This Harvard economist says retiring early is a move you’ll ‘regret’ – here are 3 big problems with hanging it up in your 50s
Early retirement? As the old saying goes, it’s good work if you get it. But as one respected Harvard PhD economist noted, too many Americans get it without saving enough for it.
Americans who are late to work face a major temptation during the pandemic: As office life reduces to telework and the stock market pushes for 401(k) accounts, retirement soon became one of the most searched terms on the web.
So why is that plan, in the words of economist Laurence Kotlikoff, “one of the worst money mistakes” you can make?
For starters, the market has since retraced, erasing many of the benefits of the pandemic and waking many people from their dreams of early retirement.
But the reasons for Kotlikoff’s skepticism go deeper.
Do not miss
‘Loss savers’
Few things reveal a person’s money habits like retirement planning. Active, early-start savers are rewarded with significantly increased account balances, augmented by dividend and compound interest reinvestment.
But the reality is that millions of Americans simply aren’t saving enough for retirement the traditional way, let alone 50-year-olds considering retiring early — a move Kotlikoff said. say they will “regret” unless they adjust their expectations or abandon the plan altogether.
“We, as a bunch of lousy savers, make early retirement unacceptable,” Kotlikoff said. wrote in a guest column for CNBC. “Financially, retiring later is usually a lot safer and a lot smarter.”
It should be noted that Kotlikoff ends his argument by stating that he intends to “die in the saddle” because he loves what he does. But those who are tired of corporate escalation or reporting to a manager may have different plans for their golden years.
How many people are really ready for it?
A recent survey by the Federal Reserve found that the average American retirement account savings account is $65,000. Older savers between the ages of 55 and 64 have an average account value of about $134,000, far below what they’re asking for as life expectancy grows, inflationary pressures persist and spending costs. Increasing out-of-pocket medical costs will take their toll.
Underestimating the cost of health care
A study earlier this year by the Center for Retirement Research at Boston University found that a significant disconnect about how near-retirees perceive the impact of market volatility and longevity when calculating their post-employment plans.
The report shows that many people overestimate the impact of market swings and pay little attention to how long they will live and how that longevity will affect their finances. Unexpected medical expenses – not to mention long-term care – are significant drains on retirement funds.
The study’s data, concludes author Wenliang Hou, “confirms the importance of longevity and market risk, highlighting the need for a lifetime income through Social Security or private sector annuities. core. Finally, long-term care is also a significant risk that retirees face, but they often underestimate this risk.”
Social Security trembles
There could be encouraging signs in the federal government’s main social safety net. Social Security payments will increase in 2023, and some rule changes will push recipients who have been waiting to exploit the system.
But Social Security is now timed. Without changes at the federal level, economists estimate the main fund supporting Social Security will be exhausted by 2034. Recipients may see less than 80 percent of the benefits they expect.
Economists have long warned about relying too heavily on Social Security, and many of them urge investors to build retirement plans on the assumption that the program will no longer exist. again.
Key advice from Kolitkoff – as well as others when it comes to retirement or tapping Social Security benefits – is to wait and consider increasing your savings and investments instead. while you keep working. The extra time will keep your investments working better and longer, and at the same time delay social security benefits mean a larger monthly payment in the future.
What to read next?
This article is for information only and should not be construed as advice. It is provided without warranty of any kind.
