There’s been so much talk about the “Great Resignation” of people either changing careers or leaving the workforce entirely. This is happening across all age groups and income levels. But, already some are seeing the challenges of such a move.
Yahoo Finance recently published an article highlighting how a growing number of retirees are looking to get back into the workforce. Three percent returned in February alone. The article cited rising inflation and volatility in the stock market as two reasons for the reversal. It’s easier to walk away as long as prices were stable and portfolio values were ever increasing. It can be much more difficult when that’s no longer the case.
We’ve had many conversations with people wanting to retire early—sometime in their mid-to-late 50s. Some want to travel the world. Others want to spend more time with their families. Many aren’t exactly sure how they’ll spend their time. They just know they want that flexibility.
As the article points out, the difficulty with retiring early is trying to step back in once you’re out. Your old job may no longer be available. You may not want to learn a new role. So, it’s best to prepare before you turn in those resignation papers.
So, what to do if you’re thinking about leaving the workforce early?
- Start planning ASAP – Think about when you want to call it quits and what kind of lifestyle you want in retirement. The more time you have to prepare, the easier it can be to get ready.
- Create a buffer – You want to create a sizable financial buffer so you’re not forced to reverse course. That means saving more than you would for a normal retirement. First off, the earlier you retire, the more years you’ll need to fund. Second, you won’t be able to tap into social security or Medicare initially. So expect to take more money from your retirement accounts in the early years.
- Adjust Your Mindset – When you’re working, you’re contributing to your retirement accounts. You’re adding new money with every paycheck. And, your salary pays for your life. When markets rise, they can really rise for you. When markets drop, the new money you’re adding can help offset some of the decline in your account values. This can create a more favorable experience that keeps you in the game.
However, when you retire, all of this works in reverse. You’re typically taking money out on a monthly basis. So, when markets rise, your distributions eat into some of that increase.
But, what’s really tough is when markets decline. Now you’re hit with the double whammy. You’re taking money out as your assets are falling in value. Psychologically this can be painful if you’re not prepared for it. It’s vital you understand this point. It will likely affect your investing style.
None of this means you shouldn’t retire early. In fact, you should live the life you want to live. And, if that’s leaving the workforce early, you should do that. Remember, our central message (Be bold. Love your life.)
But, being bold requires being prepared as best as possible. It means understanding the shifting experience—the profound joys and the pitfalls. It means having a strategy that will put you in the best position to fully enjoy that new life. Being bold without a game plan can be reckless. Being bold with a game plan can be glorious.
If you’re contemplating early retirement or some other shift in your career and want to discuss the financial impacts, please reach out. The earlier you put pen to paper, the better prepared you’ll be to make that new life a successful reality!
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.