#211 – 5 Common Mistakes To Avoid When Retiring Early

Wes Moss [00:01:21]:
So it’s no accident that people around the age of 65 make that a popular retirement age. You get 65, you’ve got Social Security is kicked in, you’ve got Medicare that’s kicked in. Pensions usually kick in by then, or Social Security if you choose to turn it on. And then there’s folks that want to retire even sooner than that. Now, the numbers do point to more and more people working less. The number of workers who plan to work full time beyond age 62 just continues to fall further and further. Four years ago, that was 55% of folks thought they worked beyond 62. Now that’s down to 46%.

Wes Moss [00:02:04]:
Only 31% of workers expect to work beyond 67. That’s again down from 36% just a few years ago. And any chart you look at, and this is from the SEC labor market survey, you’ll see that the age of when workers expect to retire just keeps shifting lower and lower and lower. Go back to 2014. Women, for example, 55% expected that they’d work beyond age 62. That’s continued to drop year after year after year. Now that’s down to 44% of women expecting to work beyond age 62. The New York Fed says that seven in ten americans report retiring earlier than age 65.

Wes Moss [00:02:49]:
So all the numbers and all the statistics say we really are retiring earlier and earlier. Now, there can be a lot of reasons for that. One, people have gotten a little smarter about saving and they’ve done a little bit better investing and they’ve planned a little bit better, which is really what today is about, avoiding mistakes when it comes to that early retirement. But then there’s a whole host of other issues. There are layoffs, there are health issues, caring for your aging relatives, mom and dad, they’re getting old. Somebody’s got to take care of them. It’s really hard or almost impossible to be a caretaker and work full time. So whether it’s by necessity or it’s by choice, retiring early can be pretty stressful.

Wes Moss [00:03:32]:
It can be difficult to figure out, particularly if you don’t really, really plan for it. The other survey we’ve been talking about here on retire sooner that made headlines a couple of weeks ago is this fact that very few retirees are really enjoying retirement and it’s not living up to what they thought it would be because they didn’t plan and likely because they have made some of the mistakes we’re going to cover today. Only 4% say they’re living the retirement dream, and then 4% say they’re living a retirement nightmare. This is according to this new Schroeder’s survey. Now, in fairness, a big chunk of the respondents do fall somewhere in between. But if I add up the categories that I would consider in the not good camp, one, the living nightmare camp, struggling camp, and the not great but not that bad camp, put those all together and it adds up to 53% of folks are in what I would consider not really loving retirement. And I wouldn’t be surprised if the five, and actually we may have six things today are playing a role. Now, let me just go through these five, six, because we do have a bonus.

Wes Moss [00:04:43]:
Every time I write one of these and I think it’s just going to be five, then I’ve got to throw another one in there because it’s important. So, number one, not considering a phased retirement. Number two, not planning on living near your adult kids. Three, failing to establish multiple streams of income. Four, waiting too long to start collecting Social Security. Number five, failing to visit a health insurance specialist. Number five, failing to plan for your health care in retirement. This is number six.

Wes Moss [00:05:18]:
Or maybe we’ll call this a bonus. One, failing to factor in the cost of supporting grown children or providing too much support kids on the payroll. So we’ll start with number one, not considering a phased retirement. In most of the cases, I don’t know the exact number here. I’d say three quarters of the cases of folks that I’m sitting down with and helping plan over the course of the last call. At 20 plus years, people tend to want to pick an age. In fact, most financial planning software is designed that way. What is the age you are going to stop working then it does make it easy to figure out how much you need to save.

Wes Moss [00:05:57]:
You get to a goal, put in what you think your spending will be, factor in inflation, and it says you need to save this much money in order to be able to stop work. And that’s how retirement plans have been designed for decades. And that’s fine, but it’s also very black and white. It’s very much just by the numbers, and it doesn’t necessarily reflect the reality that retirement comes in a lot of different shades. It’s not just black and white. And that can include a more gradual phase out of your career. Now, that could mean simply downshifting or working part time, working more hours from home, or just switching completely to a job you actually want to do. So that transition period, a phased retirement, it helps in a lot of different ways.

