Harvard-educated economist says retiring early is a move you’ll regret—here are 3 big problems with hanging on in your 50s

early retirement? As the old saying goes, it’s a good business if you can get it. But as a respected Harvard economist notes, so are many Americans Get it without saving enough for it.

Late-career Americans faced a major temptation during the pandemic: With office work shrinking to remote work and the stock market increasing 401(k) accounts, early retirement has become one of the most searched-for terms on the web.

So why is this plan, in the words of economist Lawrence Kotlikoff, “one of the worst financial mistakes” you could make?

For starters, the market has since slumped, erasing many of the pandemic’s gains and waking many from dreams of early retirement.

But the reasons for Kotlikov’s skepticism are deeper than that.

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Bad savers

Few things reveal one’s financial habits like retirement planning. Intrepid savers who start early are rewarded with reliably growing account balances, raked in hefty by reinvestment of dividends and compound interest.

But the reality is that millions of Americans simply don’t set aside enough for traditional retirement, let alone for the 50-day early exit you’d hope for — a move Kotlikoff says they will “regret” unless they adjust their expectations or abandon the plan altogether..

“We, as a group, are bad savers, which makes early retirement unaffordable,” Kotlikoff said. wrote in a guest column for CNBC. “Financially speaking, it is much safer and much smarter to retire later.”

Notably, Kotlikoff ended his argument by saying that he planned to “die in the saddle” because he loves what he does. But those who are tired of climbing in companies or reporting to a manager may have different plans for their golden years.

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How many are really ready for it?

A recent survey by the Federal Reserve revealed that the average savings in retirement accounts for Americans was $65,000. The oldest savers, ages 55 to 64, had median account values ​​of about $134,000, far less than they needed as life expectancy rose, inflation pressures lingered and out-of-pocket health care costs increased.

Reducing health care costs

A study conducted by the Center for Retirement Research at Boston College earlier this year found Great disconnect into how potential retirees perceive the effects of market volatility and longevity when calculating their after-work plans.

The report found that many people overestimate the impact of market volatility and pay less attention to how long they will live and how much that longevity will affect their finances. Unexpected health expenses — not to mention long-term care — are a huge drain on retirement funds.

The study’s data, author Wenliang Hu concluded, “emphasize the importance of longevity and market risk, emphasizing the need for a lifetime income either through Social Security or private annuities. Finally, long-term care is also a significant risk faced by retirees, but they are often underestimated.” would.

Shaky Social Security

There may be encouraging signs in the federal government’s initial social safety net. Social Security payments will rise in 2023, and several rule changes will buoy recipients who have waited to tap into the system.

But Social Security is currently running on a timer. Without changes at the federal level, economists estimate the main fund that supports Social Security It will decrease by 2034. Beneficiaries can see less than 80 percent of the benefits they expected.

Economists have long warned against over-relying on Social Security, and many are urging investors to build retirement plans that assume the program will disappear.

The main advice from Kolitkoff — as well as others when it comes to retiring or taking advantage of Social Security benefits — is to wait, and instead consider increasing your savings and investments while you continue to work. The extra time will keep your investments working harder and longer, and Social Security delay The benefits mean a larger monthly payout in the future.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.