Retiring a bit early is something we all dream about, at some point. Who wouldn’t love to skip out of the working world a bit early, and start enjoying a life of leisure? Luckily, for some of us an early retirement is a very real possibility. But because we always caution our readers to consider this decision carefully, from all angles, we did want to alert you to some recent research on the topic.
The National Bureau of Economic Research just released a study titled, “Early Social Security Claiming and Old-Age Poverty”, in which researchers explored a link between early Social Security claims and poverty in late life. Even though more than one-third of Social Security beneficiaries filed their claims at age 62, that early claim was indeed associated with a higher likelihood of experiencing poverty at a later age.
The study’s authors were careful to note that this link between early claiming and poverty is not due to any mistakes in calculations, on Social Security’s part. In fact, they stated that the payment calculations are quite sound in principle.
The increased rate of later poverty among early claimers was due to other factors, such as a longer lifespan and therefore retirement. There is simply more time for something to go wrong, and more time for retirees to exhaust other forms of income such as savings.
And, of course, we all must worry about inflation. While Social Security benefits are periodically adjusted upward to help offset inflation, the increases aren’t always enough to combat a particular individual’s rising expenses.
A major liability, identified by the study, was simply that many retirees retired “because they could”. These individuals tended not to access the services of a retirement planner, or perform the necessary calculations to determine whether their plans were solvent in the long term.
The study did not compare federal retirees with those from the retirement sector, but as retirement planners specializing in helping federal employees, we do know that your retirement benefits system is quite competitive. Along with Social Security, annuity payments can also receive cost-of-living increases, helping to protect your purchasing power in the long run.
Still, we do urge you to consult with us regularly, so that together we can run the numbers. If calculations show that an early retirement looks promising for you, there’s no reason to believe you shouldn’t do it, if that’s what you truly want.
