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

Greg Wilson may not turn 44 until later this month, but he’s already given up working for good.

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

And he is one of millions of workers who fled the workforce during the pandemic after the lockdown forced them to reevaluate their priorities.

But is early retirement a good idea? Jim Cramer, host of CNBC’s Mad Money, once warned that workers who retire too young “could pay for it for the rest of their lives,” adding that workers are “betting how long they’ll live.”

And as figures show that only 29 percent of Americans are on track to cover all of their living expenses in retirement, plenty of other experts are also calling for caution.

If you leave the workforce early, you will miss out on the maximum pension benefit, experts warn

For Wilson, leaving the workforce has always been his number one 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 properties. I made two buckets – one to get me from 40 something to 60 and another to go from 60 to death.”

Wilson, who lives in St. Louis, Missouri, wasn’t making $50,000 a year until he was 30, 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 had never heard that phrase before he retired.

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

The model became especially popular among millennials in the 2010s and gained popularity online.

And it gained even more notoriety during the lockdown.

According to research from the Federal Reserve Bank of St. Louis, about 2.4 million Americans retired in the first 18 months of the pandemic — the majority of the 4.2 million people who left the workforce between March 2020 and July 2021 .

Some of them had to take early retirement due to a poor labor market.

But there are pitfalls to leaving work young, with many people not realizing how much money they will need to get through later in life.

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

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

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

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

For the second year in a row, working Americans age 45 and older say it takes an average of $1,100,000 in savings to retire comfortably, according to a Schroders 2023 US Retirement Survey released in April.

However, only 21 percent of people expect to meet that benchmark.

About 59 percent say they expect to have less than $500,000 in savings, and 34 percent expect to have less than $250,000 in savings.

And a report last month by Fidelity Investments, the largest provider of 401,000 plans in the US, found that a measly 29 percent of people are on track to cover all of their living expenses in retirement — up from 38 percent in 2020.

A separate Fidelity report found that the average value of a 401k pot fell 20 percent 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 US has fallen to just under 5 percent, it remains stubbornly high compared to the Fed’s target of 2 percent.

As a result, households have been forced to tap into their savings – or even go into debt – to cope with the rising cost of living.

In addition to concerns about keeping up with the rising cost of living, experts warn that early retirement could also mean missing out on maximum government benefits.

Retirement expert Joel Schiffman said, “Theoretically, what you want to do is build up enough wealth so that you can delay taking Social Security for as long as possible.”

You can claim Social Security benefits as early as 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, those born in 1937 and earlier have a retirement age of 65, while those born between 1943 and 1954 have a full retirement age of 66.

Anyone born in 1960 or later has a retirement age of 67.

So if someone whose full retirement age is 67 retires at age 62, they will receive only 70 percent of the benefits they are entitled to.

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

For example, someone with a retirement age of 67 could receive 124 percent of their benefits if they don’t enroll until age 70.

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

Schiffman, Head of Strategic Partnerships at Schroder Investment Management, continues: “For each year you receive that benefit, you deny yourself the benefit of a maximum at age 70.

The problem is compounded by the fact that it’s harder than ever to save for retirement.

Red-hot inflation and the rising cost of living have already forced many workers to “retire” and go back to the office after discovering they can’t rely on a steady income.

An estimated 1.5 million retirees will have re-entered the workforce in the year to May 2022, according to an analysis of Labor Department data by Indeed economist Nick Bunker for The Washington Post.

Despite this, Wilson does not regret his decision to retire early, saying that he and his wife Erin are spending no less than they did when he was working.

The couple bought an investment site for money ChaChingQueen.com and Greg started his own site DadisFIRE.com detailing his journey to early retirement.

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

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