Why You Should Plan To Retire Earlier Than You Think

photo-1427501482951-3da9b725be23When I turned 50, I suddenly realized that 60 wasn’t far away. And if 60 wasn’t far away, neither was retirement. For the first time I felt that retirement was real and not just a distant event that might happen “someday”.

When you are younger, retirement seems so far away. Why worry about it? In my experience, most people don’t get serious about saving for retirement until they are in their later 30’s.

By then they have kids, a mortgage and other expenses competing for their disposable income. You are lucky if you can pay the bills every month, much less ramp up the retirement savings. Eventually, you realize that retirement is coming up a lot faster than you expected.

Sleepless nights

I woke up one night worried about how to get two kids through college and also saving for my retirement – all at the same time. Maybe you have enjoyed the same experience. Then I thought, “Well, if I retire at 67, that still gives me 17 more years to save and invest”, and then my worries melted away. I could go back to sleep, literally and metaphorically, not having to worrying about the future – at least not yet.

In the morning I realized that while I may be planning to work until my late 60’s, there may be circumstances beyond my control which could make it impossible to do so.

I remembered a conversation I had with a client. He was in the building trades, in his late 50’s, and because of the physically demanding nature of his work he told me “I can’t work another 15 years”. Another client, in her 50’s, experienced a major career change and loss of income when her mortgage-refi business fell on hard times.

I know of many others who have had careers and incomes cut short because of health issues, aging parents, the economy, career burnout, corporate layoffs, you name it. For many people this forces them into an early retirement that they hadn’t planned for.

Expected versus actual age at retirement

When you plan to retire and when you actually retire may be two different things. A 2014 Gallup survey showed that on average most people expect to retire at age 66, but the age at which they actually begin retirement is 62. Both these numbers, expected vs. actual retirement age, have crept up over the past 10-20 years.

While both the expected vs. actual ages at retirement have risen, there has always been a gap. This can be attributable to longer life expectancies, more retirement lifestyle options such as part-time work, a fluctuating economy, and a variety of other factors. According to the Gallup survey only about 26% of people retire early because they can afford to. Others do so because they have no choice.

For a short video that discusses the Gallup poll in more detail, click here.


Plan for the worst. Hope for the best.

I don’t know who first coined that phrase, but it’s highly applicable to retirement planning. Like most of my clients, I have a retirement plan that assumes things will go pretty well until I retire: my family will be healthy, I will continue to be able to save a percentage of my income, markets will deliver a certain return, I will remain happily employed in work that I enjoy, etc. until I hit my late 60’s. Maybe with a little luck in 15 years I can even transition my business to others on my team and still enjoy some residual income well into retirement. On paper, it’s a sweet plan.

However, life isn’t always that sweet. Stuff happens. What if I am out of work before age 60 and the sweet plan I mapped out above doesn’t materialize? Recently, I put together a plan “B” that assumes a much earlier retirement date, a paid-off mortgage, and a “save more now while I can” attitude.

If my sweet plan works out, great. But if not, my plan “B” will allow me to be reasonably comfortable even if it means moving up the original retirement age by several years.

I am still a fan of being optimistic and hoping for the best, but it may be wise to also have a plan “B” that assumes a less rosy future — just in case.

What if your actual retirement age precedes your expected age by several years? How do you plan to adjust to the possibility of a sooner-than-expected retirement?