Stop Retiring Early, People!

When I was 30, I set a goal of being able to retire at age 50. I’m still on track for that goal, but with my 44th birthday coming up next month, I now wonder what the hell was I thinking. I don’t want to retire. I get bored on a three-day weekend. I need to have mental activity, variety, and the sense of purpose and fulfillment that comes with work. So, no, I won’t be retiring at 50 even if I can.

What is a normal retirement age? For decades, most people would have answered “65”, even though more than half retired before this age. Early retirement could be 62 or even younger.

Today, I’m going to tell you why the twenty-first century answer to “What is a normal retirement age?” is now 70. That’s not a negative thing, so don’t be upset. People are living longer and staying healthier than ever. Retiring at 70 is in your best interest and a more realistic plan than retiring early.

What does retiring at 70 instead of 62 mean for you?

1) If you can hold off taking withdrawals from your 401(k) from 62 to 70 – eight years – you could potentially have twice as much money for retirement. At a 9% return, your account will double in 8 years with zero additional contributions. Of course you should keep making 401(k) contributions, which may enable your account to double even if your rate of return is significantly less than 9%.

It’s true that no one knows how the market will actually perform. Let’s say there is a bear market, and the market goes nowhere for eight years. While that would be frustrating for a saver, if you had started 4% withdrawals, your account value could drop precipitously in a bear market. And if you are still in your 60’s with a nest egg that has been cut in half, that reduced amount now has to last a very long time.

2) By delaying Social Security from 62 to 70, you will receive 76% higher monthly benefits. Plus cost of living adjustments!

Social Security benefits are based on your highest 35 years of earnings, adjusted for inflation. Add 8 years that bring up your average earnings, and your future benefits will actually be MORE than 76% higher versus retiring at 62.

While there’s market risk to the growth of a 401(k), the increase in Social Security benefits for delaying from 62 to 70 is a guaranteed, no-risk way to boost your retirement income.

3) You started full-time work at 22. The average life expectancy is around 82. If you retire at 62, you would have had 40 years of work followed by 20 years of retirement. That 2 to 1 ratio of work years to retirement years means you need to do a LOT of saving in your work years to be sufficiently funded for retirement.

If you retire at 70, you would have worked for 48 years, followed by 12 years of retirement, a ratio of 4 to 1. That is a much more realistic situation in terms of saving goals. No one knows their life expectancy, but what is certain is that working from 62 to 70 will reduce your need for withdrawals by 8 years.

4) If you are a non-smoking couple, age 65 today, there is a 47% chance that at least one of you will live to age 90. That statistic is for the whole population. If you are in the upper half of the socio-economic realm, your chances of living longer are even greater.

Financial Advisors talk about Longevity Risk, but it’s not a risk, it’s a reality. Planning to age 95 or 100 is prudent. Someone retiring at 70 today will likely enjoy a longer retirement than someone who retired at 65 in 1950.

I’m not saying you should stay at a job you hate. If you can find work you enjoy, working until 70 may be a pleasure, health permitting. Staying active, using your mind, and maintaining a social networks is a great way to reduce some of the effects of aging which can occur in retirees who are no longer working. Even if your income is lower from 62 to 70, you are still getting a valuable benefit by delaying 401(k) withdrawals and Social Security benefits for eight years.

What is a normal retirement age? 70. Seventy. Seven-Zero. If we can embrace this attitude as a society, we will greatly improve our retirement readiness, financial independence, and the quality of life we have in retirement.

Now if you have questions about how much money you need, how long it will last, and how it should be invested, that’s where a financial planner, like me, or specifically me, can help you. But first, don’t stack the cards against yourself by thinking you should retire at 62 or 50 just because you are allowed to. You need a lot of money to retire early. If you have $10 million, fine, you can make it work. For everyone else, 70 is the new 65.