Wes Moss [00:06:49]:
So rather than thinking about when you’re going to stop working, think about when you’re going to start working just less. Here’s an example. Barbara. We’ll call her Barb. Barb’s 45, making $100,000 a year, and she wants to retire pretty soon. She wants to retire in ten years. She wants to retire at 55. Now, her full retirement age, according to Social Security, is age 67.

Wes Moss [00:07:15]:
So that’s a long way beyond age 55. Her Fra is 67. But remember, she could start drawing Social Security at age 62. Now, mistake number four. We’re going to talk much more about Social Security, but now we’re talking about Barb. So let’s say instead of waiting till 67, Barb starts Social Security at 62. $31,000 a year is my example. Now, that’ll depend on her work history and how much she’s made for her working career, but we’ll put it at $31,000.

Wes Moss [00:07:49]:
Rather than ceasing to work entirely at age 55 and covering all of her expenses from her savings until she collects Social Security, she could plan to gradually reduce her workload. Let’s say she drops down from $100,000 a year down to $50,000 a year from 55 to 59, and then down shifts even further once she hits age 60, now, goes down to $30,000 a year, and does that through age 63. That way, she’d have a much shorter period of time to rely solely on her savings before she starts claiming social, and then she’d be fully retired by age 63. Plus, if you do the math on that, she’d earn an extra $370,000 during that phased period of time. This is very close to a real life example. When doing planning with Barb, the numbers didn’t quite work out. Even though she has plenty of savings, if she completely stopped working at age 55, it was just too soon to start spending down the money that she’s already saved. And her Social Security payments were almost too far away, so it’d be too many years too long.

Wes Moss [00:09:08]:
Pulling down a retirement savings too early or a little too early. So a phased retirement. After a discussion on, well, what could we do? What could you do during this, call it eight year stretch. I know you don’t love your current job. I know it’s burned you out, but how can you reduce that, tolerate it, have a better quality of life, at least make some money so at least you’re not having to draw down your retirement savings. Then Social Security can kick in a year or two after she’s eligible. There’s also all sorts of social and psychological benefits to phasing down with work. I’ve seen it be really difficult for people who really just stop cold turkey.

Wes Moss [00:09:53]:
And again, a lot of retirees do it this way, and they go through in that first year, and sometimes it takes even longer than that. They go through a real soul searching process, because work provided more than just the income, and it’s just hard to let that go. In fact, it’s a big reason why we’re seeing the unretirement trend go up so dramatically. One of our recent guests here on the show, doctor Dawn Carr, she was at the Stanford Longevity center. She’s a professor at Florida State. Her research shows that almost 50% of early retirees go back to work within two years. And a lot of that has not to do with the financial side, but the loss of purpose and the loss of socialization that comes with work, particularly if you’re doing a job or you’re back in a career that you really love. So I think it’s helpful to stop thinking about retirement as a cliff or a black and white date and more of a process and a phase.

Wes Moss [00:11:02]:
Number two, not planning on living near your adult kids. This is a biggie. We know from our own research, retirees who live near 50% or more of their adult children are between two and five times more likely to end up being a happy retiree. And this should be in your long range planning. You don’t want to not think about this one for years and years and years. And then I all of a sudden realize, hey, the kids are on the other side of the country, and now the grandkids are on the other side of the country. By that point, it takes even more work to pull off a move in any new city. It doesn’t have to be across the country, really.

Wes Moss [00:11:44]:
You move any city, even within the same state, and you’re really starting over. Socially, in large part. It’s not uncommon for me to talk to retirees who feel really left out and much less connected than they’d like to be with their family. When they’re geographically really spread out, they’re scattered all over the US. Here’s another real life story about Claire and David. They lived here in Atlanta for almost 40 years. They raised their kids here. The kids then went to University of Georgia.

Wes Moss [00:12:21]:
But eventually, after they graduated and worked a couple of years, they ended up way out on the other side of the country, in the Bay Area in California. Then after a couple more years, their four grandkids were born, and again, they were also on the other side of the country. After a lot of thought, Claire and David decided to pick up and move to Brentwood, California. That’s about an hour and an hour and a half from each of their adult children. And it was really hard to leave such an established town. I mean, 40 plus years in the same city. And Atlanta is a wonderful place to live and a wonderful place to have a network and raise a family. Luckily, and according to David, somewhat by design, and I remember having this conversation with them, they ended up moving into a very new, and this is key here, 55 plus community.

