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If You’re Dreaming of Early Retirement, Take Heed: Experts Say, the Earlier You Retire, the Greater the Risk

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The phrase “early retirement” is seductive. It conjures up carefree days strolling on the beach, or hiking mountain trails, or touring exotic destinations, all when you’re still young and healthy enough to truly enjoy the experience. We’ve written a lot about early retirement here on the AgingOptions Blog, most recently just a few months ago, and as we like to point out, retiring early can be a worthwhile goal. But unless you’re prepared, it can also be unrealistic, and even unhealthy.

We came across this recent article on the CNBC website, written by reporter Andrew Osterland. In it, Osterland quotes several retirement experts and lays out a convincing argument that, before you set your sights on early retirement, you had better think twice and plan carefully.

COVID Spurs Interest in Retirement

“Life may be short,” Osterland’s article begins, “but early retirement might be, too, if you don’t have a solid financial plan for life after work.” In other words, failure to plan properly could bring your retirement dreams crashing down and have you back on the job, whether you like it or not.  Yet, the article observes, more and more seniors appear to be heading for the workplace exit, many younger than the traditional mid-to-late 60s retirement age.

“Whether it’s due to pandemic burnout, a new attitude on life or an optimism fueled by surging stock and real estate markets, more Americans appear to be retiring early, based on U.S. Bureau of Labor Statistics data,” Osterland writes. “The labor participation rate for Americans over age 55 ticked up 0.7 percent in January to 39.1 percent but remains well below the 40.3 percent recorded in February 2020 and has recovered more slowly than the rate for the general population.”

Brooklyn-based financial planner Lazetta Rainey Braxton told CNBC that the pandemic is part of the cause. “I think COVID has increased the interest in retirement generally and accelerated the number of people retiring early,” she said. “People are rethinking everything and often more emotionally than practically.”

A New World of Opportunities – for Some

It’s easy to see the appeal of early retirement. “For those who have the resources, retiring from the daily grind opens a new world of opportunities,” says Osterland. “However, it comes with risks for all but the wealthiest Americans — and the earlier you retire, the greater the risk.”

This is where dreams can come crashing against the rocks of financial reality. “If you don’t have debt, have a track record of living within your means and have enough resources to cover emergencies, knock yourself out,” Florida-based financial planner Danny Artache told Osterland. “But if you run out of money, you could end up being a greeter at Walmart.”

Emotional and Financial Preparation Required

Osterland makes the basic case that retiring early without a financial plan is dangerous. “There is no substitute for crunching the numbers on the expected costs and sources of income you will have in retirement,” he writes. On the debit side of the ledger, retirees still have to pay for housing, insurance, food, gas and vehicle expenses. On the credit side, they have to fund their lifestyle through pension payments, Social Security benefits and withdrawals from their investment portfolio. So far, so good.

What Osterland misses is the suggestion we make that a financial dashboard is the best tool to use, whether retiring early or still in the workforce. Rajiv Nagaich of AgingOptions likens retiring without a dashboard to sailing across the ocean without basic tools of navigation. “You would never journey into unfamiliar waters without the means to get to your destination safely,” he states. “So why would you journey into retirement without the means to chart your saving, your spending, and your investing?”

Osterland’s article also mentions emotional preparation but doesn’t say much about it. “Some people are financially ready to retire,” says Rajiv. “But emotionally, they’re just not ready to pull the plug and disconnect from their workplace identity.” Rajiv advises that emotional preparation can be every bit as important as having your fiscal house in order.

“The Mother of All Financial Planning Problems”

“Retirement is the mother of all financial planning problems,” Christine Benz, director of personal finance at Morningstar, told CNBC. “There are so many variables in the mix.” In her view, the three biggest variables are health and longevity, the performance of the investment markets and the level of inflation through retirement.

Osterland calls the first factor, health and longevity, “entirely personal.” He adds, “Based on your current health and family history, you may not anticipate a long retirement, but conservative retirement modeling typically uses a 30-year time horizon.”  That conservative 30-year time horizon became the basis of the familiar rule of thumb that says a retiree can safely withdraw 4 percent of their portfolio assets annually, assuming a 50-50 mix of stocks and bonds. But it’s a rule that “could use a tweaking,” according to Morningstar’s Benz.

“The next decade may not be great for market returns,” Benz told CNBC. “If we are dealing with higher inflation, it adds another risk.” Morningstar now recommends a “safe” portfolio withdrawal rate of 3.3 percent. Osterland writes, “If that withdrawal rate combined with guaranteed pension and Social Security benefits can cover costs in your average year of retirement, you’re in good shape. However, if you are at all anxious about your financial position heading into retirement, keep working.”

Enormous Benefit from Additional Working Years

 “Working longer in a job you hate is no good, but the job market is so strong you may be able to swing a more comfortable work/life balance,” Benz told CNBC. “The value of additional income-earning years is enormous,” Osterland writes. “It will stretch your resources in retirement and reduce the risk of running out of money down the road.”

The reason is obvious. “When you continue earning income, you don’t have to tap your investment portfolio and you increase your future Social Security benefits,” says Benz. “Your assets can continue to grow and possibly help you to delay taking Social Security.” This further allows your benefit to rise – roughly 8 percent annually until they peak at age 70.

Working longer might mean less years actually spent in retirement, but the trade-off can be well worth it, says CNBC. “Your retirement might be shorter, but it could be much sweeter.”

My Life, My Plan, My Way: Get Started on the Path to Retirement Success

At AgingOptions we believe the key to a secure retirement is the right retirement plan – yet statistics show that 70 percent of retirement plans fail. That’s why for nearly two decades we’ve been dedicated to the proposition that a carefully-crafted, fully comprehensive retirement plan is the best answer to virtually any contingency life may throw your way as you age.  Our slogan says it all: My Life, My Plan, My Way.

When it comes to retirement planning, most people focus on one fairly narrow issue: money. Financial planning is an important component of retirement planning. However, people heading towards retirement often make the mistake of thinking that a little financial planning is all that’s required, when in fact most financial plans are woefully inadequate. What about your medical coverage? What if you have to make a change in your housing status – will that knock your financial plan off course? Are you adequately prepared legally for the realities of retirement and estate planning? And is your family equipped to support your plans for the future as you age?

The best way we know of to successfully blend all these elements together – finance, medical, housing, legal and family – is with a LifePlan from AgingOptions. Thousands of people have discovered the power of LifePlanning and we encourage you to the same. Simply visit our website and discover a world of retirement planning resources.  Make certain your retirement planning is truly comprehensive and complete with an AgingOptions LifePlan.  Age on!

(originally reported at

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