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[music] >> Peter, good to see you. Welcome back, everyone. Today, let’s talk through the risks of retiring early. Retiring early sounds like the dream to a lot of us, but leaving the workforce several years ahead of schedule can come with some risks that are easy to overlook. So, let’s break down the top five. Number one, you may want to claim social security early once that paycheck stops. Of course, it would be tempting to claim at 62, but we’ve talked about those risks before, Peter.
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>> Yeah, I I think the thought of retiring early sounds more appealing than it might be in reality, especially once you start looking at these costs and how they add up, and then how do we handle it? Plus, what are we doing with our time and and how long do we have if we do retire early? So, there’s there’s a lot that goes into this decision, and even this generation is like looking ahead and saying, “Well, maybe I don’t want to quit completely. I just want to stop being obligated to doing something
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I don’t love.” So, >> a lot of times we’re talking about re-wire-ment as much as we are talking about retirement, but if it is a a desire to quit the work completely, then you’ve got to think through these things. Number one, starting with that social security. If you claim early, you lock in a reduced benefit for the entirety of the rest of your life. This can, between a a married couple especially, be several hundreds of thousands of dollars less money and and less income specifically from
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social security, and that is money that either comes from social security or you have to pull and generate from your personal investment assets or just isn’t there to live off of at all. And so, we really have to make some well-thought-through and informed decisions on social security along with what you see on your screen where if you take it early, you reduce your personal benefit. If we have trouble with the social security system at some point in the future and take them for what they’re saying at face value that
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they’re going to have to reduce benefits in 2033 or 2032 thereabouts. Well, if if you choose to claim Social Security personally and reduce your own benefit individually and then the system as a whole has to reduce everybody’s benefits, well, now that’s significantly less Social Security income that you’re receiving. >> be well, well, well funded if that’s going to be the case because retirement is long, retirement is expensive, retirement is in the future, so it’s
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even more expensive than today. We’ve got to plan and prepare for that. >> Right. Risk number two, outliving your nest egg. I feel like this one may be the most obvious of all these risks. When you retire early, your money has to last longer. So, how do we prepare for a retirement in our 60s if we, again, could be retired for 30, 40 years? >> Right. Yeah, and running out of money being the number one fear of retirees regardless. And then if we are retiring early, we we’ve got to think about some
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additional cost over and above those standard costs. How do we cover the cost of health care during the donut hole between retirement age and age 65? I mean, this for a married couple can be 30 to 40,000 dollars a year just in health insurance premiums alone. And retirement is not So, if we have built a substantial nest egg for ourselves of, 1.5, 2, 2, 3 million dollars, fantastic. That looks like a good amount of money, but it is a finite amount of money. It it is what it is and we have an unknown duration of
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time to make it last. And it’s not like you can just take a chunk out of that and say, “Well, retirement is paid for.” because retirement is not one big bill. It is the cumulative effect of a lot of small expenses that happen month after month, year after year, decade after decade, and most of them get more expensive over time. So, we’ve really got to plan and prepare for this if we are going to retire early. That’s even longer that we have to make our money last, and that unknown period of time, I
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mean, we are living longer. We are living more active, at least for a period of time, and then when we aren’t even active, when we might be in those later years, we’re still living longer. We’re maybe not healthier, and those years cost us even more than they did previously. >> Boy, you’ve touched on so many good points. I mean, I didn’t even put inflation on this list, Peter, which you brought up as well, but you did touch on health care. >> bill for that one. >> Yeah, I know. That we can do bonus. We
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could I mean, we could do 20 risks of retiring early, right? But let’s uh start with health care plan, because you did mention that. This is really important, right? We know that Medicare starts at 65, but if I retire at 60, I need a plan for those 5 years. And according to Fidelity, the average 65-year-old who retires today will need $185,000 for health care in retirement. >> Yeah, or between a married couple, about 370,000. And And that is just for the standard costs of care. That’s like if nothing
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actually happens, that you’re just paying premiums and deductibles and co-pays and routine visits, right? And that does not include uh dental or vision or long-term care. And that [clears throat] also does not include the early years, right? If we’re talking about uh before a retirement that we are intending early, before age 60, well, then we’re having to pull that money from somewhere. We better have non-qualified assets, cuz we can’t even touch those 401(k)s and IRAs without the
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additional 10% penalty, right? And then from that age all the way through 65, uh we have to pay privately for health insurance, potentially. Again, that can be 30 to 40,000 dollars a year today for a married couple. And then Medicare, just the routine cost, that’s not free. A lot of people think that, oh well, my health insurance is taken care of. No, that is an expense. It’s a line item. It’s deducted. And then I know you flashed the the numbers up there for the cost of long-term care or or even some
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assistance in your home. Like this can be significant. And this is the big unplanned, unprepared for expense that’s probably going to account for a large portion of the the assets of this generation. There’s something right now called the great wealth transfer. It’s kind of this phenomenon where they estimate about 90 trillion dollars over the next 20 or so years is going to transfer generations. Well, unfortunately, I think a large part of that is going to transfer to the IRS in taxes.
