The High Cost of Early Retirement

[bondi688]

The High Cost of Early Retirement - Yahoo Finance

"It's possible to retire early if you're lucky enough to strike it rich, or if you plan ahead, watch your budget and want a more modest lifestyle. But the price tag for early retirement is high. For some people it's worth it, but it's not for everybody."

Tom Sightings of the US News and World Report lists 5 reasons in the article against Early Retirement. I don't know if you have to necessarily strike it rich, but plan ahead, watch the budget and be content with a more modest lifestyle are important for the choice of RE.

 

[imoldernu]

That was a fun article. The example (adjusted for inflation) pretty much described my own situation, income and overall status. Retired @ 53 in 1989, because of a health scare.
Despite all of the numbers (which would have scared the hell out of me at the time), everything worked out fine.

The hardest part of retiring early was the fear. We balanced that with the thought that we could "go back" if things got tough. Would do it again, without question.

We built our dreams around reality. It was easy.

 

[robnplunder]

The article only talks about financial cost of going to RE. Time (and health to enjoy) is the most precious thing, IMO. 80 years (average life expectancy these days) of time on earth is not a long time and I have no intention to wait until 70 to enjoy the rest of my life (whatever is remaining). Work can be nice but there are million other things I can lose myself into.

 

[scrabbler1]

All 5 of his "reasons" seemed overstated to me. In my own case, the salary foregone was overstated, the benefits foregone were overstated, the SS reduction was overstated, pre-65 health care costs were overstated, and my prime earnings years were already way behind me because I was only working part-time when I ERed; my peak earnings years were my last few working full-time.

 

[W2R]

I am spoiled because AFAIK all of our regulars here on the forum think about these things in advance! I guess I *DO* take it for granted that early retirees will think about the fact that instead of earning a salary and benefits, they will actually be spending money during those first few years of early retirement when they would otherwise be working.

If a prospective early retiree hasn't even thought of this, he or she is pretty oblivious and probably not too good with numbers or practical things, IMO. Because of this trait, he/she might do poorly from a financial standpoint even if he/she retired at a more standard retirement age.

The article only talks about financial cost of going to RE. Time (and health to enjoy) is the most precious thing, IMO. 80 years (average life expectancy these days) of time on earth is not a long time and I have no intention to wait until 70 to enjoy the rest of my life (whatever is remaining). Work can be nice but there are million other things I can lose myself into.

+1
As one of the "later early retirees" here (retired at age 61.5), I think those last few years of cubicle life were very hard on my health. I feel like it might have taken years off my life expectancy, had I chosen instead to work until age 65-66.

 

[sengsational]

This article is written for the majority of people who didn't plan and save; written to make them feel good about themselves, at the expense of leaving out all of the good stuff about RE.

 

[daylatedollarshort]

Some areas of the south of France can cost less to live in than expensive metro areas in the U.S.. Average household incomes in France are less than the U.S. If you are renting an apartment and cooking most meals at home, I don't think it would necessarily be more expensive to live there part of the year:

OECD Better Life Index

On the flip side of some of his other arguments, working longer means paying more in state, federal and SS taxes, for some ACA subsidies may replace employer health insurance benefits and SS benefits for some may not increase much if at all from working beyond a certain point.

The Tesla would be a one time cost. I would agree with him that McMansions cost a lot not just in price but ongoing utilities, taxes, insurance, repairs, etc. but many people here either downsize or live in low cost of living areas where the costs are still not that high even with a big house.

 

[RBDan]

This article is written for the majority of people who didn't plan and save; written to make them feel good about themselves, at the expense of leaving out all of the good stuff about RE.

That is exactly what I thought.

 

[38Chevy454]

Article is not bad, but it makes it seem like a fantasy. It is not only for the lottery winners and inherited wealth babies.

In real world, and most on here meet this, you can do it with LBYM, max out retirement savings, and have moderate lifestyle. Stop trying to keep up with the Jones' and living the rat race. Learn sound financial planning and living. Keep debt down to minimum and avoid wasteful spending on stuff you don't need.

Get an education that has the ability to support your lifestyle and offer ability to save beyond just surviving. A liberal arts degree that once graduated enables you to barely make $10/hr is not a wise financial investment in college and life. Driving a new car every 2 years is not good financial use of money. Don't get caught up in consumerism and needless spending. And many other examples....

Yes, there are sacrifices to achieve early retirement. But the reward is also worth it!

