Retiring, Sooner or Later

Marie wrote in with a really nice mailbag question:

Do you think it’s better to retire a few years early and have to live with a tight budget or keep working for a few more years which will probably be your healthiest years so you can have more money when you retire? I’m 57 and can retire now but things would be lean for me. If I work until 60 things will be much better as I will have a lot more in retirement savings and less time to wait until Social Security kicks in.

There are a ton of ways to look at this question. I’ll just walk through how I would look at it.

The big question I’d have in Marie’s shoes would be what does my downside plan look like? In other words, what exactly will I do if I get into retirement and realize that I need more income?

If I needed to, could I can easily return to the workforce, get a job of some kind that earns enough to really make a difference for my life, and start earning enough money so that I can at least reduce how much I’m drawing down my retirement?

For some, that might mean that they ned to easily return to their previous career path in some way or be able to utilize some skills they have in order to earn a relatively nice wage. For many others, that means that their health is sufficient to be able to do an entry level service job like working as a cashier at Target. It really depends on your situation.

For me, I’m not really sure what a return to the workplace would look like. When I “retire” from The Simple Dollar, I won’t give up writing, but it will change form and take up somewhat less of my time. I plan to write science fiction and/or fantasy. Ideally, I will earn some degree of income from that, even if it’s just a trickle of ebook sales. If I had to move to something that brought in more direct income, it would likely be some entry level position just to bring in cash in exchange for my hours.

Once you know what that downside plan is, how miserable would that downside plan make you? Would it be something that would completely demoralize you? Or would it be just another curve in life’s long road?

This depends a lot on the person and on their downside plan. Some people will be fine with whatever may come. Others would be devastated by any return to the workforce. Still others would find some types of work quite acceptable, while other forms might make them unhappy.

As for me, I’d probably not relish having to work at a service job in my fifties and sixties, but there are far worse outcomes in life. I could do it if I needed to and it wouldn’t be a devastating outcome. I know that, given what I have now, it would not be a permanent thing and would likely just happen as a bridge to Social Security.

Once you have those questions answered, it’s time to look at the numbers regarding retirement.

If you retire with just enough to live off of if you take a 3.5% or 4% annual withdrawal from your retirement savings, then there’s a decent chance that any significant life bump will send you right back to the workplace.

That’s fine if you don’t find your downside plan to be dreadful. After all, for most people in this situation, the downside plan is likely just a relatively temporary thing. Retiring early probably makes sense for you.

On the other hand, that’s a terrible outcome if you really dread having to return to work again after choosing to retire. If the idea of your downside plan fills you with horror, then you should probably make a choice to avoid it. Retiring later probably makes sense in this case.

There’s also the issue of contentment with your current life. If you’re happy with your life as it is now, with a career and a current position you enjoy, why not stick with it? Is there anything pressing that you want to do in retirement that you couldn’t delay for a few years if you’re pretty happy right now? If that’s the case, retiring later makes a lot of sense.

On the other hand, perhaps you loathe your current career or job or simply have big dreams regarding things you want to do in retirement (things you can afford, that is). In that case, retiring sooner is probably the better path.

Given these factors, I would probably make my decision using my feelings about my downside plan as my primary deciding factor, and my second factor would be my happiness with my current life. The interesting thing is that your feelings about your current career likely provide some shading as to your downside plan. If you dread your current career intensely, then your downside plan probably doesn’t seem too bad in comparison, and that nudges you toward retiring now rather than later. Of course, the reverse is true: if you’re pretty happy with where you are, your downside plan might seem quite bad by comparison, and that would nudge you toward sticking with work.

As for me, I’ll probably retire as soon as it makes financial sense for Sarah and myself. Some of my plans in retirement do involve bringing in a little additional income and my own downside plan doesn’t fill me with dread – if things go that way, it’s okay.

So, if this question is on your mind, here’s your step by step game plan.

First, sit down and really think about what your downside plan is if you retire and things don’t work out financially. What kind of work would you end up doing in that situation? Could you fill in using your current training, like a teacher or a pastor might be able to? Could you actually still find full-time work in your field after a few years of retirement? Or would it be a return to entry level work? Honest evaluation of your career and your skills is absolutely vital here.

Once you’ve figured out what the downside looks like, honestly assess how you feel about it, particularly in comparison to your current career situation. Does the downside plan seem a lot worse than your current job? Or does it seem like another turn in the road? It might even seem like an improvement over your current situation (which begs the question of why you’re not making the shift right now).

If the downside plan seems awful and far worse than your current job, then it’s probably a good choice to delay retirement and give yourself some padding so that there’s much less likelihood of having to execute that downside plan. Aim for 120% or 150% of your target.

If the downside plan seems palatable and you are ready to get out of your current job, then take that leap if you have enough money saved up to live on. The downside plan is significantly more likely to happen in this case, but if you’re equally happy or more happy with your downside plan than with your current career, it’s all good.

The challenge comes when you’re happy with your current job and your downside plan or you’re unhappy with both. In those cases, I would let the vision of the downside plan still guide you. I’d set it down side by side with your current situation, compare things like salaries and working conditions, and also consider the fact that you’re likely to be several years older when executing your downside plan. If you still can’t decide, I would stay put for now, because you are never, ever going to be harmed by having more in retirement savings.

Good luck!

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.