Does it Make Sense to Retire Early? By Robin Trimingham
Every month another study is released confirming that life expectancy is on the increase in the western world. Most recently I have been skimming through a 2016 report entitled Future of an Aging Population, which was compiled by the Institute of Population Aging at Oxford University in the UK.
As you might expect, the report cites that improvements in antibiotics and sanitation and decreases in incidents of infectious diseases and certain chronic ailments as being major contributing factors to increases in life expectancy. What you might not expect to find in the same report is the fact that many young people are currently continuing to pursue formal education until they are in their mid-twenties meaning that a lot of people are waiting longer than ever before to enter the workforce.
These random statistics seem sort of meaningless until you realize that under current UK legislation, a person can commence early retirement as young as age 55, meaning that it is conceivable that someone taking early retirement might need to support themselves beyond the age of 90 off a retirement income that they contributed to for as little as 25 years, (once time outs for child rearing and unexpected job changes have been factored in).
Due to a declining birthrate, a rapidly increasing percentage of the workforce is over the age of fifty meaning that the pressure on government pension schemes, healthcare, access to transportation, affordable and accessible housing are also increasing, making it likely that there will not be enough resources to go around. Factor in the boredom, loneliness, and depression that many retirees experience and there is an argument to be made for keeping yourself gainfully employed as long as you possibly can.
So what is the best thing to do?
Do your homework. Before anyone realizes that you are past the age of fifty, start doing some brainstorming regarding what you could do with your time if you were not chained to your desk toiling away at the job you love so much.
Then figure out what this dream lifestyle would cost on a monthly basis (and don’t forget to allow for things like increases in the cost of living or unexpected illnesses or a leaky roof).
Lastly do the math – make a list of all your assets and your estimated sustainable monthly pension income from all sources. If your expenses exceed your projected income rethink your plan – either by modifying your intended lifestyle or figuring out how to earn extra income.
Then if an early retirement offer finds its way onto your desk keep calm.
Read through it slowly and do the math. The lump sum cash offer and benefits may look very good, and they might be. BUT depending on the amount of other sustainable retirement income that you have (or have not) lined up for yourself … if the offer looks too good to be true – it might be.
Before making any decisions find a way to have a conversation with a professional financial adviser and make sure you understand all the terms and implications, and if you decide to accept the offer get professional advice regarding how to invest your cash settlement so that the money lasts as long as you do.
By Robin Trimingham