 

[annienz]

I like the bit at the end: "He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement and other concerns of baby boomers who realize that somehow they have grown up."

 

[MasterBlaster]

The article is right, of course, about the monetary aspects of ER. We all must weigh our lifestyle aspects against the monetary ones and make some choices.

As others have pointed out, it's not just about the money.

 

[robnplunder]

For most of us in this forum, I don't think luck has much to do with RE. If some of us had little luck, we could have retired in our 40s . I've certainly had little luck, and less than average foresight in macro economic trend . It was mostly hard work and discipline that got me in the current position.

 

[Mulligan]

I personally think the negatives should be emphasized before you pull the trigger as it is hard to create a "do over" and the author certainly covered that. But the fewer fortunate pensioners like myself, the math is different. Yes, if you work longer your pension is bigger, but you lose the pension money you could be receiving by retiring. If I had worked 2 more years, my pension would have been 10k more, but if would have taken about 15 years to recoup the "lost" money I passed on by retiring later. Then you start subtracting your pension from your salary and dividing it by your hours worked and you start coming up with numbers like working for $1 an hour so you quit!

 

[2B]

For most of us in this forum, I don't think luck has much to do with RE. If some of us had little luck, we could have retired in our 40s . I've certainly had little luck, and less than average foresight in macro economic trend . It was mostly hard work and discipline that got me in the current position.

For many of us, our "luck" was to be born in the USA. In general, educational opportunities are available for those willing to take advantage of them. Obviously, "lucky" people have parents that help guided them as children. And if all else fails, where else can you be considered "poor" with a smart phone, hi def TV, a roof over your head and a statistical likelihood of being obese.

Most of what people call "luck" in being able to RE is planning, commitment and the comprehension necessary to take advantage of opportunities.

I was really "lucky" when I spent hours banging my head through calculus and various engineering courses instead of smoking dope all day.

 

[scrabbler1]

I personally think the negatives should be emphasized before you pull the trigger as it is hard to create a "do over" and the author certainly covered that. But the fewer fortunate pensioners like myself, the math is different. Yes, if you work longer your pension is bigger, but you lose the pension money you could be receiving by retiring. If I had worked 2 more years, my pension would have been 10k more, but if would have taken about 15 years to recoup the "lost" money I passed on by retiring later. Then you start subtracting your pension from your salary and dividing it by your hours worked and you start coming up with numbers like working for $1 an hour so you quit!

On the flip side, many pensions, like mine, have been frozen. And luckily for me, my frozen pension was based on my peak earning years, so working part-time after it got frozen did not reduce it. Nor did leaving my company have any effect on it. In an odd way a company freezing its pension can actually encourage ER! My frozen pension is one of my "reinforcements" out there available for me to tap into in about 15 years from now.

 

[daylatedollarshort]

Then you start subtracting your pension from your salary and dividing it by your hours worked and you start coming up with numbers like working for $1 an hour so you quit!

I think that is a really important consideration for some households. I am sorry we did not do those calculations earlier in life. For us it wasn't just the pensions but also adding in lower income and SS taxes, financial aid for college, ACA subsidies, money we saved from having DH home, etc.

 

[robnplunder]

For many of us, our "luck" was to be born in the USA. In general, educational opportunities are available for those willing to take advantage of them. Obviously, "lucky" people have parents that help guided them as children. And if all else fails, where else can you be considered "poor" with a smart phone, hi def TV, a roof over your head and a statistical likelihood of being obese.

Most of what people call "luck" in being able to RE is planning, commitment and the comprehension necessary to take advantage of opportunities.

I was really "lucky" when I spent hours banging my head through calculus and various engineering courses instead of smoking dope all day.

I hear you. In my case, I wasn't even lucky to be born in US or had parents who guided. But I was lucky to come over to US in my teen years, went to public school, learn to speak English, and given a chance at higher learning. That's more luck than others born in some 3rd world country, fighting for daily existence. I am lucky in that sense.

 

[Dash man]

To summarize, we made our own luck!

 

[Bestwifeever]

I like the bit at the end: "He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement and other concerns of baby boomers who realize that somehow they have grown up."

And earns money from google ads.

Some of these Yahoo Finance articles should be dramatized (comedyized?) into sitcoms.

 

[2B]

To summarize, we made our own luck!

Life isn't fair but it's equitable. We all had an equal chance to be born to that crack addict with HIV but I suspect none of us here were. We all had an equal chance to spend nine months in Warren Buffet's wife's womb. Most of us are somewhere in between. Having financially comfortable parents gives one a statistically higher chance of doing well in life but it certainly isn't a guarantee.

