Retire Early? Work Forever? Both Are Wildly Unrealistic

Writing for Barron's, Sarah Green Carmichael interviewed Teresa Ghildarducci, the Irene and Bernard L. Schwartz Chair in economic policy analysis in the economics department at the New School, and the author of How to Retire with Enough Money: And How to Know What Enough Is.

Regarding the FIRE (financial independence retire early) movement, Ghildarducci said: 

"The person who says, 'I want to retire early,' should probably talk to a therapist, because behind that is probably an uncertainty about what they want to do with their life, or they don’t like their job. But just financially, it doesn’t make sense unless you’re very, very rich, and if you’re very, very rich, you probably have expensive taste. For most people to quit work for 40 or 50 years, it’s just not a plan that can be sustained for anybody, except for people on TV."

What about the people who say, “Oh, I’m never going to retire. I’m just going to work until I’m 90”?
"There’s two kinds of people who say that. There’s the rare pediatrician who loves their work and wants to see a couple of kids a couple of times a week until they’re 90. That’s rare; that’s why you see them in the newspaper"
"The second group are people who are engaged in what’s called cognitive dissonance. They know they don’t have enough money, and so they engage in another kind of fantasy, which is, 'I can work until I die. My employer will want me.' We find in our research that there’s a [level of] enormous age discrimination and that there are a lot of jobs that are so fast-paced in terms of technology skills required that an older worker will just not be able to keep up." There is also the physical requirements of some jobs that cannot be sustained into advanced age.

Research shows: "Most people will stop work before 65 and collect Social Security before 65."
"They were pushed out, or they were laid off, or they had to take care of their spouse or had to attend to their own illness. Most people do not retire when they want to. They retire earlier."

So what is a realistic goal and game plan for retirement planning?
"Here are some rules of thumb. If you’re 30, you should be out of debt, and you should have about half of your salary in the bank. By the time you’re 40, you should have a little more than your annual income in the bank sequestered for your retirement in either a 401(k) or an IRA. By the time you’re 45, you should have two times your annual salary. By the time you’re 50, you should have three.
By the time you’re 65 or so, 63, you should have about eight times your annual salary, if your annual salary is about what you want to live on...."

Read the interview at: https://www.barrons.com/articles/retire-early-or-work-forever-51556397683?shareToken=st1b1d6680257d4fb7ab3787524708bd0c&reflink=smartbrief

 

Buying too big a house is risky

"Tempted to buy the largest house you can afford? More square footage typically means more money—and that means higher mortgage payments, taxes, utilities and maintenance.
Young couples buying a starter home are often coached to get something bigger than they need to anticipate a growing family. Others think large homes have better resale value."

"The larger the house, the more you’ll pay in utility bills, property taxes, insurance and repairs (and the more you’ll have to clean)." writes Robyn Friedman for The Wall Street Journal 12/27/17.

Do you really want to spend your 'spare' time cleaning? Another downside that I learned from experience is that more closet and storage space means accumulating more stuff which translates into junk to sort through or leave for your heirs to deal with at your demise. Since I retired I've been on a cleaning out and getting rid of "stuff" binge. 

Consider alternate uses for the extra money you would fork out from down payment to final mortgage payment and beyond (utilities, maintenance, and property taxes). Some of those fund could be used to invest for retirement, higher education (for yourself or your kids), memorable vacations with loved ones, or charitable giving.
The house you live in is NOT an investment; it's a place to live. If you want to invest, buy a total stock market index fund.

The world doesn't need more McMansions!

Many Americans retire too early

Planning to retire early? Think twice

"Retiring at 55 and spending the rest of your life relaxing on the front porch may sound appealing, but if you want your brain to keep working, it’s probably not a good idea. Mounting evidence shows that staying in the workforce into old age is good not only for our bank accounts, but also for our health and mental acuity" according to research reported in Washington Post by  Tara Bahrampour
https://www.washingtonpost.com/local/social-issues/this-is-your-brain-on-retirement---not-nearly-as-sharp-studies-are-finding/2015/10/29/7a0168ba-7dac-11e5-afce-2afd1d3eb896_story.html
Better have some mentally challenging activities lined up!

Unexpected early retirement: 8 tips

“Numerous surveys have shown that people think that they are going to retire later than it happens. The two big reasons: health issues and losing your job.”
Almost half of current retirees left employment before they planned, mostly due to health problems or disability.
“Unplanned or unexpected early retirement can create havoc with your retirement plans. Some who had to retire early weren't quite ready financially: Those five or 10 additional years of saving for retirement were no longer possible. Some may have had to take Social Security earlier than expected. And, as we all know, the earlier you take Social Security, the lower your monthly check.” Read the 8 tips on coping from Rodney Brooks in USA Today: http://www.usatoday.com/story/money/columnist/brooks/2014/09/23/retire-pension-401k-boomer/16047453/

Planning to work longer to solve your retirement funding deficit? Don't count on it.

