If you're thinking of retiring in your early 60s, think your situation through carefully, because there are lots of reasons not to retire before age 66. After all, if you retire at age 62 and live to age 95, an age that plenty of people will reach, you're looking at a retirement that's 33 years long. Consider, for example, the well known "4% rule," which suggests that you might withdraw about 4% of your nest egg annually in retirement (adjusting for inflation over time). If you're counting on Social Security making up the difference in your retirement income needs, know that the average Social Security income is about $16,000 a year, too. If you work three more years and retire at 67 and your nest egg grows by an annual average of 8%, it will turn into more than $500,000. Working a few more years actually offers several advantages: Yes, you'll be able to save and invest a lot more money, resulting in a bigger nest egg. By delaying retirement, you can also delay starting to collect Social Security. Yes, your checks will be bigger, but remember that by delaying starting to collect them, you're ending up with many fewer checks. The $16,122 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.
One of the interesting things I’ve learned as a blogger is how many people suffer from The One More Year Syndrome.
Ironically, I suffer from it myself.
The question plagues me: “Why do so many folks decide to continue working, even after they’ve achieved Financial Independence?”
Today, I’ll tell you about my logic for working “One More Year”, but I’ll go a step further. I’ve reached out to fellow bloggers on the Rockstar Finance Forum and the FinCon Facebook group and will be sharing thoughts from some of the best personal finance minds on the issue. Most of them have also suffered from the Syndrome, and have worthwhile thoughts as we consider this topic.
While I’ve technically achieved Financial Independence in the past few months (woot woot!), I’ve decided to work One More Year. My main reasons (“The Root Causes Of My OMY Syndrome”) are summarized below:
- Health Care Cost Inflation: Given that my wife and I will need to buy private health care insurance for ~10 years, I’m very concerned about the escalating costs of health care, and the exit of many insurance companies from the market. It’s too soon to know where all of this will end up, and the assumption I’ve used in our retirement cash flow model ($20,000/year) may be insufficient to cover the actual costs we incur. The same concern holds true for inflation in general, as we’ve become a bit “conditioned” to a low inflation environment which may not continue throughout our retirement.
- Market Returns: The stock market is currently “highly valued”, with the current CAPE Ratio at 29.5, well above it’s mean of 16.5. Historically, periods of high CAPE ratios are followed by periods of lower than average market returns. While we’re planning a Withdrawal Rate of 3.5%, I’d rather work One More Year and reduce the anxiety of a potentially extended period of below average market returns.
- “You’ll Never Make The $ You’re Making Now”: I have an Uncle who retired in his mid-50’s. A few years ago, we were chatting at a family wedding, and I mentioned I was considering an early retirement. His one piece of advice to me was to make sure I was ready, financially and otherwise, before I pulled the plug. “You’ll never make the money you’re making now”, he said, “so make sure you’re 100% comfortable with your financial situation before you retire”. Words of wisdom, from one who has gone before. I decided to listen, and it’s triggered my own affliction with the One More Year Syndrome.
- “OMY Was The Best Decision I Ever Made”: I’ve got a friend, Kirk, who has guest posted on this site (see A Road Less Traveled and Retirement: The First 90 Days). He also suffered from OMY Syndrome in his final working year, and he and I had several discussions about it at the time. Now that he’s retired, he looks back at the decision to work One More Year as one of the best decisions he’s ever made. While it seems like a long time when you’re in the middle of it, it passes like the wind, and you enjoy the benefits for the rest of your life. He has no regrets, and his optimism about OMY has influenced the decision I’m facing today. BTW, Kirk is now hiking the Pacific Crest Trail, and I wish him a successful journey to Canada!
I am not unique in my affliction. In preparation for this post, I reached out to others who are knowledgeable about personal finance and retirement planning issues. I was surprised by the number of folks who have written about the OMY topic, or…