5 things to know before you’re done ‘working for the man
In 2021 we’ve seen more people retire than ever before. The Great Resignation has made headlines as workers seem to be quitting in every industry and Help Wanted signs are everywhere. After almost two years of the pandemic and working at home, many workers now know the benefits of skipping the morning commute, more time with family, and possibly a more relaxed work day than being in the office.
But what is really going on here?
Are employees quitting their jobs en mass? Not really. In fact, most of the workers who are “quitting” are actually retiring early.
Before you jump ship into early retirement, here are five things to consider:
1. Do you have enough money to retire now?
Retiring early shifts the calculation of how much you will need exponentially. The reason is that while you are working most people are both saving for retirement and deferring withdrawals from retirement accounts at the same time. In addition if you have a mortgage you’re also paying that down during your working years. In retirement, that shifts significantly: then you are no longer adding to savings and also withdrawing down your retirement reserves, leaving less money to grow over time.
Here’s an early retirement example:
Current - Liz, an independent 55 year old has a 401(k) balance of $500,000. She earns $150,000/year and is covered by health insurance through work (25% of premiums paid by employees, 75% paid by company). She defers the maximum $26,000/year into her 401(k) which has a 4% company match. If she retires at age 67, she’ll have a 401(k) balance of $1,545,936.1
However, if she retires early at age 60, her 401(k) balance will be $849,499—45% less than retiring at 67. In addition, retiring at age 60 means that she will need to pay her own health insurance premiums at 100% for the five years before she is eligible for Medicare. That’s a new and significant expense. For most people covering that expense means saving substantially more saved or having other sources of income.
2. Have you accurately estimated health insurance and medical expenses?
Retirement planning experts agree that the most underestimated expense in retirement is health care. While you may know what your health insurance costs are today, many retirees underestimate health care costs in retirement. Low cost, high deductible health plans may have
lower premiums today but may not cover all of the costs. In addition, older people tend to have more health care expenses. Some folks think that Medicare will cover those expenses but that is not always the case. One of the big missing pieces from Medicare is hearing and dental coverage. If you talk to any older person, many of them have significant hearing, vision, and dental expenses.
3. What will you do with your time?
Some pre-retirees we talk to are so eager to retire that they tell us that they are not worried about what they’ll do with their time in retirement. After decades of working, transitioning to an open, unstructured day can be hard for some people. Having hobbies, interests, or other part-time work can help a retiree develop a new purpose. In any case, you’ll need a plan.
4. Are you quitting because you hate your job or because you’re in the wrong job?
After two years of dealing with difficult working conditions resulting from COVID, quitting your miserable job may seem like a relief. But is it the job or COVID? Will quitting solve the problem? While my heart goes out to anyone who works with the public such as health care and public safety, it is worth considering that maybe COVID made you realize that you need and want to do something else for work. Consider that before pulling the plug on your job.
5. What does your spouse or partner think?
If you are fortunate enough to have a spouse, partner or close friend, they can sometimes give you the perspective you need about a big life change like retiring early. Are you the type of person who would be happy retiring early? Chances are that someone who knows you well will be able to make the right observations about what would make you happy.
If you are wondering if retiring early is possible or right for you, give us a call. We’ve had lots of experience working with people who are considering big life changes. We’re here to help. You can schedule a quick call with me by clicking HERE.
Lyman H. Jackson
Click HERE to receive our award-winning newsletter. We never share your info and you can unsubscribe at any time.
Check out more blogs from us at www.PlanWithFPS.com/blog · Where can I get 5% and no risk? https://planwithfps.com/blog/where-can-i-get-5-and-no-risk · The greatest gift you can give your spouse https://planwithfps.com/blog/the-greatest-gift-you-can-give-your-spouse
· The IRA tax bomb and why Roth conversions are more important than ever https://planwithfps.com/blog/the-ira-tax-bomb-and-why-roth-conversions-are-now-more-important-than-ever
1 Assumed rate of return of 6% for 12 years. Calculations do not consider taxes
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.