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The Promises and Perils of Early Retirement

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What You Need to Know

  • The number of people 55 and older who are still working has fallen 2 million since the start of the pandemic.
  • About 18% of workers plan to retire by age 59.
  • One question is whether these workers have the resources needed to retire early.

Early retirement… The very phrase sounds enticing.

And packing up shop early is certainly an area where financial professionals are regularly engaged in helping clients. But having a successful early retirement requires a great deal of advanced planning, careful saving, smart investing and, let’s face it, not a small amount of good fortune.

Unfortunately, the pandemic foisted an unchosen early retirement onto many Americans.

How many? The numbers are truly chilling. Nearly 2 million older workers have left the labor force since the start of the pandemic, according to the Schwartz Center. That means the number of older workers still employed is down by about 5%, compared to less than 5% for workers ages 35 to 54.

At the same time, there are also many people who want to retire early and the trend is on the rise. In fact, in 2020, more people (39%) anticipated retiring before age 65 than in any year since in 2010, and 18% of those said they plan to retire by age 59, according to the research firm Hearts & Wallets. The latest data from the periodic middle class survey we conduct at CUNA Mutual Group confirms this trend. Middle class Americans’ outlook on retirement has become more positive, with 89% of respondents expecting to retire in their lifetime, and those who expect to retire prior to turning 65 rising from 30% in May 2020 to 39% in April 2021.

For advisors, plan sponsors and other financial professionals, the pandemic should serve as a major wake up call, to help savers get prepared for early retirement, planned or otherwise — because retiring early is not easy, and as we learned in 2020, “black swan” events like a global airborne infectious disease do happen.

There are eight steps that financial pros can take to help their clients think ahead. These include:

1. Have a plan.

Establish a savings target and process to get there on a specific timeline.

2. Educate your clients.

Empower them to create a regular savings routine that works for their specific circumstances, and coach and cajole them to stick with it.

3. Control the risk dial.

Understand your clients’ risk tolerance to determine the right investment mix.

4. Manage debt.

Help clients appropriately manage their debt and build up adequate emergency savings to avoid dipping into their long-term savings for unexpected expenses.

5. Understand client behavior.

Get closer to the behavioral finance reasons that would make a client pull out of the market or choose an investment strategy that is overly conservative. Help them make better decisions.

6. Hold clients accountable.

Counsel them through the rough patches and don’t let them quit on a long-term plan.

7. Automate.

Ensure that savers are automatically enrolled in their retirement plans and that it’s easy for them to make changes when needed, especially to increase contributions when they can, including through auto-escalation features.

8. And formulate!

Develop a retirement income strategy in advance, which could include lifetime income annuities that help protect savers from the danger of depleting their nest eggs too soon.

The pandemic had a truly terrible impact on people who were pushed into early retirement against their will — and it was a warning for everyone that out-of-left-field moments can (and do) happen. It’s our responsibility as financial professionals to always keep low likelihood but potentially devastating risks in the backs of our heads, and to help our clients plan accordingly. That way, we can reestablish “early retirement” as a phrase that brings joy — not fear.

(Image: Nomad_Soul/Shutterstock)


Paul Swanson (Photo: CUNA Mutual)Paul Swanson, CFA, CIMA, is vice president, retirement, at CUNA Mutual Group — an insurance, financial services and technology company.