“A Harvard-trained economist says ‘early retirement is one of the worst money mistakes—here’s why you’ll regret it,’” blared a masterfully crafted clickbait headline.
I couldn’t resist. I clicked.
The author is prominent economist and personal finance author and entrepreneur Lawrence J. Kotlikoff.
He wasted no time delivering his thesis: “For most Americans, early retirement isn’t just a decision to take the longest vacation of their lives — it’s one of the biggest money mistakes that they will regret,” he writes. “The reason is simple: We are, as a group, lousy savers, making early retirement unaffordable. Financially speaking, it’s generally far safer and far smarter to retire later.”
Kotlikoff makes a familiar case in this piece. He cites the meager saving of the average American and notes the substantial increase in annual income from delaying Social Security.
His tight and entertaining presentation makes sense. It represents the conventional wisdom on retirement in America. Yet I can’t buy in. In my experience as a retirement practitioner—a facilitator of financial independence—I find that the decision to leave full-time paid work behind is nearly universally positive.
I set the article aside and pondered our disconnect. Why my unease? A month and a few re-reads later, it hit me. The key words were right there at the top of Kotlikoff’s piece: “regret,” “as a group,” and “safer.”
Pick your poison
Let’s start with regret. Kotlikoff worries that people will regret retiring early and then coming up a few dollars short. That may be a mistake. But so would working an extra decade to pad the portfolio, only to find yourself among the half of people who stop needing any money prior to average life expectancy.
Reframe regret
What if the article headline had blared, “Working too long is something you’ll likely regret: Experts say the safest way to ensure you enjoy years of financial freedom is to call it quits as soon as you can”?
Minimizing one regret may maximize another
I often ask groups of people to take a moment and recall the thing they did that they regretted the most. After a minute invariably smiles will appear on many faces. Why? Since they aren’t serving time for their act, I suspect it’s now water under the bridge and often a funny story. I’m sure you have one. I have a few.
I then ask people to ponder a thing that they regret not doing, a shot they didn’t take. The room’s mood sours and smiles turn upside down. The regret for missed opportunities grows over time. This is the asymmetry of regret.
Getting retirement right or wrong
Faced with a retirement decision, there are two ways to be right and two ways to be wrong. You can retire and enjoy it, and therefore be right. You can also continue to work, live a long life, and have the extra years of earnings play a critical role in your advanced years. Here too you’d be right.
Alternatively, you can retire early or at least from a job that you could have kept and either not like the new freedom or eventually run short of money. You were of course wrong.
So too if you kept your nose to the grindstone enriching yourself and the company only to expire with significant unspent funds. That’s akin to trading in a car with new brakes, fresh tires, and a full tank of gas with no compensation. Now there’s some regret.
The endlessly fretting retirement experts focus only on one type of error and one type of regret. For the risk-averse, the very sorts of people who flock to tenured academia, government bureaucracies, policy think tanks, and the media, this may be correct. For many others it misses the point entirely.
Groups don’t retire, individuals do
The next disconnect derives from the academic’s focus on aggregate data rather than individual reality. Much is made of the meager average savings of Americans, with no reference to the variability. Many households are statistical zeros. They’ve never had money and never will. They’ve been living tight for years and will continue to do so in retirement. For some, it’s due to low-paying jobs. Others just refuse to delay gratification and invest.
In a free society, this may or may not be a pressing public policy issue. It shouldn’t be a personal concern for people who have high retirement funds of six or seven figures, ready to provide income. These people will also have Social Security on deck and perhaps even a pension or two.
The perpetually broke are certainly not the audience reading this article or CNBC websites where Kotlikoff rang his warning bell. There’s never any evidence presented that it’s these folks who are retiring and therefore in peril. In fact, a long-running Gallup survey of actual retirees consistently shows that they have no trouble generating enough income to live comfortably.[1] And if you enter retirement with a few dollars, your chances of spending your last dollar are thankfully low. An in-depth study found that people who entered retirement with at least $500,000 typically spent down only 12 percent of their principal in 20 years.[2]
Digging into data
The best look at American household finances comes from the Federal Reserve Survey of Consumer Finances (SCF). This triannual deep dive examines our income, assets, liabilities, and even insurance. It paints a far more complex and happier picture of personal finance and retirement readiness than the straight average of retirement plan balances.
