WHY EVERYONE SHOULD AIM TO RETIRE AT 50

I was happy to retire at 50 and had always planned for it. So, when the boss from hell showed up one day, I was able to pack up and sail off into the sunset.

That was enjoyable.

HOWEVER– the situation was not all roses and rainbows. It had also become clear that it was absolutely necessary for me to opt-out for many reasons, including my own health, care of immediate family members, ailing parents, and in-laws.

That part was not enjoyable at all.

Nonetheless, it turns out that my situation was not uncommon. So, if you get nothing else from this post, know this: significant changes, loss of income, health issues, etc. are the norm starting in your early 50’s. It is essential to make financial plans that take that into consideration. If you are able to work beyond that time in a full-time job with benefits, you are part of a  fortunate minority.

Of course, that means the vast majority of Americans are even more unprepared for retirement than was previously thought. It turns out that people believe they have more time to save for retirement than they actually do.

Now, don’t get me wrong; I don’t like being the bearer of bad news. I do not want to be the person who tells you your work life may be shorter than you think, and that your retirement might come sooner. In fact, when I consider it, this news makes me feel a bit like someone who was forced to shoot the Easter Bunny.

But, it is better to know the facts. Even if your own situation is not ideal, you can do something about it, especially if you act early in your career. That is the point of this post. So, read on.

RETIREMENT AND UNDEREMPLOYMENT IN YOUR 50’s IS LIKELY

You may be saying to yourself that aiming for retirement at age 50 is just not feasible. It is just too early, and that goal is unrealistic.

That begs the question: what is the actual retirement age? The average is age 62. However, the majority, 64% of workers, leave the workplace between the ages of 55 and 62.

And, only a minuscule 26% of workers aged between 50 and 62 work in full-time jobs with benefits. Read about it here.

In other words, by age 50 many people only work part-time and in lower-paying positions. And many don’t take those jobs by choice. That does not make retirement planning and investment easier.

Some typical reasons why people retire early:

• They have been laid off. Even upon reemployment, many must accept part-time jobs or jobs without benefits. Typically only one in 10 ever makes their former salary again.
• They have to take care of others, aging parents, kids with disabilities, etc.
• Their own health prevents them from working
• They have other family responsibilities that make working full time impossible.

Therefore, if you think that the government definition of “full retirement age” of 66 years and two months is optimistic, you are not alone.

It did not work for me, and national statistics tell you it will probably not work for you either.

HOW THE OPTIMISTIC GOAL OF RETIREMENT AT 65 WARPS OUR THINKING

And yet, if you have a financial planner, the only financial projections you are likely to see are rosy ones about retiring at age 65, not age 50.

I understand. They do not want to scare you.

But, as you now know, for many people, retirement and underemployment are a reality.

Still, the financial challenges of achieving retirement at 50 are difficult.

Here are some of the reasons why. First, the period of saving for retirement totals only 20-30 years, not 40-45 years. Second, time living on a retirement income increases dramatically and is 25-40 years, not 15-30. And finally, any funds invested for retirement have far less time to compound.

So, what does that mean for you? It means that you must save more, and earlier in your career. The generic calculations that you see here, demonstrate why retirement at age 50 can be a daunting task. The link shows that a nearly THIRTY percent savings rate is needed to pull off retirement at 50.

But be careful taking these projections too literally. The situation varies from person to person. And the calculations do not take into account the rising value of personal (leveraged) real estate, unexpected windfalls, and even possible inheritance. For instance, we saved about 20 percent of income, not 30 percent. And so far, it is working out well.

PLANNING FOR THE OTHER EXPENSES AT AGE 50

So, if retirement cost at 50 was the only issue, that alone would be difficult. But other costs come in to play as well. And those other costs can be hard to deal with. See, for example, this account of those challenges by a financial professional from Financial Samurai, a blogger I admire.

Our own situation reflected these difficulties too. For instance, we still had to pay for college tuition. And we needed (and continue to need) to find the money to pay for our other child’s living expenses and housing, most probably for the rest of our lives.

