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Yet the problem is that this really can be just that: A dream. That is, unless you’re prepared.
And that means dealing with some hard realities about walking away from the workforce — especially if you’re hoping to hang up your lunch pail a little early. Here are five uncomfortable truths about retirement that you need to face before you can make that dream come to life.
Most Americans are unprepared
It’s an unfortunate reality, but only 28% of American workers were found to be “very confident” in their ability to retire comfortably, according to a 2022 Employee Benefit Research Institute study. That means the vast majority of Americans are unsure if they’ll be able to live comfortably throughout their retirement, let alone retire early.
Don’t have that amount? Then you’re likely not ready to retire just yet.
Retiring early could mean future financial insecurity
Sure, early retirement sounds great! But only if you have the money to support it. While it might seem like your costs will lower in retirement, in many cases, they actually increase. It also means you’re susceptible to lower Social Security benefits, if you choose to start drawing that money rather than holding out until your Full Retirement Age (FRA).
What’s more, those who leave the workforce early are set up with reduced savings, which can lead to financial insecurity later in life. And let’s be clear, later in life is when you’re going to need those savings most.
Read more Here’s how much the average American 60-year-old holds in retirement savings — how does your nest egg compare?
Health care costs can be a significant burden
In the United States, 80% of adults over 65 years of age have a chronic condition, with 50% having at least two, according to a study done by The University of Texas.
Sure, those older adults receive access to Medicare, and there are ways to bridge any gaps through Medigap insurance providers. But even still, there is a huge financial burden associated with retiring and no longer having workplace benefits.
A survey by Fidelity Investments found that, as of 2021, American couples aged 65 would need about $300,000 saved for health care costs through retirement. This number would be even higher for those who choose to retire early and spend fewer years covered by employer-sponsored health care plans.
Want to retire early means working harder
Only about 24% of American workers continue to be very confident in their savings for retirement as of 2021 according to a Transamerica Center for Retirement Studies survey. That’s enough confidence the amount will see you through retirement comfortably, nevermind allow you to retire early.
The recent market downturn and potential recession hasn’t helped matters either, with 16% of America’s workforce saying their confidence dropped in 2021 compared to pre-pandemic times. Those seeking early retirement will certainly need to adjust their savings strategies and potentially work longer hours if their goal is to enjoy a comfortable premature retirement.
Considering that the average American lives to be about 76, according to the Center for Disease Control and Prevention, and — depending on when you were born — the full retirement age is around 66, that’s at least a decade of extra savings you’ll need if you want to retire early at say, 56.
Inflation can erode your purchasing power
Speaking of savings and the current market, inflation can make an enormous dent in your savings over time. The amount needed to retire comfortably continues to rise higher and higher as inflation climbs, eating away at savings in the process.
A 2022 study by The Senior Citizens League (TSCL) found the purchasing power from Social Security benefits has fallen drastically — by 40% since 2000, in part due to rapid inflation.
Does this mean you can’t retire early, or even at all? Certainly not. The best advice to prepare you for your future is to meet with your financial adviser. Get on track, discover the best savings options for you, and who knows? You may still be able to enjoy a comfortable early retirement and live the real American dream.
Brought to you by Scott Underwood at Reverse Mortgage Alabama (205) 908-2993 Birmingham or (888) 220-0393 Statewide or email Scott@ReverseMortgageAlabama.com for information on how you can use a Reverse Mortgage to supplement your retirement plans or a Reverse Mortgage purchase to buy a home. Thanks to Retirement Ready brought Amy Legate-Wolfe.