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>> Right. >> And a large, unforeseen part is going to transfer to nursing care facilities and and and for the cost of care. And the intended beneficiaries maybe receive the the rest of what’s left over. But yeah, that we have to have a documented plan for health care expenses. Bottom line here, Aaron, because this is one of our largest potential expenses in retirement. >> Yeah, and compound it again when you retire early. All right, number four, giving up additional years of savings
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and growth. Of course, you’re not going to be contributing to those retirement accounts if you’re not working. But also we’ve talked about the What is it? The eighth wonder of the world? >> I always get it wrong. Compound interest. >> Yeah. Yeah, compound interest. So you retire early, you give this up too, the opportunity cost. >> Right, because you are no longer making those contributions as you were during your working career. And for the majority of people, they are actually
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taking distributions, removing those dollars. So those dollars no longer have the opportunity to to continue to grow and compound over time. And I think that there is a very distinct psychological shift that happens when the money changes direction. And I’ve been talking about this in our recent webinars, but the direction of your money matters almost as much, maybe even more than the direction of the market with the compounding effect. But that doesn’t even touch the mental, emotional, and
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psychological element of beginning to see your account balance dwindle. And if we are taking those withdrawals and the account balance is going down, at what point in time do you turn and look at your balance and say, “Well, I still have 3/4 of my money, so the rest of my life should be pretty pretty solid.” Or I have half of the money left in my portfolio. Like at what point can you say that with any level of financial confidence? And what I find, Aaron, is it it it isn’t even a significant
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reduction when the first paycheck starts to come out of your retirement nest egg rather than a contribution going in, the psychology switches and people begin to tighten up and be a lot more conservative if they don’t have a plan that tells them with a high high degree of confidence that their money is going to last and be able to account for these withdrawals. >> Right. Risk number five, retiring without a tax and income strategy. Of course, this is really important, you know, figuring out
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how to create income as you mentioned, you’re not getting that paycheck anymore, managing taxes, and figuring out which accounts to draw from draw from first. There’s so many moving parts here. >> Yeah. Um if you remember algebra class, there was an order of operations. >> [laughter] >> But if you did not follow the correct order of operations, the math equation would not result in the right answer. So it was a >> PEMDAS. >> Please Please Excuse My Dear Aunt Sally
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was yeah, the the acronym there for what the or there is a correct order of operations for accessing funds and it is not the same for every individual’s situation. That order of operations can actually change. It’s not a universal rule like please excuse my dear Aunt Sally. It is actually something that is situational what the correct order of operations is but if you don’t don’t don’t map that out, then you do get the wrong answer and a big part of that is the tax consequences of the money. Uh
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the tax implications are probably one of our largest known expenses in retirement. So inflation is kind of that silent thief, the health care expenses are an unknown but taxes are a known expense in retirement and a lot of people kind of discount that expense that we don’t think about it. We we we see a balance on our 401k and IRA statements and think that that money is ours but we haven’t paid the IRS yet and they’re never going to forget that. So that’s got to be worked into your
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retirement plan and specifically your written retirement income plan has to have a tax planning perspective along with it or you don’t end up with as much spendable income as you planned and anticipated on which means you have to pull more money out of your accounts which means that money’s not compounding and it’s all kind of an interconnected series of dominoes that either are going to fall in your favor then everything’s perfectly lined up and the last domino, you know, falls exactly as you plan or
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they make a complete mess, they fall against you and and and not in your favor and that’s unfortunately where I think most people are if they have not specifically sat down and mapped out a retirement blueprint like an optimized retirement income plan. >> Right. Important, you know, for any retirement but especially if you are retiring early. And I do want to throw in one additional risk, and you mentioned this again at the very beginning of this video, Peter, and that is the emotional component, the
