The Reality of Early Retirement: Why 58 Might Be Just a Wishful Number
Many Americans dream of retiring early—often picturing a life of leisure starting around age 58. However, the hard truth is that this aspiration is increasingly out of reach for most. According to a recent Empower survey of 1,001 adults, 58 is the average age people believe they should retire. Yet, data from the Center for Retirement Research at Boston College reveal the actual average retirement ages are 64 for men and 62 for women. This gap highlights a growing disconnect between expectations and reality.
Why Early Retirement Often Remains a Pipe Dream
The Transamerica Center for Retirement Studies reports that 58% of retirees leave the workforce earlier than planned. The reasons? Health issues (46%), employment challenges (43%), and family responsibilities (20%). Only 21% retire early due to financial readiness. This stark reality signals that early retirement is less about choice and more about circumstance for many.
Carolyn McClanahan, CFP and member of CNBC’s Financial Advisor Council, underscores the risks of retiring too soon. With life expectancy rising, retiring at 58 could mean funding 30 to 40 years without a paycheck. This raises critical questions: Do you have enough saved to withstand market downturns and inflation over such a prolonged period? How will you cover health insurance before Medicare eligibility at 65?
The Healthcare Gap: A Hidden Retirement Cost
One of the most overlooked challenges of early retirement is healthcare. If you retire before 65, you must secure private insurance or other coverage for potentially seven years—a costly and complex endeavor. According to a 2023 Kaiser Family Foundation report, the average annual premium for employer-sponsored family health coverage was $23,000. Without employer subsidies, this can quickly deplete retirement savings unless planned for meticulously.
The Retirement Savings “Magic Number” Is Moving
Northwestern Mutual’s latest research finds the average amount Americans believe they need to retire comfortably is $1.26 million—down from $1.46 million the previous year. However, half of those surveyed still fear outliving their savings. This anxiety reflects broader concerns about inflation, rising healthcare costs, and market volatility.
Here’s an actionable insight for investors: Relying solely on a set “magic number” is risky. Instead, adopt a dynamic retirement plan that factors in variable spending, potential healthcare expenses, and the possibility of working longer.
The Growing Trend of Working in Retirement
Interestingly, many retirees are returning to the workforce or planning to work part-time during retirement. T. Rowe Price highlights that 2.4 million Americans retired during the COVID-19 pandemic, but by March 2022, 1.5 million had resumed working. Over half of workers planning to work in retirement cite financial necessity as the driver.
Gloria Garcia Cisneros, CFP at LourdMurray, notes that some clients choose to work part-time not for income but for purpose and engagement. This trend suggests a shift in retirement culture—from a full stop to a gradual transition.
What Investors and Advisors Should Do Differently
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Plan for Longevity and Flexibility: With people living longer, retirement plans must be flexible. Advisors should stress-test clients’ portfolios against scenarios of 30+ years in retirement, including healthcare cost surges.
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Incorporate Partial Retirement Strategies: Encourage clients to consider phased retirement or part-time work to reduce the strain on savings and delay Social Security benefits, which can increase monthly payouts by up to 8% per year for each year delayed past full retirement age (SSA.gov).
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Prioritize Healthcare Planning: Early retirees must secure affordable healthcare coverage. Advisors should help clients explore options like COBRA, ACA marketplaces, or health savings accounts (HSAs) to bridge the Medicare gap.
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Reassess the “Magic Number”: Retirement savings goals should be personalized and adaptable. Use tools that model different withdrawal rates, inflation scenarios, and unexpected expenses rather than relying on static benchmarks.
What’s Next? A New Retirement Paradigm
The traditional notion of retirement as a complete stop at a fixed age is fading. Instead, a more fluid approach—blending work, leisure, and phased financial independence—is emerging. Investors who embrace this mindset and prepare accordingly will be better positioned for a secure and fulfilling retirement.
Unique Insight: A recent Gallup poll found that nearly 45% of retirees aged 65+ engage in some form of paid work, a 10% increase over the past decade. This underscores the increasing importance of flexible retirement planning that integrates ongoing income streams.
In summary, aiming for retirement at 58 without a robust, flexible plan is a gamble many cannot afford. Investors and advisors must rethink retirement strategies, emphasizing longevity, healthcare, and phased work options to navigate the evolving landscape successfully. Extreme Investor Network will continue to bring you these critical insights to empower your financial future.
Source: What to consider before retiring early