Ken Morris: Before you retire early, ask yourself a simple question
Oakland Press, The (Pontiac, MI)
Over the course of my career, I've heard many people dismiss the importance of saving for retirement. It was often because they didn't think they'd live to a ripe old age. They didn't seem to realize that retirement could last twenty to thirty years or more.
I like to remind them that when you retire you're giving up a steady income plus contributions to Social Security and dedicated retirement accounts. And the sooner you retire, the more you give up.
Said another way, when you retire at an early age, you're more likely to put yourself into a situation where you drain your nest egg and run out of money.
I've never understood why people are essentially betting against their own longevity. When you retire early you're leaving yourself little or no margin for unanticipated events that might crop up.
Recent inflation and investment volatility have made things trying for everyone. It's been especially difficult for me because in the last few months I've had more clients pass away than in the last three years.
Most of them are people that I've known and worked with for more than twenty-five years. When you know someone that long, they have a special place in your heart. Most of them were pushing the upper end of the mortality tables and yet none was close to outliving their income.
In other words, proper planning put them into a situation where they didn't have to worry and deal with health issues or any other unexpected money concerns. It gives me great satisfaction knowing that I had a positive impact on so many clients and their families.
It's estimated that since the onset of Covid nearly 3 million people retired earlier than they had planned. I suspect that many who are on the younger side of the age spectrum could be putting themselves into a situation where their nest egg is gone well before they are.
There are curently11 million job openings in the U.S. I'm hopeful that some of the early Covid retirees will redo the math, take inflation into account and consider returning to the workforce. That would enable them to supplement their retirement income and build a nest egg that would benefit them deeper into their retirement.
When I talk to my son and other young advisors in the office, I like to point out that things are different today than when I started my career. People preparing for retirement nowadays have to deal with two big issues that weren't as much of a concern back then. And if people have to deal with them, so do financial advisors.
The first issue is the prevalence of Alzheimer's and dementia among a surprising number of seniors. I'm certainly not a medical expert, but I've had to deal with clients and their families as they witnessed a loved one lose his or her memory and the ability to process information. It's absolutely heartbreaking.
I've already mentioned the other issue. Longevity. I have many clients still going strong deep into their retirement years. One recently told me that he's now been retired longer than he worked. I'm sure there are more.
So before you decide to retire early, ask yourself this: "Can I really live the next thirty years without a pay raise?"