by 
Retire early? As the old saying goes, it’s a good job if you can get it. But as a respected Harvard PhD economist notes, too many Americans are get it without saving enough for it.
Late-career Americans faced a major temptation during the pandemic: With office life reduced to remote working and the stock market driving up 401(k) accounts, early retirement has become one of the most searched terms. on the Web.
So why is that plan, in the words of economist Laurence Kotlikoff, “one of the worst financial mistakes” you can make?
For starters, the market has since pulled back, wiping out many of the gains from the pandemic and waking many from their dreams of early retirement.
But the reasons for Kotlikoff’s skepticism run deeper.
Not to be missed
“Poor Savers”
Few things expose one’s financial habits quite like retirement planning. Aggressive and ritualistic savers who get started early are rewarded with ever-increasing account balances, supercharged by dividend reinvestment and compound interest.
But the reality is that millions of Americans simply aren’t setting aside enough for traditional retirements, let alone the early exits pondered by 50-year-olds—a move Kotlikoff says they “will regret” unless they adjust their expectations or give up. completely on the floor.
“We are, as a group, bad savers, making early retirement unsustainable,” Kotlikoff wrote in a guest column for CNBC last year. “Financial-wise, it’s generally much safer and much smarter to retire later.”
It should be noted that Kotlikoff concludes his discussion by stating that he plans to “die in the saddle” because he loves what he does. But those tired of corporate takeover or reporting to a manager may have different plans for their golden years.
How many are really ready for this?
A recent Federal Reserve survey revealed that the average savings in Americans’ retirement accounts was $65,000. Older savers aged 55 to 64 had an average account value of about $134,000, well below what they would have required as life expectancy increased, inflationary pressures persisted, and rising Out-of-pocket healthcare costs take their toll.
READ MORE: Here’s how much the average American 60-year-old holds in retirement savings: How does your nest egg compare?
Underestimating healthcare costs
Another 2022 study by Boston College’s Center for Retirement Research found a significant disconnect in how would-be retirees perceive the effects of market volatility and longevity when calculating their after-work plans.
The report found that many overestimate the effect of market swings and pay less attention to how long they will live and how much this longevity will affect their finances. Unforeseen health care costs – not to mention long-term care – are significant losses for pension funds.
The study data, concluded author Wenliang Hou, “confirm the importance of longevity and market risk, underlining the need for a lifetime income through social security or private sector annuities. Finally, long-term care is also a significant but often underestimated risk for retirees.
Shaky social security
There may be encouraging signs in the federal government’s primary social safety net. Social Security payments will increase in 2023, and several rule changes will increase recipients who have been waiting to take advantage of the system.
But Social Security is currently on a timer. Without changes at the federal level, economists estimate that the main fund supporting Social Security will be depleted by 2034. Recipients could see less than 80 percent of the benefits they expected.
Economists have long warned against overreliance on Social Security, and many of them are urging investors to build retirement plans that assume the program will be gone.
The main advice from Kolitkoff, as well as others when it comes to retiring or tapping Social Security benefits, is to wait and instead consider increasing your savings and investments while continuing to work. The extra time will make your investments work harder and longer, and delaying Social Security benefits means a higher monthly payment down the road.
Consider seeking expert advice
Preparing for a comfortable retirement is nerve-racking, especially with an inflation rate of 6.5% and a recession looming around the corner.
One solution to help you sleep better: Find a financial advisor who can help you manage your finances, keep your retirement plans on track, and make sure your assets are safeguarded.
Finding and calling multiple financial planners can be a time-consuming hassle, but there are ways you can easily consult vetted advisors that fit your needs. Booking a consultation is free and only takes a few minutes.
If you’re not sure how to safeguard your finances during a recession, it’s better to find answers sooner rather than later while time is still on your side.
This article provides information only and should not be construed as advice. Comes without warranty of any kind.