For example, the oldest Americans have the most money, which makes sense when we consider how it compounds. The median net worth of Americans aged 65 to 74 is $266,000. The mean is $1.27 million.[3]
Combine this with the typical spending needs of Americans. The Federal Reserve Survey shows a median income for Americans aged 65 to 74 of $50,000 a year. The 2021 U.S. Bureau of Labor Statistics Consumer Expenditure Survey provides deep empirical insight into the actual financial lives of Americans. Its most recent report pegs the average (mean) income for American households headed by boomers born between 1946 and 1964 at $78,000.[4]
This data set dives deep into consumption data. Two-person households over age 55 spend roughly $55,000 at the mean.
This level of spending may seem low to the coastal and urban professionals who write about retirement. But it puts the shockingly low aggregate savings numbers in perspective. Suddenly a couple’s $3,200 a month in tax-free Social Security, along with a paid-off house and $250,000 in retirement investments, cover the spending needs of a substantial portion of retirees. It even explains why few Americans spend down their assets in retirement.
The problem is framing. Six- and seven-figure-income professionals know very few people who support households on $50,000 to $75,000. But these are most Americans. Social Security is progressive and income taxes are extremely so. It just doesn’t take multi-millions of investments to fund the average retirement. It may, however, take millions to fund yours.
Safety matters
It’s easy to conceive of retirement as a binary choice. Many people will work and retire completely. It’s a light switch. Retirement in this view is risky, as it entails walking away from a steady paycheck that can never be replaced.
Many of my clients get their last paycheck, settle on an income strategy for retirement funds, and book the winter in Florida or South Carolina. Others, however, will push off from the 5-day, 40-hour week and 50-week year to work part-time, often in the field they ostensibly left.
In both cases an early retiree’s risk of poverty is mitigated by a substantial reserve of human capital. We’re all knowledge workers now. We get more valuable and have more leverage as we age. A person’s human capital doesn’t evaporate the day he or she retires. Their networks don’t disappear. In cases where early retirement may in fact be a mistake, the destination is not destitution. The mistake, if it is one, is not irreparable.
Earn a little, live a lot
This ability to earn provides a serious safety net. In retirement a little earning goes a long way. Social Security provides a floor below which retirees can’t fall. Then there are the accumulated funds that in most years will earn more than a person’s withdrawals.
Retirement Daily readers will be familiar with the 4% withdrawal guideline. Adherents to this approach to retirement accumulation and income generation need $1 million to generate $40,000 of annual income that they can expect to inflate to match increases in the cost of living.
These number can be depressing. Researchers hark on them constantly, with some particularly nervous types making predictions that even the 4% percent withdrawal rate is too aggressive. Examined from another angle, this guideline highlights the massive value of even part-time work kept in reserve. A part-time job bringing in $30,000 a year is the equivalent of $750,000 of capital. Most retirees are highly skilled, so generating this sum annually is not difficult.
Speaking of a cash infusion
In my experience, few people explicitly base their retirement plans on catching an inheritance. Reasons for this are myriad, from not knowing how much mom and dad have, to loving one’s parents and not wanting to face the inevitable, to the reality that it’s their money, they worked hard for it, and they have every right to spend it all.
All well and good. But the reality is that trillions of dollars are headed down as I write. The adoption of 401(k)s and IRAs as a dominant retirement system means that retirement income comes from mounds of money saved by individuals, not corporate coffers, government budgets, or insurance companies. A 60-year-old likely has at least one parent in his or her 80s. Again, the Federal Reserve pegs average net worth for Americans over 75 at $254,000 (median) or $977,000 (mean).[5] When the older generation no longer needs the income, the capital passes down. Houses come with cash these days.