We all start at different places making "success" either statistically more or less likely. Starting at either extreme does not preclude achieving "success."

 

[CaliforniaMan]

For many of us, our "luck" was to be born in the USA. In general, educational opportunities are available for those willing to take advantage of them. Obviously, "lucky" people have parents that help guided them as children. And if all else fails, where else can you be considered "poor" with a smart phone, hi def TV, a roof over your head and a statistical likelihood of being obese.

Most of what people call "luck" in being able to RE is planning, commitment and the comprehension necessary to take advantage of opportunities.

I was really "lucky" when I spent hours banging my head through calculus and various engineering courses instead of smoking dope all day.

Agree 100%! We cannot choose the place or the time in history in which we are born, we cannot choose our parents. This is where pure luck comes into play. But we do choose almost everything else. I am so thankful for being born here and with opportunities presented by having parents that instilled in me the value of morality, good education and hard work. This was my luck. I made a lot of mistakes along the way, but as you I am so thankful that I appreciated and took advantage of some of the many opportunities that were presented by the fortune of my birth.

One time when I worked as a programmer at the University of California we had a program that hired disadvantaged kids for summer jobs. It was no cost for us, so we hired a few. For any kid that had the desire, it was a tremendous opportunity to learn new things, make contacts, and participate in some very interesting and amazing projects. It was the beginning of the microprocessor era, and we had them working there, not junk work, but potentially really interesting stuff. I recall how surprised I was that to a person, they had absolutely NO interest in anything except getting paid, and spending all their money on the latest records, clothes, expensive frivolities for their car, etc.

I contrasted this with some kids of the professors. When they came it, we could not get them off the computers, they were interested in everything. Both of these kids had access to some amazing possibilities, but only one group could see it.

I always wondered what happened to those kids we hired so long ago, they probably did get what they wanted to get. Buying the latest fad music, and shiny things for their cars. I wonder if they ever got anything more.

It was so sad for me to see at the time. I guess I had optimistic images of the big effect we would have on these kids future. Was the beginning of my conversion to cynicism. These kids just didn't have a chance, they were born in the US, had access to education, but unfortunately were not born to parents who would encourage their curiosity and industriousness.

Being born to the right parents is the luckiest part of life. I don't mean parents with money, mine didn't have much, but parents who were optimistic about their child's future. and valued hard work, education and morality.

 

[Bestwifeever]

Here is a recent story about the governor of Massachusetts and his first cousin, where luck came into play: From Wabash and 54th, two roads diverged - Chicago Tribune

Patrick left Chicago at age 14 for an East Coast boarding school, went on to Harvard and eventually the state Capitol in Massachusetts — a journey he describes as improbable and filled with moments of grace. Wintersmith, at age 11, lost his mother to a drug overdose and was sent to Rockford to live with relatives who were running a drug house. Within five years he joined the illicit trade, a decision that ended in a stunning mandatory life sentence for a first-time, teenage offender.

.

 

[TimSF]

Hmm. The article contends that "Social Security deducts approximately 7 percent from your monthly check for every year you retire early." If this is true, then I (retired at 50), will lose about 84% of my SS check. !! This does not seem right to me. Does anyone know where the author came up with this 7% figure?

 

[daylatedollarshort]

Some research shows the U.S. actually has low levels of economic mobility compared to other countries:

The Myth of the American Dream

America's economic mobility myth - Dec. 9, 2013

 

[MasterBlaster]

Hmm. The article contends that "Social Security deducts approximately 7 percent from your monthly check for every year you retire early." If this is true, then I (retired at 50), will lose about 84% of my SS check. !! This does not seem right to me. Does anyone know where the author came up with this 7% figure?

The author refers to the SS reduction in benefits when taken early. Per the author if your SS full retirement age is 67 but you start benefits at 62 then you'll se an (approximate) 35% (ie, 7% x 5 years = 35% reduction) reduction in your monthly SS check.

However if you wait until FRA at 67 to start benefits (and you have at least 35 SS yearly service credits) then the reduction will be none at all.

Go to the SS website (SSA.gov) they have a calculator there where you can see how retiring at 50 affects you. If you started working full time relatively young then some people ballpark the ER SS penalty at less than 1 % reduction per year retired early. However the calculation involves adding up all your work years along with each years earnings (adjusted for inflation) to make a determination. The SS calculator can more accurately help you there.