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psychological component of retiring early as well. Boredom. I was just reading a blog from a 30-year-old who did the FIRE movement, financial independence retire early, and she’d been out of work for I think it was 10 years, and she said she was just going back to work cuz she had nothing left to do with her, yeah, herself. >> Yeah. What what What What are you doing with your time, right? I think that innately, uh human beings are wired to have some purpose and motivation and drive and ambition, and if we don’t have
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that, we tend to deteriorate. Again, physically, mentally, emotionally, psychologically, we we we are aware that we are not doing all that we could do and being all we could be, or at least having some engagement that keeps us motivated and and active. And that factor, I think, would impact anyone in retirement. I’ve seen it firsthand that it impacts retirees, but especially if we are young, if we are capable, able-bodied, motivated, like there is only so much of doing nothing that we can do, and movement keeps you
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moving, activity keeps you active, motivation keeps you motivated. Like it I that sounds common sense, but like if you really think about it, you have to have those things to keep going and be a well-oiled moving human being functioning. And so, like the lack of activity, the lack of social networking, the lack of purpose and drive to get yourself out of bed and get going can be kind of a a snowball effect that builds momentum against you if if you’ve got too much of it. And so, we really need to think about what does life mean
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to us, not just the money and and not just the mapping it out, but like what do we want to >> Right. >> be about and do with our time to keep us active. And that’s again why I’m seeing even even people of traditional retirement age doing more of a re-wirement rather than a re-tirement because they are a healthier, younger, more active kind of generation >> Mhm. >> to be looking at retirement. In the grand scheme of how long our lifespans are, we are retiring with many, many
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more years of potential inactivity at the end of our life. And and this generation does not want to deteriorate and do nothing. And so, especially if we’re considering a young retirement, an early retirement, we need to think about what is life about and and how do we want to keep engaged. >> I really appreciate having this conversation and the purpose of us talking through these risks is not to say don’t retire early, but to say if this is a goal of yours, start planning for it now, right, Peter? So
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>> You be aware. Be aware and map it out. No matter where you’re at. Like the thought of planning for retirement really should begin on our first day of work. Like we show up to work. We we go in and we realize, hey, I don’t really want to do this forever. This is [laughter] not my passion. >> Yes. >> It it usually doesn’t begin that early, but at some point in time in our 30s or 40s, like we really should be thinking about the end goal of why we are working and start planning and preparing for
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that. And people generally get really serious about that sometime, you know, in their 40s. Maybe waiting a little too late into their 50s. Uh it’s never too too late, but wherever you’re at, like have a plan because the one factor here, Aaron, that we didn’t touch on is that our conversation today was about the intention to retire early. Not every retirement happens of our own free will. >> Yeah. >> And sometimes people are forced into retirement early, whether it’s a
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reduction in force or a healthcare event. So, we should have a plan for that, no matter where we’re at. And that’s what we put together for our clients at Resonant Planning, the optimized retirement plan. >> And how can we get a hold of you, Peter, for all that? >> Yeah, give us a call 919-300-5886. 919-300-5886. Would love to talk to you, uh introduce ourselves, get to know you, help you map out that plan, and and assist in answering and addressing questions or concerns in any way we can. And it’s a
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complimentary courtesy service, by the way. No no cost for putting together your optimized retirement plan. So, give us a call 919-300-5886. >> Well worth it. Get that uh plan in order now. Peter, thank you so much for your time today. I appreciate it. >> Thanks, Erin. Appreciate it. >> The content of this [music] radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged [music] to seek investment, tax, or legal advice
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from an independent professional advisor. Any investment and or investment strategies mentioned involve risk, including the possible loss of principal. Advisory services offered through Brooks Own Capital Management, a registered investment advisor. >> Fiduciary duty extends solely to investment advisory advice [music] and does not extend to other activities such as insurance or broker-dealer services. Advisory clients are charged a quarterly fee for assets under management, while insurance products pay a commission,
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which may result in a conflict of interest regarding compensation.
