Why You Should Reconsider Early Retirement By Bill Eager
Why You Should Reconsider Early Retirement By Bill Eager
As per Bill Eager we’ve been sold the idea for over half a century that we should work for about 20 to 40 years and then retire to live the life we have always wanted work-free and do the things we have always wanted. That’s the dream, right?
For a lot of people, this doesn’t seem to be the case. A study done by Rand Corporation shows that a third of employees past 64 had ended up leaving retirement to work once again. Of course, the biggest reason to head back to the workforce tends to do with money, but many working seniors also have another big reason: to do something purposeful.
If you are considering retiring early, check some reasons we have as to why that might not be the best idea by Bill Eager.
The first reason for many is not having as much earning potential on your savings if you hang your hat ten years before the average retirement age, which is around age 63. For instance, Bill Eager said you will need your income to carry you through an extra ten years. And as you start to touch your account, the less you make in compound interest or investment gains due to having less money.
Another reason is the tax penalties you will be facing. The IRS has a ten percent tax penalty on premature withdrawals from your IRA or 401(k) on top of the standard income taxes liable. Early withdrawals are considered any age under 59 and a half.
There are a few exemptions from the ten percent penalty, such as making withdrawals for medical costs, a new baby or adoption, tuition, or buying your primary home. However, expenses for the daily cost of living will be liable to the ten percent penalty. If you need to touch your retirement savings accounts before 69 and a half, you’re paying a good chunk of money on fees.
The third reason that it may not be a good idea to retire early is that if you receive Social Security benefits before your full retirement age (FRA), you will receive a much smaller monthly amount. Your FRA is 66 to 67 and is determined on when you were born.
If you claim your SS payments at the minimum age requirement of 62, your payments can be up to 30 percent less than its potential until you pass away.
If you push off claiming your benefits even after your FRA, your benefits will increase eight percent for each year you delay until you are 70.
The cost of healthcare may get you to rethink retiring too soon. According to research done by the National Business Group on Health, premiums, and out-of-pocket medical expenses for an individual with an employer-sponsored plan is around $14,800 last year. Large employers will pay about 70 percent of these costs.
If you are retired before you are qualified for Medicare (minimum age requirement is 65), Bill Eager said you will be paying a lot of money towards healthcare.
There is the lucky minority that may get medical benefits from their workplace retirement benefits, but many do not have this luxury. There is also the option of buying a medical plan as an individual, but the cost will be much higher than what you may have been paying when working.
If you plan, you can proactively counter these medical expenses by putting money into a health savings account (HSA). Individuals participating in health plans with high deductibles are eligible to enroll in an HSA. The money put into the plan and withdrawn from the plan are tax-free for qualified medical costs.
When retiring, the room to make spending errors tend to shrink as you do not have a paying job to recoup any significant expenses that you may regret after. Having a job allows you to recover the money that was spent impulsively. However, when you are in retirement, and you decide to take a chunk of your savings to renovate your house, invest in a great business idea, or to go on a luxurious travel destination, this will make an impact on your retirement income in the long run.
And though the idea to finally be from the daily grind of your job may sound like a dream, not having a steady income from working will also have its daily grind as well. According to a survey done by ING, over two-thirds of those that have retired admit to having to bring down their standard of living as opposed to when they were employed. For many, if they retire earlier than the average age, the more they have to budget to afford their daily living expenses.
Your job may have its stresses and challenges, but having less money can even be more so overbearing.
In a survey that was done by Home Instead, 44 percent of retirees that went back to work explained that being bored was their second most important reason as to why they left retirement. The first important reason was due to financial reasons.
Though not having the responsibility of having to go to the office for 40 hours or plus a week may be all that you are thinking about right now, but be sure that you are prepared for what your retirement reality might be. If you do not have enough money to splurge on a trip whenever you feel like it, you may be at your homes with a lot of extra time on your hands. What will you do with it to keep busy and satisfied?
The final reason as to why it may not be the best idea for you to retire so early is that if you do end up retiring and then realize that you wish to continue working again, it may be really difficult to find a decent and stable job. Federal Reserve Bank of San Francisco did a study on older job seekers applying for entry-level positions, and they found that they receive age discrimination. Women dealt with a significant amount of age discrimination than their men counterparts.
If you really want to retire because you are burnt out on your job or position, you may first want to look at a few options before pulling the trigger on retirement. If you believe it is better for your retirement years to continue working so that you have a comfortable time in the future without work or you do enjoy keeping busy, see if you can change positions or even jobs. For those that have always wanted to start a business, it may now be a good time to try. Or instead of completely retiring, you can start by working a part-time position. You can also see if you can take a long leave from your employer to have a taste of what it truly is like to not work for a long period of time.
Before retirement truly comes for you, it is recommended to save up as much as you can so that you have a bit more freedom with your money and peace of mind.
