creates additional stress on the investment assets and overall plan.
Is there going to be a reassessment period?
Sometimes folks just want to know if they can stop earning the amount that they currently do. They don’t like their job and want to do something else, but they aren’t quite sure what that something else is. It’s not quite a “full retirement” but more of a reassessment period.
They want to take some time off and explore their interests. Or see if they actually like having all that free time.
We often suggest in these circumstances that we will revisit the plan in 6 months or a year’s time. How did expenses actually shake out? How was that withdrawal rate? Were things too tight? Did you not have enough spending freedom?
When we make a plan, we promise to regularly check in on it. The whole point of working with an advisor and developing a retirement plan is not to develop the plan and never make changes to it. Retirement planning is not just set and forget.
There are going to be adjustments along the way. If you are thinking about retiring before expected, you have to weigh the short term with the long term. It’s important to live for today while knowing you won’t regret tomorrow.