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Why Retiring Early Is a Bad Idea Now


If you are near retirement and recently unemployed, you may have more company than you think. The tech sector has seen major layoffs over the past several months and many fear a recession is coming. While retiring early by itself might be a tough choice during normal circumstances, it becomes even more concerning if a recession occurs. Here’s what you need to know about the potential cons of retiring early. If you’re considering early retirement, a financial advisor can offer valuable insights as you make a plan.

Retiring Early and Social Security

If you’re near retirement, it’s logical to wonder if you should retire early (whether you’ve lost your job or are worried that you will). You can collect Social Security as young as age 62, though you will receive 25 or 30 percent less than if you wait till your full retirement age of 66 or 67. This makes it a better decision to hold off on taking Social Security for a few more years even after you’re eligible if you can.

The Potential Financial Hit to Retirement Income

Retiring early typically hurts middle- and high-income earners the most. This is because low-income earners mostly rely on Social Security benefits when they retire, and the benefits formula is progressive and designed to give them a higher percentage of their lifetime earnings.

On the other hand, middle earners (household incomes between $48,000 and $137,700) and high earners (household incomes above $137,000) rely only partly on Social Security in retirement. They also have their savings. And retiring early will hit their retirement savings, often in 401(k) plans and IRAs, in two ways: they won’t be making contributions to their savings for the years between now and their originally planned retirement, and they’ll be withdrawing money so it’ll no longer be able to grow.

Other Cons of Retiring Early

Taking a financial hit to your income isn’t the only reason that you may not want to retire early. There are other potential negative impacts that you could see hit your financial situation. Retiring early can also have a negative impact on other parts of your life that you’re not considering. Here is what you should think about and the potential cons of retiring early.

  • Retirement savings will need to last longer: The earlier you retire, the longer your retirement funds will need to last. That means you’ll need to have more money saved or risk not being able to live the lifestyle you’ve saved for.
  • Retiring early could be bad for your health: Many studies have shown that retiring can lead to a decline in mental health and mobility. It can also increase your risk of other bad health outcomes such as heart attack or stroke.
  • Buying health insurance: Retiring early means you won’t qualify for Medicare yet so you’ll need to pay out-of-pocket for health insurance. This can be expensive and add up over time.
  • Not a lot of chances to go back: Once you take an early retirement you may not have that many opportunities to go back and work again if you change your mind. The older you get and the longer you’re out of work, the harder it might be to get a job.

Retiring Before a Recession

Retire early now?

Choosing to retire early before a recession could be troublesome for many reasons. For one, your retirement accounts could take a huge hit and take time to build back up. However, if you’re already taking money from those accounts in retirement then they won’t rebuild to the same levels that they would if you were still working and not withdrawing money from those accounts.

If you’re worried that you may lose your job before your planned retirement, a smart move now is to review your retirement account. As with many people, the decade-long bull market probably kept you weighted toward equities. But during the recession, you may want to switch to a defensive stance, at least with future contributions. If you’re not sure what’s best for your portfolio, it’s probably a good time to get a professional’s help.

The Bottom Line

retire early now

Whether to retire early can be a really hard decision for most. During a recession, when the job market is tight, you may have no choice. But generally for the middle class and high earners, sticking to your retirement schedule can make the difference between being able to maintain your lifestyle or not. It’s important to understand the potential cons before moving forward with an early retirement.

Tips for Navigating the Recession

  • Don’t go it alone during this uncertain time. Work with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Use SmartAsset’s free, no-obligation matching tool to find the right financial advisor for you. After you answer a handful of questions, we’ll connect you with up to three advisors who fit your needs.
  • Calculate your monthly cash burn. Most of us know we should have budgets, but few of us actually do. But now is the time to account for your spending. It’s the only way to know where you can cut costs should you lose your job or have your pay decreased.

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