According to a 2019 survey by the reverse mortgage provider American Advisors Group, 52 percent of Americans intend to retire from full-time work before the age of 65. Of course, not everyone will have a say in the matter. Job loss, health issues, or family obligations can all derail even the best-laid retirement plans, causing people to leave the working earlier than planned.
However, if you’re fortunate enough to be able to choose when you retire, it’s important to consider the benefits and drawbacks before making any decisions. Even if you have the financial means to retire early, you may not want to. Here is every scary stuff you must know.
1. Health Insurance Is Quite Expensive
According to a 2008 study by the National Bureau of Economic Research, retirement causes losses in mental health and mobility, as well as increases in other negative health outcomes like heart disease and stroke. While this is one reason to postpone retirement, those issues aren’t unavoidable. The survey also found that retirees who stayed physically active and socially involved were less likely to have negative consequences.
You’ll have to pay for health insurance until you’re eligible for Medicare at age 65 unless your ex-employer provides it. 5 Prepare for sticker shock if you do so: Insurance premiums can easily be twice or triple what you’re used to paying on your employer-sponsored plan now that your employer does not cover you. At the same time, health insurance prices sadly rise with age, reaching four figures per month after 55.
2. Interest Rate Heightens
Interest rates also have an impact on retirement planning because of their impact on the stock market. When a rate hike is on the horizon, Johnson recommends adjusting your stock portfolio to favor investments in market areas that perform better when rates are rising.
Rising interest rates may have an impact on consumer behavior since they make it more expensive to take out loans and utilize credit to pay for things. On the other hand, experts have differing opinions on how consumers will react. Because the Fed raises rates when the economy and consumer confidence are rising, some assume discretionary expenditure will grow during the early stages of a rate hike.
3. Your Savings Will Have To Last Longer
Your retirement funds will have to survive for a more extended period of time.
If you retire at the age of 62 and live to be 90, your individual retirement accounts (IRAs) and other investments must last for 28 years. However, if you retire at 70 and live the same amount of time, your savings will only need to last 20 years. Working longer also means you’ll have more years to put money into a 401(k) or another retirement plan, giving your money more time to compound.
Also, don’t expect living costs to be less expensive. “One widespread misconception is that as you become older, your costs decrease,” says Jennifer E. Myers, CFP®, president of SageVest Wealth Management in McLean, Virginia.
4. Cash Outflow Increases
When planning your monthly cash flow, think about when you’ll start receiving Social Security payments and how much you’ll get, as well as how much and when you’ll withdraw from your personal retirement accounts.
Certified financial planner Kevin Smith, executive vice president of wealth management for Smith, Mayer & Liddle (a company of Janney) in York, Pa., notes that having a monthly plan also involves having a firm grasp on your costs. Ideally, you should have two to three years of real spending history summarized by category, with each category analyzed to see how it might alter in retirement.
5. The amount of money you get from Social Security will be reduced.
The earlier you begin receiving Social Security payments, the smaller your benefits will be. For example, if you were born in 1960 or later and begin receiving benefits at age 62, the earliest age at which you are eligible, your monthly payments will be 30% lower than if you wait until age 67, which Social Security refers to as your “full retirement age.”
You will earn an additional 8% increase in your monthly payment for each year you delay from age 67 to 70. There is no longer any benefit to waiting after the age of 70.
6. Debt is really high.
“Having a lot of debt when you retire can put a burden on your finances,” says David Walters, a certified financial planner, and portfolio manager with Palisades Hudson Financial Group’s Portland, Ore. office. “Reduce or eliminate credit card and car loan payments if possible. Paying off your mortgage or downsizing may also assist in the long run, depending on your position.” David mentioned.
Paying off debt before retiring may mean working longer than you’d like, but the sense of relief that comes with not having all those monthly payments hanging over your head will almost certainly be worth it. Getting out of debt, including your mortgage, also means avoiding interest payments, which may add up quickly.
7. You can feel bored and want to go back to work.
Many retirees struggle to go from the controlled life of full-time work to the unstructured life of retirement. They may also miss their previous coworkers (and, in some cases, their boss) and wish to return. Unfortunately, once you’ve left the workforce, it’s not easy to get back into it, whether deliberately or involuntarily.
According to a 2012 analysis by the US Government Accountability Office, adults over the age of 55 take longer to obtain new occupations than their younger colleagues.
8. Inflation is not taken into account.
Inflation will have an impact on your daily spending as well as the value of your life savings. According to Smith, a 3% inflation rate means your spending will double in less than 25 years, which is well within a typical retirement time. One of the most typical retirement planning blunders, he argues, is failing to account for the effects of inflation, which can have major long-term consequences if not properly accounted for.
With typical lifespans substantially longer than they formerly were, diligent money management is required to stay up with or beat inflation and avoid outliving your resources. TIPS (Treasury Inflation-Protected Securities) are considered exceptionally safe because they are backed by the government and pay enough interest to keep up with inflation.
9. You Still Enjoy Your Work
There’s no rule that says you have to retire just because you’ve reached the full retirement age set by Social Security. Consider Warren Buffett, who is still working at the age of nearly 90 and has no intention of retiring.
Continue to get excited about getting up and heading to work in the morning. Working provides advantages that go beyond money. A job you enjoy stimulates your mind, allows you to communicate with others, gives your days meaning, and provides you a sense of success. All of these activities can assist you in being healthy and happy as you get older.
You may also be allowed to stay on your employer’s health plan, which may provide greater coverage than Medicare.
There are ways to have the best of both worlds if you don’t want to retire early for fear of regretting your decision, but you also don’t want to wait so long that you miss out on the benefits of retirement.