Other people face other kinds of challenges—often paying for parents and their expenses, or the cost of caregivers.

ARE MOST MILLIONAIRES READY AT 50?              

As you may recall from an earlier post, most save about fourteen percent of their income. For those with an employer match, the figure is closer to twenty percent.

So, you have got to hand it to them. Most are on track to retire comfortably at 55 or 65–but probably not at age 50.

READY TO GIVE UP? DON’T!

You might say if millionaires are not ready to retire early, what hope is there? Well, there is a lot. Yes, the situation is worrying and challenging. And I am not the only writer who is concerned that Americans are unprepared. But do not overreact.

You see, it is easy to panic, but that is not warranted. For example, Suze Orman, a noted financial writer, has been worried about America’s retirement problem for years, along with a host of others. But her reaction is a bit much. In fact, she is so conservative that she actually suggested that to retire, you need $5,000,000 in the bank.

That never worked for us. We have nowhere near that amount.

So, what do you do? We had to make adjustments and amend our goals.

STEPS TO TAKE

Here are a few actions to consider:

1. Adjust to reality and get started with a plan to retire at 50—ok, you now know this. But it is the follow up that matters. If you have a financial planner, have them run some financial projections to see what that looks like. It could be scary, but given the statistics cited here, it is best to know what happens and the goals you need to aim for.

2. Save more. Look over your expenditures and see what you can cut. Be brutal. Invest the savings.

3. Diversify income—if you are an investor and have all your eggs in one financial basket, please reconsider. Retirement is a long term goal and requires a balance of investment types, including some aggressive and even slightly risky ones–along with conservative investment vehicles. However, if you put all of your eggs in just one investment basket, it often means disaster if you “drop” the basket. And starting over is hard.

4. Concentrate on investments that grow over time—a financial advisor can help you achieve the proper investment allocation that can help meet that goal.

5. Consider that some sources of income (such as Social Security and IRA income) will come later after age 50. That fact needs to be incorporated into any plan.

6. Make sure to guard your health. If you want to keep working and maintaining income, this is a must.

In other words, don’t take your health for granted and get sick. Medical bills are the number one cause of bankruptcy.

7. Consider taking a second job or gig, and funding a retirement account with the earnings. Put another way, make more income.

8. Understand the plusses and minuses of leverage—especially with real estate. One reason that people manage to successfully retire early is that their personal real estate is a kind of enforced savings plan that builds wealth. Moreover, because most people get loans for real estate purchases, the return on their down payment can be high, even if price appreciation is low. Of course, that does not always work out. Ask anyone who survived the Great Recession.

Nonetheless, home purchase tends to be a good investment, and equity can be a source of income in retirement.

9. Consider making a plan with ALL members of your extended family about your total pooled resources—you may need their help at times, and they may need yours.

10. Recognize that part-time work may be in your future. At age 50, full retirement may just not be feasible. But a part-time job is a path many people take.

CONCLUSION

You may be one of the fortunate people who work into their 70’s and 80’s by choice. But if you follow a more standard career trajectory, please consider some of the steps outlined above.

Retiring at 50 may not be a realistic goal for many people. However, given most people’s career trajectory, and the risks that incur, it is a worthy one.

SUMMARY

1. Early retirement from full-time work is required for many people. It is not always a choice they make.

2. Only a minuscule 26% of workers aged between 50 and 62 work in full-time jobs with benefits. The actual retirement age is 62 on average.

ACTION PLAN

1.  Adjust to reality and get started with a plan to retire at 50. It may not be necessary to retire at age 50, but be prepared.

2. If you are not saving enough to retire at age 50, reconsider your spending and boost your saving goals.

3. Know that early retirement can come with other challenges. Early retirees often have college tuition and a host of other expenses. So, plan for it.

Disclaimer: consult with a financial professional before taking any steps outlined here. Not all advice is suitable for your circumstances or investment style.

Photo credit:  Albertyanks Albert Jankowski – Own work; public domain

© 2019