Wes Moss [00:13:22]:
It was still being built. There were about 500 homes when they moved in. Today the community’s complete, but it’s about 1000 houses. So there were lots of people moving in over the first couple of years they were there, and it was a huge opportunity to meet new people. Everyone was looking to meet new people, and that can be very different than an established neighborhood. And it gave him a huge opportunity to meet new friends. Now, David’s a cyclist, Claire’s a walker, used to be a jogger. Now more of a walker, pickleball player, card player, social maven.

Wes Moss [00:13:59]:
And because, and they credit their now wonderful social network. They credit that to their significant list of active social core pursuits. And they really built a community of their own, even though they were on the other side of the country from where they had lived. For over four decades now. It didn’t happen overnight. It took a couple of years for California to feel like home. Now they’re six plus years in and they have their own community, their own social network, and they see their kids and their grandkids many times a year. In fact, it just went to their oldest grandchild’s high school graduation.

Wes Moss [00:14:47]:
Now a couple suggestions they make when thinking about one of these moves. One, they do like this idea of moving to a newer community. And I’ve seen this in a lot of different cases where there’s an active adult or 55 plus community being built still not complete. I think those are really good opportunities because you have lots of new people coming in. It’s like your first year of college, lots of new freshmen coming onto campus, particularly in a 55 plus community. They also say it will take a lot of time, it’ll take a lot of effort. But if you have core pursuits that are active and they’re social, it’s so much easier to rebuild that feeling of home. Now.

Wes Moss [00:15:30]:
I guess they’d call this a pro tip. They love the idea of buying a place. Now. This is if you could afford it, buying a place before you move so that you can spend time there, you can visit there and get to know the community for a year or more prior to moving again, if you can afford it. If you’ve ever done a Jane Fonda workout or if you remember as a kid rocky running the steps. And if Michael Keaton is still Mister mom to you. And guess what? It’s officially time to do some retirement planning. It’s Wes Moss.

Wes Moss [00:16:06]:
Weren’t those the good old days? Well, with a little bit of retirement planning, there are plenty of good days ahead. Schedule an appointment with our team today@yourwealth.com. dot that’s your, yourwealth.com mistake number three, failing to establish multiple streams of income. If you have the choice, you’re going to get $10,000 a month. Would you choose a 110 thousand dollars check that arrives in the mailbox once a month or b ten $1,000 checks that come ten days in a row? Now logistically, right out of the gate, I default to the just give you the one check once a month. But then if you start to think about it, wouldn’t you rather and feel more comfortable or have greater peace of mind knowing that you had lots of different checks coming to the mail? What happens if the mail shuts down or just doesn’t arrive and that 110 thousand dollars check never makes it or the source of that $10,000, something happens to and it goes away. If you have ten different sources and one goes away, it’s not good, but you still have nine remaining. So we know that there is greater peace of mind when we have more and different ways we’re producing income or receiving income when we’re in retirement.

Wes Moss [00:17:32]:
So it’s not just the amount. It’s about diversifying how we’re receiving our income in retirement. And we know that happy retirees statistically have more different income sources than unhappy retirees. Now, right out of the gate. Okay, well, it’s not that easy, Wes, to have multiple different streams of income, but I can think of ten right off the top of my head. Now, technically, these first three are all in the investment category, because these are really the product of different investments that your IRA, your Roth account, a brokerage account, should be able to produce or could produce for you over time. And that’s the big three income sources, dividends, interest, and then distribution. So dividends that would be from common stocks.

Wes Moss [00:18:17]:
Interest would be anything from the bond category. And then distributions are technically from some of these middle areas that aren’t quite stocks or bonds. Think energy pipeline companies, real estate investment trusts, closed end funds, preferred stocks. Those pay out, technically distributions. But really, all three of those are different forms of the same thing, cash flow. So just within your investments, you can have those three different ways to generate income. Now, I probably put those all in one category, investment income. So let’s keep going.

