Some people retire at first opportunity, only to wish they had waited longer. Your financial strategy likely considers normal financial ups and downs. That said, a big “what if” on your mind might be “what if I retire in a down time that doesn’t swing back upward in a year or two?” It could happen to everyone, and it certainly doesn’t work on your schedule. For that reason, the fact that you can retire doesn’t necessarily mean that you should.
Retiring earlier may increase longevity risk. The concern can be put into three dire words: “outliving your money.” Sudden medical expenses, savings shortfalls, financial downturns, and larger-than-planned withdrawals from retirement accounts can all contribute to it. The downside of retiring at 55 or 60 is that you have that many more years of retirement to fund.
There are also insurance issues to consider. Medicare will not cover you until you turn 65; in the event of an illness, how would your finances hold up without its availability? While your employer may give you a year-and-a-half of COBRA coverage upon your exit, that could cost your household more than $1,000 a month.1,2
How is your cash position? If your early retirement happens to coincide with a severe market downturn or a business or health crisis, you will need an emergency fund – or at the very least, enough liquidity to quickly address such issues.
Does your spouse want to retire later? If so, your desire to retire early might cause some conflicts and impact any shared retirement dreams you hold. If you have older children or other relatives living with you, how would your decision affect them?
Working a little longer might ease the transition to retirement. Some retirees end up missing the intellectual demands of the workplace and the socialization with friends and coworkers. They find no ready equivalent once they end their careers. Also, it may be difficult to find a part-time job in another field, so staying a while longer could help you make the change at a pace that will be more comfortable, both financially and emotionally.3
Ideally, you will retire with adequate savings and a plan to stay physically and mentally active and socially engaged, so waiting a bit longer to retire might be advantageous to your bottom line.
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Tower Wealth Management is the financial planning and investment management group located at Tower Federal Credit Union, and their services are available exclusively for Tower members.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
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1 – cnbc.com/2019/02/28/what-you-need-to-know-about-medicare.html [2/28/19]
2 – fool.com/personal-finance/2019/02/24/should-you-use-cobra-coverage-when-you-leave-your.aspx [2/24/19]
3 – news.stlpublicradio.org/post/more-older-americans-working-past-65-delaying-retirement [8/8/18]