In the sciences, there has been a long running difference of opinion about the extent to which heredity and environment influence an individual’s behavior and, in turn, humanity. Based on my reading, the early part of the 20th century seemed to favor heredity as the go-to answer. If we were looking to explain human nature, it was in the blood.
In the latter part of the past century, social science increasingly migrated toward the belief that environment played the most crucial role in human outcomes.
In the age-old question of nature versus nurture, science today seems to agree that our genes and the conditions in which we are raised both play important roles. Though the degree to which they interact remains a matter of debate. Is it 50/50, 70/30, or 90/10 one way or the other? Perhaps, science will one day disentangle this mystery once and for all.
Similarly, in financial planning there has been an emerging difference of opinion regarding retirement planning. This conflict of visions, as I am calling it, pits two views against each other.
One camp subscribes to the “retire early” ethos. While the other stresses the old-school view of “work as long as you can.” Which camp do I fall in? I am not entirely sure because there are merits to both. Perhaps, writing this post will help me decide.
I have heard the term “straw man” applied to a rhetorical technique whereby one person grossly oversimplifies another’s argument or stance on some issue. They then proceed to punch holes in the oversimplified argument as if it were made of straw.
I will make my strongest arguments for both decisions.
Retire Early:
I think the case for retiring early is the easier of the two to make. We all have things we enjoy or even love to do that are not work related. The thought of having the time to travel, focus on our passions and interests, spend more time with our loved ones or just kick back and take it easy, is very appealing.
To be released from 20, 30, 40 or more long years of being upright, responsible and mostly doing what you had to do, instead of what you wanted to do, does sound lovely, doesn’t it? As I write this, I am beginning to feel the pull of retirement’s gravity.
Also, there is a segment of the employed population for whom work just stinks. There is simply no other way to put it. For these folks, it is a monotonous, boring, soul sapping, grind.
From the daily commute to stressful deadlines, annoying coworkers and vexing bosses or partners, the thought of leaving it all behind represents their sincerest wish. Their desire is not aspirational.
They are not dreaming of leaving to do their dream job. They just want to be paroled from what feels like a paid prison sentence.
In other words, quitting is the reward, and it feels to them that most anything that comes after must be better.
Another factor that supports retiring sooner is that all our years are not equal in that our younger years tend to contain the potential for more options. Many people I discuss retirement planning with are looking forward to traveling, often with their spouse.
These trips tend to be concentrated more in the initial years of their retirement. Generally speaking, the younger we are the better we feel. And that is another strong point in favor of moving on to a new and exciting chapter of life.
For all these reasons and probably more, early retirement does indeed look to be the way to go.
Work as Long as Possible:
In keeping with life’s central theme of “things can never be that easy,” it seems that there are also excellent reasons for working longer. For example, Harvard Medical School published an article in 2018 titled Working Later in Life Can Pay Off in More Than Just Income.
The article stated:
"There's increasing evidence that the payoff of working past age 65 may go beyond income. Some studies have linked working past retirement with better health and longevity.
A 2016 study of about 3,000 people, published in the Journal of Epidemiology and Community Health, suggested that working even one more year beyond retirement age was associated with a 9% to 11% lower risk of dying during the 18-year study period, regardless of health.
A 2015 study of 83,000 older adults over 15 years, published in the CDC journal Preventing Chronic Disease, suggested that, compared with people who retired, people who worked past age 65 were about three times more likely to report being in good health and about half as likely to have serious health problems, such as cancer or heart disease.
Other studies have linked working past retirement age with a reduced risk of dementia and heart attack."
The financial benefits of working longer are obvious. First, one of the great fears of retirees in 2024 is the real danger of outliving their money. And I happen to think that is a real concern.
We are now frequently living so long that our savings can barely keep up! I think of this as the mother of all Cadillac problems. In other words, if you are grappling with the decision of buying a Cadillac or a Mercedes, you have an enviable problem.
Putting off retirement can assist in solving for this challenge in two important ways. First, we can save more. The more we have, the less likely we will be to run out of money.
Second, and somewhat overlooked, working generally covers our living expenses. So, even if we do not save a penny more past a certain point, we need not dip into our current savings to live on. The longer we allow our investments to grow, the more we will have.
The longer we work, the shorter the time we will need to live on our investments. This will reduce the possibility of running out of money in our lifetime, perhaps substantially.
Notice also that the same dynamic, a sort of addition by subtraction, is at work when it comes to healthcare. Most American’s will qualify for Medicare coverage at age 65.
One of the major expenses of retirement prior to that age is healthcare. Consider the individual who retires at 55. They must cover the full cost of their health insurance for a decade.
If you remain employed, however, not only might you be covering your living expenses, but most of your healthcare is likely to be paid for by your employer.
Still another potential benefit of continuing on involves Social Security. We can begin receiving benefits starting at age 62. The amount of those benefits will increase every year by as much as 8% per year until we reach age 70. Working longer can put us in position to forego social security until later, when the benefits will be far higher, possibly resulting in substantially greater lifetime retirement income.
Finally, given our historically high national debt and deficit, it seems certain that income tax rates will rise in the future. If that happens, the aforementioned benefits of later retirement, already powerful enough to consider carefully, would be significantly magnified.
The question of whether to retire or not retire is a complex one. Add to that the third possible option of working a more limited schedule/hours in a sort of semiretirement and things can get complicated.
A thorough and thoughtful analysis of the quantitative and qualitative factors must be undertaken. If you are considering early retirement or just have questions on this important topic, please call me at (732) 844-3000. We will work through it together and reach the best decision for you. I am here to help.
Scott R. McGimpsey September 30th, 2024
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