March 3, 2019
By Eric Tashlein
This article was published in the New Haven Register on March 3, 2019.
Retirement may seem like it’s a long way off when you’re in your 40s and even your early 50s. Still, let’s assume that you are contributing the maximum amount to multiple retirement savings accounts and are following a comprehensive financial plan with retirement security in mind. How likely is it that you will retire when you think you will?
This is no idle question: 37 percent of workers retire earlier than planned, according to the University of Michigan Health and Retirement Study (HRS). That’s nearly four in 10 Americans.
Retiring earlier than expected can have major financial consequences. It stretches the time frame you will need your assets to cover, it can result in reduced income from Social Security and other sources, and it can result in boredom and even depression.
A new study by the Center for Retirement Research at Boston College, using data from the HRS, takes an in-depth look at the reasons many people are forced to retire early, to determine which factors play the biggest role. The study, Retiring Earlier than Planned: What Matters Most? (February 2019), provides valuable insights you can use to prepare for the unexpected.
Nearly half of Americans today (48 percent) believe they will need to work past age 65, according to the Employee Benefit Research Institute. That’s up from just 16 percent in 1991. This is partly because many people haven’t saved enough for their retirement, and partly because longer lifespans mean people will need their retirement funds to last longer.
Most people plan to retire at age 62, their earliest eligibility for Social Security benefits, or at age 65, when Medicare kicks in. As you might expect, the later a person planned to retire, the more likely they were to retire earlier than planned. For instance, of those aged 58 in the HRS survey who said they planned to retire at age 66, more than half retired earlier.
Financial planners take all of these possibilities into account, working out various aging scenarios to maximize retirement planning outcomes.
The Center for Retirement Research compares the four most common “shocks” that result in involuntary early retirement: health, employment, family and financial. By studying people in the HRS survey, the center analyzed which of these retirement shocks have the biggest impact and occur most frequently.
Health problems play the biggest role in forcing early retirement, the center concluded, followed by employment (job loss), family transitions (divorce, spouse retires), and financial issues (large loss of net worth).
Clearly identifying threats to your retirement plan is the first step toward eliminating or preparing to meet those threats. For instance, the study breaks down health issues into two categories: People who underestimate the eventual workplace impact of existing health issues, and people whose health status worsens after they begin planning for their retirement.
Understanding these issues may inspire you to take better care of your health. Or it may prompt you to adjust your assumptions and realize you need to take into account the possibility that you may be forced to retire earlier than you thought.
Eric Tashlein is a Certified Financial Planner professional and founding Principal of Connecticut Capital Management Group LLC, 2 Schooner Lane, Suite 1-12, in Milford. He can be reached at 203-877-1520 or through www.connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice. Please consult your advisor/attorney/tax advisor. Registered Representative, Securities offered through Cambridge Investment Research Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors Inc., A Registered Investment Advisor. Cambridge Investment Research Inc., and Connecticut Capital Management Group LLC are not affiliated.
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