Early Retirement: The Realities vs the Fantasies

Early Retirement: The Realities vs the Fantasies

Many of our Living Trust clients are already retired, while others may be mulling over the pros and cons of early retirement. Yet according to Employee Benefit Research Institute (EBRI) survey, just 11% of today’s workers plan to retire before age 60. For those who do retire early, the reality of early retirement well may not live up to the fantasy.

Some things to consider before you decide to retire early—with a big emphasis on the economics.

Health care is expensive

Medicare doesn’t start until age 65. Until then, you’ll need an alternative, and healthcare is expensive. For one of my friends, an attorney in her early 60s, her monthly healthcare premium costs more than her mortgage. For those who may not be there yet, this is not a meritocracy. Insurance rates surge when you hit years that end with a zero—even if you’re healthy and doing everything right. With improved healthcare, we’re also living longer, but that raises another issue. Will we outlive our savings?

Will you be spending more in retirement than when you were working?

A rule of thumb is that we’ll spend about 80 percent as much in retirement as we do when we work. Think about all that you’ll save by not having to commute and pay for lunches and our morning coffee. You also won’t be paying money into social security and your retirement account.

The reality? If you’re healthy and energetic, you well could be spending more than you did before retirement. A J.P. Morgan Asset Management study found that there tends to be a “spending surge” by new retirees on travel, home renovations or relocation, and other retirement-related lifestyle changes. If we feel great and have lots of free time, we tend to look for things to do, and those things tend to cost money.

Housing expenses can become a burden

Retiring without a mortgage is a common goal for many homeowners, yet 44 percent of retired homeowners between ages 60 and 70 still carry a mortgage. But even if you’ve paid off your mortgage, property taxes keep increasing and maintenance, including landscaping, is ongoing.

Offsetting expenses with part-time jobs

Working in retirement can be challenging. It might be surprising that 74 percent of workers plan to work in retirement. These jobs require committing to a schedule that can be inflexible.

If you figure you’ll instead fill the income void with Social Security, remember the earliest you can usually claim retirement benefits is age 62. Even then, you’ll only receive partial benefits. For anyone born in 1960 or later, the full retirement age, when you are entitled to 100 percent of your monthly benefit, is 67. By claiming early at 62, the benefit amount is reduced by 30 percent.

Without your job, there’s suddenly a lot of time to kill

Many people retire and find themselves with a 40-hour gap in their weeks that they really don’t know how to fill. The romance of retirement—sleeping in, long lazy mornings, long walks, curling up with a good book—may not be enough to keep them alert, busy and interested.

One of my colleagues retired from the financial services industry after 35 years and within two months was driving his wife crazy. He didn’t have hobbies or a lot of interests. Work had always been absorbing for him. He got his real estate license and began a new career. It was easy for him—he had always followed the housing market and he’d spent 35 years in sales. He realized how much he enjoyed the challenge of meeting new people and growing a business. Real estate was a perfect fit for him at this point in his life.

Early retirees may find themselves without any friends

Your current friends likely still have full-time jobs. You can spend your afternoons on the golf course, but your new golf partners are now older. What does this mean? A different set of cultural references.

Retirement can be tough on couples

Retirement is a major life transition, which can have a significant impact on couples. Will you now share cooking, cleaning and yardwork? Covid may have jumpstarted this transition. Many couples have adapted; for others, it’s been too much togetherness. Post-Covid divorces have surged. Retirement, with all of its emotional, financial and social consequences, can have profound effects on a marriage. Divorce has been declining since 1990, yet for those aged 50 or older, it has doubled.

If you’re thinking of retiring, it’s a very good time to create or update your Living Trust

Our Trust package includes a Power of Attorney and an Advance Healthcare Directive. We guide you through it and we prepare the legal documents. Schedule an appointment today.

Guideway services the entire Bay Area

Berkeley, El Cerrito, Richmond, Pinole, Alameda, San Leandro, Castro Valley Newark, San Lorenzo, Concord, Alamo, Danville, Lafayette, Orinda, Moraga, Pleasant Hill, Martinez, Pittsburg, Antioch, Brentwood, Oakley, Discovery Bay, Pleasanton, San Ramon, Livermore, Tracy and Fremont. Our clients also live in the Napa Valley, Benicia, Vallejo, Martinez, Fairfield.