Wes Moss [00:18:54]:
We’ve got Social Security for you, Social Security for your spouse, maybe. Now, this one takes a lot longer to plan for, but if you’re in your thirties and you’re thinking about two jobs, one is a pension that accrues and one doesn’t give it some thought. Pension one for you, pension two for your spouse. Annuity income, something we haven’t talked a whole lot about here on the show. But with interest rates higher, there may be potential for generating income from some sort of an annuity payout. Of course, rent, good old fashioned rental income. Whether you become a landlord with a bunch of rental homes or you end up renting out the basement level of your current home, rent can play a big role in one of these differentiated income sources. And then, of course, and this leads me back to mistake number one.

Wes Moss [00:19:50]:
Part time work, some sort of income, whether it’s hobby income, part time work, that’s an additional cash flow that can run for a significant amount of time. So retirement isn’t just Social Security. And whatever my IRA produces, you should really think about as you’re doing your planning. How can I have lots of different income streams, lots of tributaries that all run together eventually, when you need it, larger stream of income to pay the bills for however long you’re retired, your retirement doesn’t have to be just Social Security and your IRA. Number four, waiting too long, and I’m emphasizing too long here to start collecting Social Security now. Yes, we do want to wait as long as possible to collect Social Security, and it can make a lot of financial sense, great financial sense to do so for, I would say many retirees. We all know the longer we wait up to age 70, the more you collect. Your monthly amount you start collecting goes up 8% every single year.

Wes Moss [00:21:02]:
You wait from age 62 all the way up to age 70. Technically, it’s more like it goes up 7% and then it rises to around 8%. But it’s a big jump every year you wait between when you can first collect age 62 and then age 70. But there’s no one size fits all answer when it comes to when to take social. And for early retirees, it can also make sense to take Social Security a little bit earlier to reduce your reliance on your other financial assets. So in a perfect world, you have plenty of assets. You want to maximize your Social Security. You think you’re going to live 30 years in retirement.

Wes Moss [00:21:41]:
Of course, the max you can gain from social would be waiting until you’re age 70 again if you’re going to live a really long period of time. But that’s not necessarily in the cards for everybody. So we’ve got to look at our total income need once we no longer have wage income. If you think about retiring and you have three more years, you wait to get Social Security. What if you’re now having to use 7%, 8%, 10% of your retirement assets to fund everything? Now, all of a sudden, that risks draining your retirement accounts prematurely, and they have to last for decades. So we have to be really careful, particularly in those early years, to rely too, too heavily on our retirement accounts. So it might make sense for some people to take Social Security at age 62 or 63 or start at your fra age 67, even though it’s not quite as much as what you would get starting at age 70. So if you retire or stop working at an age that’s older than 62, consider claiming social that year you stop working or earning a wage or wage income.

Wes Moss [00:23:00]:
In lots of the discussions that we’ve had here on the podcast, we think about trying to get to that 4% or 4% plus guidepost when it comes to what percentage can we withdraw from our assets to max out what we can pull out without running out? And if we have to go beyond that 4% number for a year or two, that’s typically going to be fine. But remember, when that other income stream and Social Security can be pretty darn significant in any given month, that can help you get down to the 4% withdrawal rate as soon as social kicks in. Producer Mallory is looking a little perplexed at that. Again, imagine to meet your spending need, you need to pull 8% from your assets in year one. But in year two, when Social Security kicks in and now you have this new influx of cash every month, now your withdrawal rate can go down to 4% because you don’t need to pull as much because turning on Social Security gets you to that more comfortable 4% withdrawal level. Again, there’s no one size fits all answer when it comes to when to take social. But just because the max you can get is age 70 and that might make sense for some folks, it doesn’t mean it’s the right move for everyone. Number five, failing to plan for the health insurance side of retirement.

Wes Moss [00:24:28]:
Now, most Americans get somewhat lulled to sleep when it comes to your health insurance because you’re using the healthcare plan you have at work. Then we get to 65 and we know Medicare kicks in and we think, well, that’s going to be the next phase and it’ll be great. But we also know that Medicare only pays about 80% of our health care costs, and the other 20% can be a huge number if you ever get sick. That’s why the majority of Americans have Medicare supplemental plans, and that’s where things can get complicated. For years, I’ve leaned on outside healthcare insurance specialists to make sure out of the dozen or more choices you can have for a supplemental plan, it aligns with the kind of doctors you need, the healthcare you’re used to, and some of the providers that you want to keep once you go into Medicare. And there are healthcare insurance specialists all around the country that can sit down with you and work with you one on one to make sure that you choose the right supplemental plan in your state, and it can make a huge difference over the long run. So don’t make the mistake of not sitting down with someone and lose out on getting the coverage that you and your family really need. All right, on to number six, or we’ll call this a bonus.

