My guess it that almost everybody goes through a period when they’re just sick of work. Even if you enjoy what you do, there’s a reason they still have to pay you to do it. So, does that mean that you should just go ahead and retire right now? If you’re in great financial shape, then it’s a consideration. That being said, here are a few reasons to pump the brakes, Speed Racer.
1. Economic Uncertainty
Inflation, wars, economic mixed signals, and our dumpster fire political environment have – shockingly – given a few people pause when wondering if they should retire right now. Of course, there will always be problems in the world. There will always be another recession or bear market. This is life, right?
However, the sequence of your investment returns in retirement do matter. If there’s a recession right after you retire, that will lower the sustainable withdrawals you can make from your investments. You’ll need to slow down your spending and play a little catch-up.
If you’ve updated your financial plan and you’re cutting things a little close, working another year can drastically improve your chances.
You may also want to have your financial planner stress-test your plan to see how a bear market in your first year of retirement will actually change things. You may find that it doesn’t move the needle as much as you think.
2. Longer Life Expectancy
I’ve talked about this before and many of you don’t want to believe me. You’ll probably live longer than you think. Not only has life expectancy generally increased over the last hundred years, but it also increases as you age.
So, what does that mean? The numbers say that someone who has reached age 60 is statistically more likely to reach age 90 than someone who’s 20.
Of course, all of this means that your investment may have to provide for more years of living expenses. It’s weird to think that living a longer life is actually a more difficult scenario to plan for. This is why many of these retirement planning software packages say things like, “end of plan” or “planning horizon” instead of “check-out date”.
If you re-run your retirement plan analysis and living an extra 5 years gives you a shaky result, then not retiring right now might be a better move.
3. Health Insurance Coverage
Medicare doesn’t cover everything, but, when combined with a Medigap policy, will at least put you in a reasonable spot when it comes to healthcare expenses.
But just getting to age 65 can be expensive if you’re paying out-of-pocket for private health insurance. Of course, health issues become a growing concern as we age. Staying in your job a few more years could mean better healthcare coverage and peace of mind.
This is another area where it’s a good idea to update your retirement plan to see how a 20% increase in healthcare expenses may affect your chances.
4. The Mental and Social Benefits
The psychological transition from a working life into retirement can catch some people off guard. Work can provide social interactions, mental stimulation, and a sense of purpose. If you decided to retire right now, then that could potentially lead to feelings of isolation and a decline in mental health.
It’s worth considering a phased retirement or part-time work, not just for the financial benefits but also for your mental well-being.
5. Maximizing Benefits
Most pension and Social Security benefits are calculated based on your last few years of earnings. Working a few more years — especially if these are your peak earning years — can significantly boost your eventual benefits. Plus, delaying Social Security claims until you’re 70 can result in higher monthly payouts. Since Social Security (and some pensions) have an annual cost-of-living adjustment, the compounding effect can make a big difference once you live past the breakeven age.
6. The Health of Social Security
The Social Security Trust is currently projected to run out of money in 2033. If that happens – assuming nothing gets done to fix it – retirees may have to take up to a 20% pay cut on their monthly benefits. Yikes.
So, if your retirement plan is projecting that you’ll be cutting things close, working another year may be a good hedge against future Social Security cuts. Of course, this is another one of those scenarios that you can easily model out in your retirement plan analysis. Again, it may not move the needle as much as you think.
Retiring right now may not be soon enough for you! There are plenty of reasons not to retire today – many of which are completely out of our control.
But on the other hand, there are plenty of reasons why pulling the ripcord today might be a good idea. Check out this blog post where I go over six reasons why retiring today could be a great idea. See you there.
If you need help running these downsizing scenarios, then click here to set up a quick, complimentary introduction call to see if Prana Wealth is a good fit. We do still have the capacity to take on new clients.
As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.