There’s been an uptick in early retirements as of late. The trend appears to be associated with “The Great Resignation”, but it’s a side of the story fewer are talking about. “The Great Resignation” is often linked with the ongoing trend of employees voluntarily resigning from their jobs, for multiple reasons, but mainly the freedom gained from Covid-19 protocols. However, statistics are slowly coming out about what percentage aren’t just leaving, but retiring.
A recent Forbes review noted that “the Federal Reserve of St. Louis estimates that more than half of the 4.2 million who retired in the first half of 2021 were those who retired earlier than expected because of Covid.” This statistic is easy for us to believe as we’re seeing it first hand — people want to retire, many are relocating to our area, and there’s an increased interest in those inquiring about retirement in general.
Those in and around the Rehoboth Beach area have noticed — the region is thriving as baby boomers flood the area seeking the retirement life they’ve dreamt of. These retirees aren’t just Delawarians heading to the beach, many are relocating from New York and from across the greater Northeast.
Why Are People Opting for an Early Retirement?
Each individual has their reason, but there are notable themes driving people to retire earlier than planned. While the shift to working remotely was an adjustment, many simply don’t have a desire to return to the office and are having trouble re-committing to the commute.
The COVID-19 pandemic has led many to reconsider how they want to live their day-to-day life. While nobody wishes the pandemic to last, those who embraced things like home offices, home gyms, and eating in are finding the silver lining.
While hanging up your career early to live a more fulfilling life sounds great, there are ramifications you need to prepare for. We agree, you only live once, but we are also here to be a realistic guide for your future.
Social Security & Healthcare
Social Security is available starting at age 62 but Medicare isn’t available until 65. This poses a very real gap for anyone retiring early. If you were banking on collecting Social Security at 62, we want to remind you that deferring does have its benefits.
According to the Social Security Administration (SSA), a person turning 62 in 2022 looking to collect when first eligible, would receive approximately 70% of their Primary Insurance Amount (PIA). Your PIA is the benefit you receive from Social Security when you reach normal retirement age. The normal retirement age for those born in 1960 or later is 67. An individual's PIA is based on how much you’ve contributed into the program over your working years.
This means a 62-year-old today would need to wait 5 years if they want to receive 100% of their PIA each month. If the same person chose to defer until age 70, pushing their first payment out to 2030, they would receive approximately 124% of their PIA.
We share this to demonstrate how there can be a significant reward for waiting. Determining when to collect social security is not easy when other investments and retirement savings come into play. Maximizing your benefits while covering your expenses is part of our service offering. We’d be happy to assist you in creating a plan. You can also visit the SSA website to forecast your projected benefit.
We highlight Social Security because many retiring early bank on their benefit covering a good portion of their living expenses. Speaking of expenses, healthcare is often a looming concern of early retirees.
It’s important to do your due diligence in understanding the cost of healthcare when your employer is no longer in the picture and you don’t yet qualify for Medicare. It’s not far-fetched for this group to pay $1,400 or more per month in out-of-pocket healthcare expenses. As you can see, early retirees have several important decisions to make before walking away from their primary income stream and benefits package.
Other Considerations for Early Retirees
While Social Security and healthcare are where we suggest you start when determining if you can retire early, there are other factors to consider.
Market volatility — Market corrections happen and should be planned for. While many saw their portfolio grow over the past few years, an upward trend simply does not last forever.
Inflation — As prices rise, the buying power of your retirement fund unfortunately decreases. Retirees need to remain cognitive of their debt as interest rates are expected to rise. If downsizing is part of your plan, you may still come out ahead if you act soon as the real estate market remains high.
Longevity — If you’re looking to retire in your late 50s or early 60s, remember that you may have 30-40 years ahead of you. Of course, this is great, and we wish you the best of health during your retirement years. But at the same time, the earlier you retire, the more years your nest egg needs to cover.
Gain Confidence in Your Plan to Retire Early
Early retirement is great if you’re prepared. We want to help ensure a smooth transition into retirement. When you partner with Integrated Wealth Management — you receive our professional feedback on a variety of topics. All of our recommendations have your finances and unique goals at the forefront.
If you’re considering early retirement, you likely have questions. Take the first step in learning more by scheduling an appointment with an Integrated Wealth Management advisor today. Through a no-pressure conversation, you can learn if our services can help you reach your goals.
About Integrated Wealth Management
Integrated Wealth Management is owned by Burt Hutchinson, CPA, CFP®. We’re a CPA-led organization, meaning we’re here to handle your complex tax scenarios and provide cost-saving insight related to your financial plan.
We’re here to guide you through the 3 stages of retirement:
Uncertainty Stage: When you are within 10 years of retirement and have questions about how to make it work
Stability Stage: When you have reached the financial milestone to retire comfortably and confidently
Reflection Stage: When you are looking to leave a legacy
We are also here to provide experienced, empathetic support during times of loss, such as the death of a life partner. You need confidence and a sense of security to enjoy retirement. As fiduciaries with a fee-only structure, we never receive commissions. Free of ulterior motives, you can be sure we’re focused on your goals.
Continued Readings:
PEOPLE OFTEN COME TO US AS PRE-RETIREES — WHAT EXACTLY DOES THAT MEAN?
SHOULD BABY BOOMERS EXPECT TO SEE RISING HEALTHCARE COSTS AS THEY RETIRE?