They call it work for a reason
Work provides many non-monetary benefits: human interaction; fulfilling, meaningful tasks; and structure to the day, week, and even year. For some of us, our vocation is our avocation and we’d rather work than do most other things. I suspect this is true for most intellectual earners. We get paid for having fun.
But each positive arrives with an offsetting negative. At low levels, work is a grind and the pay sucks. Physical jobs such as the heavy construction field in which I grew up wears people out physically. Not everyone can work until age 70 or even 65. Even cushy jobs get repetitive and require us to leave home in snowstorms, request time off for family functions, and push household chores to the weekends. Would you rather spend time with Martha at the office listening to tales of her grandkids or with your grandkids manufacturing tales of your own?
A recent study published by the Center for Retirement Research at Boston College indicates that, on average, Americans work to live rather than live to work.[6] These researchers focused on how empty nesters use any freed-up funds to invest or pay down debt. It appears from this data set that on average, recently liberated parents neither pay down debt nor increase retirement savings. Instead, they reduce their hours and take more of their lives back when they no longer need to support the kids.
When financial independence appears possible, the benefits of leaving paid work outweigh the risks. Many people still have pensions that make leaving possible. Others have large investment balances from years of diligent investing. For others, lower levels of income mean a less expensive lifestyle that can be supported with Social Security and a cash side hustle.
You’re the only expert that matters
At the end of the day, it’s likely the clickbait nature of the news business that drives these retirement crisis articles. If it bleeds, it leads. People worry about a mistake and these stories feed fear.
This doesn’t explain why we don’t see equivalent stories about the half of people who die before their life expectancy and therefore worked far longer than necessary. Perhaps it’s because these folks are harder to pin down for interviews and don’t do so well on camera.
The data point that matters to you is one: your family’s. It doesn’t matter how much the average American your age has saved for retirement. It’s not a decision point how many people don’t have pensions any longer. The only thing that matters is how much you have stashed and what other resources—pensions, social security, part-time earnings, and spousal earnings—you can count on.
Once you have enough, you’re financially independent, even if you’re 60. Quit that job and do what you want. That’s the safest way for you to maximize the time you spend retired. If you stay a day longer than you must, there’s no doubt that you’ll regret it.
Michael Lynch CFP is a financial planner with the Barnum Financial Group in Shelton, CT, where he focuses on his clients’ finances so they can focus on their lives. He teaches consumer-oriented financial planning courses for leading organizations, including Madison Square Garden and Yale New Haven Health Systems. He is a member of Ed Slott’s Elite IRA Advisor Group and the author of Keep It Simple, Make It Big: Money Management for a Meaningful Life, October 2020, and It’s All About the Income: A Simple System For a Big Retirement, May 2022. You can find more articles and videos at www.simpleandbig.com. He can be reached at mlynch@barnumfg.com or 203-513-6032.
Securities, investment advisory services, and financial planning services are offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. 6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000. Any discussion of taxes is for general informational purposes only, does not purport to be complete or to cover every situation, and should not be construed as legal, tax, or accounting advice. Clients should confer with their qualified legal, tax, and accounting advisors as appropriate.
[1] Megan Brenan “U.S. Retirees’ Experience Differs from Nonretirees’ Outlook,” Gallup, May 18, 2021.
[2] Sudiptp Bamerjee, “Asset Decumulation or Preservation? What Guides Retirement Spending?” EBRI Issue Brief, no. 447 (Employee Benefit Research Institute, April 3, 2018).
[3] “Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin, Board of Governors of the Federal Reserve System, September 2020, Vol. 106, No. 5
[4] U.S. Bureau of Labor Statistics, “Consumer Expenditures-2000,” www.bls.gov/cex/
[5] “Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances,” Federal Reserve Bulletin, Board of Governors of the Federal Reserve System, September 2020, Vol. 106, No. 5
[6] Andrew G. Biggs, Anqi Chen, and Alicia H. Munnell, “How Do Households Adjust Their Earnings, Savings, and Consumption after Children Leave?” November 2021
CRN202509-2338118