Early retirement sounds delightful. Who wouldn't want to give up their desk for a deck chair, 9-to-5 for a 9-iron, or board meetings for surfboards and snowboards? According to our recent survey, many people are retiring earlier than they planned. However, this often results in less savings than intended to be spent over a longer retirement.
"Early retirement is everyone's dream", says Mike Zaino, President & CEO of TZG Financial in Charlotte, North Carolina. "As long as you can do so and maintain your current or desired lifestyle, and be able to sustain it throughout the rest of your life, then great. But that's only if and when you're able to retire on your terms. Due to circumstances beyond their control, not everyone can work as long as they planned."
MoneyTips conducted an exclusive online survey of 258 retirees, comparing their plans to retire with what actually happened. First, we asked them:
Then we asked the same group of retirees:
Although 1 out of 3 (33.3%) retired in their 50's or earlier, only 1 out of 9 (11.2%) had planned to retire younger than 60. Similarly, less than 3 in 10 (29.1%) planned to retire in their early 60's, but more than a third (36.8%) did. When we charted the planned age against the actual age of retirement, some strong patterns emerged.
Nearly all (89.7%) of the people who planned to retire before 60 actually did. But above that age, people had a hard time hitting their retirement age goal:
- nearly half (44%) of those who planned to retire 60-64 retired earlier
- more than half (61.3%) of those who planned to retire 65-69 retired earlier
- more than half (57.7%) of those who planned to retire 70-74 retired earlier
- all of those who planned to retire 75 and up retired earlier (although there were few people in the survey within this group)
Overall, less than half (43.0%) of the people we surveyed retired in the five-year age range that they had planned. But when we remove the group who planned on retiring before age 60, the data is even worse:
- only 37.1% of those who planned to retire at 60 and up retired in the age range they planned
- more than half (56.8%) of those who planned to retire at age 60+ retired earlier
- nearly 2 out of 3 (63.0%) of those who planned to retire at age 65+ retired earlier
People who retired later than planned were few and far between. Less than 1 out of 16 people (6.6%) retired later than expected. But sometimes, those circumstances are beyond their control.
"A close family member wanted to retire when she was 60," reveals retirement specialist Zaino. "But as a result of the Great Recession, she lost 40% of her 401(k). It wasn't being actively managed and because of that, she carried much more risk in her portfolio than was necessary for someone with her retirement time horizon. She ended up having to work full-time for seven more years in order to build her retirement money up to where it was before the crash and retired at age 67." However, her new money didn't have much time to earn interest. "Because she lost the time-value of money – the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity – she had to go back to work on a part-time basis again after only 6 months of being retired!"
We also asked retirees:
Among the people who retired early, about 1 of 6 (17.7%) reported that they were able to because of strong finances. However, nearly 6 in 10 (58.3%) of the early retirees reported doing so due to job loss, health or family issues. Men were much more likely to retire early due to strong finances (28.4%) than women (6.9%) were, while the women were much more likely to retire early due to family (14.9%) than men (3.4%) were.
Zaino admits, "This doesn't surprise me. In my experience, people don't have contingency plans in place to attack these what-if scenarios. 'What if you end up too sick to work? What if you become disabled? What if you're in a car wreck or have a stroke or heart attack and can't work? What if your position is eliminated due to an economic downturn?' In fact, that's what happened to many people because of the Great Recession, including me!
"Those things are hard to plan for. My motto is, 'Proper Prior Planning Prevents Pitifully Poor Performance.' When people come to me for planning, I educate them and help implement strategies to prevent them from suffering the same fate as I did. All these things can potentially come into play throughout your lifetime, and most people don't prepare at all, or prepare inadequately for those experiences."
Regardless of where you plan to retire, the number one factor in ensuring that you can retire on your terms is your 401(k). Make sure that your 401(k) is maximizing its potential with this free analysis that checks your fees, fund mix, and other factors to help you hit your retirement goals. For more of our exclusive retirement data and insights, visit MoneyTips Retirement Survey Findings.