BOSTON – Some 10,000 Americans will turn 60 every day over the next two decades. And many will celebrate their birthday by asking whether they can jump off the treadmill and retire early. For most Americans, the answer is no.
Most Americans, according to a bevy of studies released this week, don't have enough money socked away to enjoy the same standard of living in retirement as in their working years.
But that hasn't stopped the so-called Silent Generation from leaving the rat race before the so-called normal retirement age, which by the way will be 66 not 65 for the leading-edge baby boomers. Indeed, the vast majority of Americans who start collecting Social Security in any given year do so at the earliest age possible, 62, even if it means a much-reduced monthly benefit.
For instance, the average age of the 1 million men who started collecting Social Security in 2004 was 63.7. And of those 1 million, 66.6 percent were under age 65, 30 percent were age 65 and 3.4 percent were age 66 or older.
The odds are that many of those Americans who retired early never crunched the numbers to figure out whether it made sense or not. Consider, for instance, that the median household income for those 65 and older in 2005, according to a just-released Census Bureau study, was $26,036. Despite that income, many older Americans seem to make do with what they have and are seemingly happy with what they have.
"Americans tend to adapt to their circumstances," said Stephen Mitchell, director of education and planning for Merrill Lynch's retirement group, which recently published a state of retirement in America study.
Here are three main considerations for those contemplating early retirement:
1. Plan way ahead
But you don't have to make do. You can actually improve your chances of retiring early and not living to regret the decision. What are those steps? Well, for starters, plan ahead - way ahead.
A study released by MFS Investment Management this week reveals that investors who "plan early" report average lower retirement ages. Retirees who started planning before age 35 on average retired at an age of 58 vs. 60 for those who started planning at 45 and over, said John Reilly, an MFS spokesman.
2. What will you do in retirement?
Part of planning ahead includes not just crunching the numbers, but also giving plenty of thought to what you will "do" in retirement. And for many, that "doing" is not a life of leisure, but a life of more work.
"First and most important, Americans who want to retire early need to think through what it means to them to retire," said Mitchell. "Increasingly, retiring doesn't mean exiting the work force permanently."
Indeed, some seven in 10 preretirees say they expect to work in some capacity, either part-time or full-time, during retirement, according to the Merrill Lynch study. And that's a good thing, said Mitchell.
For one, those who retire early will need the money to support themselves and to pay for health-care expenses over the course of 30 to 35 years, a full third of their lives. And that's not cheap. Indeed, Mitchell said only the wealthiest of Americans will be able to retire early and enjoy as traditional a life of leisure. "Financial independence requires a substantial nest egg," said Mitchell.
Working during retirement has other rewards beside the money. For one, those who work part-time during retirement tend to be more optimistic and satisfied with retirement for what may seem like obvious reasons. They have the money to support their lifestyle or to salt away for later in retirement.
Plus, working is a way to stay mentally and physically active. And, those who keep working get to keep their skills sharp in ways that those who exit the work force cannot. "Leaving the work force is not a decision to be taken lightly," said Mitchell. "Those who leave the work force may not get back in."
Mitchell said those who have designs on working full- or part-time in retirement should start talking with their existing employer about a phased retirement, which the new Pension Protection Act of 2006 makes possible, or start acquiring the skills they will need to stay employed in retirement.
3. Good data in, good data out
Retiring early, whether you stay employed or not, however, requires a plan. Not a flip-of-the-coin, heads-you-retire-early-and tails-you-don't plan. Rather, it's a comprehensive plan that examines dozens of factors, according to Chuck Yanikoski, president of Still River, a Harvard, Mass.-based software firm that this week released a software program that advisers and employers can use to help clients and workers examine the "early retirement" question.
Yes, much of what needs to be done in order to retire early requires saving more and making sure there's enough cash to last a lifetime. But Yanikoski, like Mitchell, says other factors, more than two dozen in all, must be considered. Indeed, Yanikoski says it's a case of garbage-in, garbage out. If all you examine is whether you have enough money to retire early, you may get the wrong answer to the "Can I retire early question?"
Yanikoski says the following questions are among those that should be addressed before punching the time clock early.
What are your main goals and concerns relating to retirement? Who, besides yourself, needs to be taken into account in your planning (a spouse or partner, a dependent child, a dependent parent, a grandchild who lives with you or needs your support, an ex-spouse, other adults living in your home)? What is the age, sex, smoking status, overall health, citizenship, state of residence, and relationship to you, for each person? What assets do you own (preferably with lots of details here), and what income do they generate? What debts to you have? What job(s) do you have now, how long do you expect to have them, and what jobs do you anticipate having in the future? What other sources of income do you have or anticipate: pensions, annuities, Social Security, alimony, royalties, etc., including future expectations (e.g., an inheritance, the pay-off of a family loan, etc.)? What expenses do you incur, or do you expect to incur, both as a family and as individuals? What intentions and plans do you have for what happens when you die, or if you become incapacitated? What kinds of life and health insurance do you have, including long-term care insurance?
The answers to those and other questions could take a while to formulate. But failing to do so comes with grave consequences, said Yanikoski.
"The moment you retire your financial condition has worsened," he said. "So you can't use rules of thumb or guess or take shortcuts. You're cheating yourself if you do. Don't take a gamble that you cant' afford to take and don't need to take."