Why retiring early will cost you for the ‘rest of your life’

Greg Wilson may only turn 44 later this month – but he’s already given up on work for good.

The married father of three retired when he was just 42, after a 22-year career in financial services.

And he is one of millions of employees who have fled the job market during the pandemic after the lockdown made them reassess their priorities.

But is it a good idea to retire early? CNBC’s Mad Money host Jim Cramer once warned that employees who retire too early could “pay for the rest of their lives,” adding that workers “are betting on their lifespan.”

And with figures showing that only 29% of Americans are on track to cover all of their living expenses in retirement, a host of other experts are also urging caution.

Leaving the workforce early means you’re missing out on maximum benefits in retirement, experts warn

For Wilson, leaving the workforce has always been his top priority.

“I wanted to retire early so I could spend my time with my kids instead of at work,” he told Dailymail.com.

“I maxed out my 401k and bought rental homes. I created two buckets – one to take me from 40 to 60 and another to take me from 60 to 60. to death.

Wilson, who lives in St Louis, Missouri, wasn’t earning $50,000 a year until he was in his 30s, but now he’s enjoying the freedom that comes with early retirement.

He is one of those who inspire the FIRE movement – although he says he never heard this phrase before retiring.

Financial Independence Retire Early (FIRE) is a lifestyle movement with the goal of gaining financial independence and leaving the workforce early.

The model became particularly popular among millennials in the 2010s, gaining traction online.

And it has grown in prominence during lockdown.

According to a study by the Federal Reserve Bank of St. Louis, about 2.4 million more Americans retired in the first 18 months of the pandemic – making up the majority of the 4.2 million people who left the labor market between March 2020 and July 2021.

Some of them have been forced into early retirement due to a poor labor market.

But there are pitfalls of quitting the job young, with many people not realizing how much money they might need to see them later in life.

And an early exit could mean a worse retirement – and the risk of your nest egg drying up completely.

Fidelity found that a measly 29% of people are on track to cover all their retirement expenses, up from 38% in 2020

Joel Schiffman of Schroder Investment Management has warned that retiring later means you won’t receive the maximum monthly benefit in retirement

According to the US Census Bureau, nearly half of workers are not saving enough for retirement.

For the second year in a row, American workers aged 45 and older say it will take an average of about $1,100,000 in savings to retire comfortably, according to a 2023 Schroders Survey of Retirement in the United States published in april.

However, only 21% of people expect to reach this threshold.

Some 59% say they expect to have less than $500,000 in savings and 34% expect they will have less than $250,000 in savings.

And a report released last month by the United States’ largest 401k plan provider, Fidelity Investments, found that just 29% of people are on track to cover all their living expenses in retirement, compared to 38% in 2020.

A separate report from Fidelity found that the average pot value of 401,000 fell 20% from $130,700 in the last quarter of 2021 to $103,900 in the same period last year.

The decline was attributed to stock market turmoil and inflation.

Although the annual inflation rate in the United States has cooled to just below 5%, it remains stubbornly high relative to the Fed’s 2% target.

As a result, households have been forced to dip into their savings – even go into debt to meet the soaring cost of living.

Along with concerns about keeping up with the rising cost of living, experts warn that retiring early can also cause you to lose the most government benefits.

Retirement expert Joel Schiffman said, “What you want to do in theory is accumulate enough assets that you can defer taking Social Security for as long as possible.”

You can start applying for Social Security benefits at age 62, but this will result in a lifetime reduction in payments,

The reduction depends on your full retirement age, which varies according to your year of birth.

For example, people born in 1937 and before have a retirement age of 65, while those born between 1943 and 1954 have a full retirement age of 66.

People born in 1960 or later have a retirement age of 67.

Thus, if someone whose full retirement age is 67 retired at 62, they would only receive 70% of the benefits to which they are entitled.

And the government will pay those who delay retirement – through an appropriation created by Congress in 1972.

For example, a person of retirement age 67 can receive 124% of their benefits if they do not register before age 70.

Retirees should also be aware that they cannot enroll in Medicare before age 65.

Schiffman, head of strategic partnerships at Schroder Investment Management, continued: “For every year you have this benefit, you forfeit the benefit of capping at age 70.

The problem is compounded by the fact that saving for retirement is harder than ever.

Rampant inflation and soaring costs of living mean that many workers have already been forced to ‘retire’ and return to the office after discovering they cannot rely on a fixed income.

According to an analysis of Department of Labor data by Indeed economist Nick Bunker for The Washington Post.

Despite this, Wilson doesn’t regret his decision to retire early and says he and his wife Erin aren’t spending less than when he was still working.

The couple bought silver on an investment site ChaChingQueen.com and Greg launched his own site DadisFIRE.com which details his journey to early retirement.

For Schiffman, the most important thing when it comes to retirement is meticulous and careful planning.

“Everyone needs to have a plan and not enough people have taken the steps to create a retirement plan. It gives you something to aim for and increases the likelihood of achieving your goals,” he said.