A "new research paper published by the Pension Research Council at the Wharton School says that there’s a substantial disconnect between what people say they’re going to do and what they actually end up doing — and that they should plan for their plans to be thwarted."
According to “The Changing Nature of Retirement,” by Julia Coronado of Graham Capital Management, although many survey respondents say they intend to postpone retirement past age 65 and two-thirds intend to work for pay after retirement, in actuality statistics reveal a different picture.
What they show is that many retire earlier than planned (nearly half) and fewer (only about 25 percent) work for pay." Read more at: http://www.benefitspro.com/2014/09/10/retirement-comes-early-plans-to-work-aside

5 Questions to Answer Before You Retire

Retirement planning is about much more than money.
"It’s important to have a plan for how you will spend your time in retirement," according to Dave Bernard.
1. Do you have enough saved to cover unforeseen financial needs?
2. Are your expectations for the future realistic?
3. How do you and your partner each envision the retirement you will share?
4. Are you mentally prepared to retire?
5. Do you have enough to keep you engaged and active for the next 20 years? 
Read the details at: http://money.usnews.com/money/blogs/on-retirement/2014/08/08/5-questions-to-answer-before-you-retire

How many retire on their own terms?

Half (52%) of workers born in 1946 are fully retired. “Of those who are fully retired, 38 percent said they were ready to retire (they wanted to be through with work), 17 percent said they retired for health reasons and 10 percent said they lost their jobs. The rest retired for other reasons -- simply because they could afford to or because they wanted to join a retired spouse.” So more than one-fourth did NOT retire on their own terms but were “forced” into quitting by poor health or job loss. So not everyone gets to call the shots as to the terms of when to retire. Fully 43% report starting to collect Social Security benefits “earlier than planned.” And “only 20 percent feel good about their personal finances.” Check out the MetLife Mature Market Institute’s report:  "Healthy, Retiring Rapidly and Collecting Social Security: The MetLife Report on the Oldest Boomers." http://www.fa-mag.com/news/half-of-oldest-boomers-retired-14380.html

Consider the Impact of Collecting Social Security Retirement Benefits Early

As many older workers find themselves out of work as a result of the lingering effects of the global financial crisis, it can be tempting to begin collecting Social Security benefits at age 62.  Policy analyst Bruce Bartlett writes for The New York Times Economix blog (2/5/13), “there is a huge financial price to be paid for drawing Social Security benefits early and an enormous payoff for delaying the decision to claim benefits. Unfortunately, I think many workers have a “use it or lose it” attitude, incorrectly thinking their benefits will be bumped up when they reach the full retirement age or ignorant that their benefits rise when receipt of them is delayed.”

Persons who collect SS benefits prior to their full retirement age “lose $1 of benefits for every $2 of earnings they receive above $15,120 – equivalent to a 50 percent marginal tax rate on an annual income barely above the minimum wage.” Because delaying collecting SS results in a higher benefit for each year one delays up to age 70, “Social Security benefits are… 57 percent higher at age 70 than at age 62.” “The delayed retirement credit is an extraordinarily good deal – where else can one get a guaranteed 8 percent annual return these days? The lower interest rates are, the better deal it is.” If you realize you made a mistake in collecting early, you are allowed one year in which to repay benefits received and “reset” the clock.  By choosing to delay benefits to your full retirement age or as late as age 70 you essentially earn an 8% guaranteed return. By ensuring a larger SS benefit, it can be easier to decide how to spend your retirement savings during the early go-go years of retirement. Read the full article with links to helpful resources at: http://economix.blogs.nytimes.com/2013/02/05/one-recession-cost-is-lower-social-security-benefits/?src=recg

Think You're Going to Work Forever?

We've all heard that Americans are woefully unprepared for lengthy, costly retirements. A frequent response I hear is: "I just plan to keep working...." However, plenty of data suggest that this will NOT be an option for about half of workers. "The prospect of an unplanned early retirement is real, and is happening more frequently since the US economic downturn."
"About half of retirees say they started retirement unexpectedly as a result of illness or a change their employer made, a study says. Advisers should help clients prepare for the possibility of a forced early retirement, writes Cheryl Krueger, who also recommends resources for advisers with clients already forced into early retirement who need help navigating health insurance changes, severance pay, Social Security and other decisions." Details at: http://www.lifehealthpro.com/2012/11/29/the-early-retirement-headline-youre-not-seeing?ref=hp 
Society of Actuaries report: research-pen-retire-too-soon