Investor Minute
Dreaming of an early retirement? Possible, but requires good planning
A lot of Americans would like to quit their jobs for good. For anecdotal proof, just look at the booming sales in lottery tickets. But many people aren’t waiting to strike it rich before they leave the workforce before the traditional retirement age.
According to Barron’s, baby boomers (the 70-million-strong cohort born between 1946 and 1964), have been in the midst of a retirement boom for more than a decade.
COVID-19 has accelerated this trend. Miguel Faria-e-Castro, an economist with the St. Louis Fed, estimates that there have been more than 3 million “excess retirements” during the pandemic. These are in addition to the millions who were expected to retire during that period.
Additionally, a survey by the New York Fed found that just half of Americans are expecting to work past age 62.
Some people have been forced to retire early because of COVID related job losses. Workers over 50 who’ve been laid off as a result of the pandemic have found that despite the record-low unemployment rate, companies are looking to hire younger job candidates. Experienced workers can expect to be paid more and businesses are wary of on-boarding employees who may be retiring soon, anyway.
Others have chosen to retire early, having seen their portfolios grow at record rates over the past two years. But as recent volatility has shown, it’s not wise to expect the stock market to grow indefinitely at double-digits.
Back in the fall of 2021, when it seemed the market could only head one way, David Blanchett, head of retirement research at QMA, worried that people were basing their early retirement decisions on unrealistic expectations.
“Congrats, if you are near retirement and your portfolio is way up,” Banchett said, but then offered this warning. “Let’s say you retire early and enjoy yourself by tapping the portfolio, and then have a severe market correction at 70. You are likely not employable and could still have another 25 to 30 years in retirement.”
His prediction has come true sooner than he thought. A recent report by AARP has found that 1.7 million Americans who retired a year earlier have returned to the workforce — 3% of all retirees. Among the reasons given for this return include the effects of inflation, stock market woes, and rising health care costs.
The point isn’t that early retirement isn’t possible or not a worthy goal—just that the decision to leave work before age 65 should not be based on short-term market conditions. People who decide to retire early, no matter how ready they are, are setting themselves up for financial crises down the road.
When deciding on the best time to retire, be sure to first talk to your trusted advisor who can help you weigh your possibilities, look at various real-world scenarios, and assist you in creating a plan designed to offer the most resilience in an uncertain future. We can help. Contact us today for a free phone consultation.