Wes Moss [00:25:57]:
Failing to factor in the cost of supporting your adult kids. The stats around this to me are always fascinating. I think if you’re born in the fifties, sixties, seventies, maybe even the early eighties, you think, I want to get a car at age 16 and just get full independence and you can’t wait to be on your own, your own payroll. You don’t need your folks anymore. The world’s changed. It’s gotten a lot more expensive. Inflation has made it harder to do that. If you think about the world we live in today, if you’re age 25, it’s almost impossible to go be a new homeowner and buy a house.

Wes Moss [00:26:33]:
So times have changed on a relative basis, I think the world’s a lot more expensive, so it’s harder to get financial independence at an earlier age. Still not impossible, but I think it’s gotten a lot harder. And the burden generationally has shifted back to parents, particularly sandwich generation folks. So if you’re in your forties or fifties, you may very well be helping or supporting your adult kids and your parents. About 54% of Americans in their forties are in that situation, sandwiched. And again, the percentage is high. If you’re in your fifties and the percentage of those in their fifties that are sandwiched, that’s high as well. But there’s a large prevalence of financial support when it comes to parents and their adult kids.

Wes Moss [00:27:28]:
A third of parents support their adult children regularly. This is according to next avenue, 69% of parents who support their adult children financially also report experiencing personal financial stress due to that assistance. 60% of parents of adult children aged 18 to 34 provided support in 2023. And it’s really across the board. It’s household expenses, cell phone bills, other recurring costs, and that’s coming from Kiplinger. And according to savings.com comma, 47% of parents support their adult children, including covering expenses like vacations and credit card payments. So depending on the research and depending on the age of the, quote, adult child, anywhere from 30% to 50% of adult parents are providing regular assistance to their adult kids. And that can have a big impact on your retirement.

Wes Moss [00:28:32]:
It’s hard enough to plan for retirement on our own, let alone also plan on supporting your kids when you’re in your sixties and seventies. Now, according to our research, and this is money and happiness research, in what the happiest retirees know, happy retirees generally support their adult children significantly less than unhappy retirees. So on average, the unhappy retiree group or cohort spends $700 per month, on average on their adult kits. The happy retiree group spends less than 500 on average. If you look at some of these extremes, couples supporting their adult kids at over $2,000 a month were more than 400% more likely to end up in the unhappy camp compared to those with financially independent kids. Remember, we want to be near our kids. We don’t want them living with us when they’re 35. Bottom line, we’re happy to support our kids, but it can’t be too much.

Wes Moss [00:29:37]:
We want to live near our adult kids, but we don’t want them living with us. We need multiple streams of income. Remember, retirement planning is not just hey, what’s my Social Security plus my ira? Don’t make the mistake of not planning for the healthcare piece the actual coverage that makes sense for you and continues your care beyond age 65. Even though financial folks pound the table that you have to wait to age 70 to take Social Security or you’re crazy doesn’t mean that’s right for you. And finally, retirement really shouldn’t be black or white, even though it makes sense to plan for a date and a year to stop working. I see lots of success with folks who phase out work and phase up their free time before all your time is your free time. Put it all together. We avoid these five, six things today and you’re on the road to a happy retirement, hopefully sooner than you might think.

Mallory Boggs [00:30:46]:
Hey y’all, this is Mallory with the retire sooner team. Please be sure to rate and subscribe to this podcast and share it with a friend. If you have any questions, you can find us@westmoss.com that’s wesmoss.com. you can also follow us on Instagram and YouTube. You’ll find us under the handle Retire Sooner podcast. And now for our show’s disclosure. This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal.

Mallory Boggs [00:31:16]:
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Mallory Boggs [00:32:01]:
This information is not intended to and should not form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment tax, estate or financial planning considerations or decisions. The information contained here is strictly an opinion and it is not known whether the strategies will be successful. The views and opinions expressed are for educational purposes only as of the date of production and may change without notice at any time based on numerous factors such as market and other conditions.