Should You Wait To Retire? Should You Never Retire?

Every aspect of retirement and planning are becoming more complex.

A recent Yahoo Finance article made the case for waiting until 70 to retire. The impetus is more practical reality than anything else. Collectively we are living much longer. When Social Security was first implemented the full retirement age was 65 and that was also the life expectancy or as the Yahoo article put it; "the original idea of retirement was a few years of dignity before you died when you were unable to work." As of 2011, the average life expectancy in the US was 78.7 years but for people who make it to 65, their life expectancy is just north of 84. At some point, as a function of medical innovation the average life expectancy is going to hockey stick up to a much higher age. In financial planning the typical way you model a retirement is until age 95 but soon that will need to be pushed out further, investment portfolios will have to last much longer.

The article talks about waiting until 70 to take Social Security. The longer you wait the more you get (up to age 70). But there is a break even. If you wait until 70 but then die at 75 you'd have been better off taking it earlier. Typically, people start to come out ahead from waiting until 70 in their late 70's. One argument for taking it early is you're not spending from your savings, you are spending "the government's money." One reason I prefer to wait is that if I die early, my wife would get a larger payout. Couples have some options like one partner taking it early while the other waits. For me, the only should that I would put on anyone is that you should take the time to weigh out the pros and cons of taking it early versus waiting so that you make an informed decision.

Another benefit of waiting to retire is the ability to accumulate more savings. A person with modest savings at 55 who makes their final mortgage payment can make that same "mortgage payment" into a savings vehicle and have a good chance of getting much closer to their number or at the very least having more a retirement plan versus an emergency fund. $20,000 of mortgage payments into a 401k (or the like) for 15 years adds up to $300,000 plus whatever amount your employer might match plus market appreciation could work out $400,000 plus whatever was accumulated before this person was 55. Even if that was just $100,000, they now have $500,000 which should safely generate $20,000/yr (using the 4% rule) plus Social Security. It may not seem lucrative but it's not terrible.

The other obvious financial advantage to working until 70 is you're not drawing on accumulated savings to live, allowing that pot to keep growing. A retirement portfolio needs to last some unknowable amount of time. You have no control over how long you live but you might be able to control when you start to draw on your assets.

A tie in to this idea is a semi-retirement where you switch to a job you'd rather do, regardless of pay when you get to a point where you may not need to save as much anymore. An example might be thinking you need $800,000 by 65, getting there at 60 but being nervous about that $800,000 generating an income for five more years (taking from it five years earlier than planned upon). I'll cite Joe Moglia as an example. Moglia retired as CEO of TD Ameritrade to become the college football coach at Coastal Carolina. If football is your thing and you hit your number early could you "retire" from your career and get a job as a high school football coach? In some states, the salaries are staggeringly high, do you live in an area where a coach could make $40,000? Would that kind of number cover your monthly expenses (presumably your mortgage is paid off)? I have written dozens of times about monetizing a hobby, you would have clearly had to have put your time in to have this kind of opportunity and hopefully you have a thing that would give you a similar opportunity should you want/need it. For me it might be firefighting and to a much lesser extent, photography.

Mixing metaphors some, retirement can no longer be a spectator sport. It has to be actively engaged from planning Social Security, managing your assets (or having someone help you with that), considering some sort of job, considering some sort of downsizing (not covered in this post but something else I have written about many many times) and on and on. Just like most aspects of life, the more work you put in, the more reward and success you will reap.

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