Retiring earlier than originally planned sounds like a pretty sweet deal at first glance. You can leave your boss and those boring “9 to 5” days behind and spend more time with family, travel and hobbies. At least that’s the theory.
In practice, early retirement is rarely as rosy as most workers imagine. And about 15% of seniors regret retiring earlier than expected, according to a recent Clever Real Estate survey. Here are three reasons why.
1. You didn’t save enough
People don’t always retire earlier than expected because they want to. Sometimes people are pushed out of their jobs due to downsizing, caring for a family member, or illness. About 64% of retirees in the Clever survey said they retired earlier than originally expected, and more than half of them cited poor health as the reason.
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Rather than spending retirement doing what they love, these individuals may need to plan their time around doctor appointments. These additional costs can stretch their already stretched budgets to the limit.
It’s not always possible to prevent this, but you can reduce the chances by doing your best to stay healthy and prioritizing retirement planning at any age. Pay in regularly every month if you can afford it and avoid early withdrawals from your pension account.
2. They get bored when they’re not working
Jobs aren’t always fun, but they give many people meaning, an opportunity to socialize and challenge themselves. Leaving the workforce behind forces retirees to find other ways to meet those needs. Some have no problem doing this, others find it difficult.
If you fall into the latter camp, returning to the labor market might not be a bad idea. You don’t have to work full-time or in the industry you’ve spent your career in. You can choose something that better suits your interests and is flexible enough to meet your other commitments.
3. You applied for Social Security too early
About 29% of retirees said they wished they had retired later because they applied for Social Security early and regretted it. The federal government assigns everyone a full retirement age (FRA) based on their year of birth. It’s somewhere between 66 and 67 for today’s workers.
Each month you receive benefits before your FRA shrinks your checks by 5/12 of 1% per month to 5/9 of 1% per month. If you enroll immediately at 62, you will only receive 70% of the full benefit you earned based on your work history if your FRA is 67, or 75% if your FRA is 66.
You can also turn this around and say that every month you delay increases your checks. This continues as you wait to also be submitted to your FRA. Every month you delay beyond your FRA, your checks will increase by 2/3 of 1% per month until you reach 70. Then you will receive 124% of your full benefit per month if your FRA is 67, or 132% if your FR is 66.
That doesn’t mean that early claiming is always wrong. Delaying benefits can result in greater lifetime benefit, but you’ll get fewer years of checks. Therefore, you would have to complain for many years to catch up where you would have complained earlier.
For example, if you qualify for the average monthly benefit of $1,671 at your FRA of 67, you would receive approximately $1,170 per month if you claim at 62 and $2,072 per month if you wait until 70. If you lived to 75, you’d better start early. You would receive $182,520 from the program if you enroll at 62, compared to just $124,320 if you claim at 70.
The numbers look different if you live to the age of 85. Then you better postpone the benefits. If you wait until 70, you’ll get a lifetime benefit of $372,960, compared to just $322,920 if you claim at 62.
You must consider your life expectancy when deciding when to register for Social Security. You also need to consider whether you can afford to defer benefits. If you want to wait to apply but can’t pay your bills without Social Security, you may consider staying in the workforce until you’re ready to apply.
When you retire is your choice, but it’s not a decision you should rush. Think about your financial situation and whether you are ready to change your lifestyle. And don’t hesitate to delay retirement if you decide you’re not ready.
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