Early retirement may sound like a dream come true, but for many Americans, it comes with a range of unforeseen challenges once those regular paychecks stop. According to research from the American Association of Retired Persons (AARP), more than a quarter of retirees found themselves spending more on medical expenses and housing than they had anticipated. The result is a financial strain that highlights the importance of careful planning and saving before taking the leap into early retirement.
Here are five key regrets many retirees have, and what you can learn from their experiences to avoid similar pitfalls.
1. Claiming Social Security Too Early
One common regret among early retirees is claiming Social Security benefits too soon. Many people assume that retirement means immediately tapping into Social Security, but this isn’t necessarily the case. If you have sufficient savings, you can delay claiming these benefits, which can significantly increase your monthly income.
Research from the National Bureau of Economic Research (NBER) found that one-fifth of older Americans wish they had delayed their Social Security claims. Each month you delay can increase your benefits, and retiring at age 67, for example, can lead to a 24% increase in the standard Social Security benefit. Early retirees, particularly those claiming benefits at 62, can see a reduction of up to 25% in their benefits if their full retirement age is 66. This is significant, considering that half of the 65+ population relies on Social Security for at least 50% of their household income. The Social Security Administration (SSA) offers various tools on its website to help you estimate your benefits and understand the impact of claiming at different ages.
2. Not Saving Enough Before Retiring
Another major regret is not saving enough before retirement. The NBER survey found that over half of respondents wished they had saved more money. Similarly, a study by MedicareFAQ revealed that 86% of participants wished they had more savings, and 60% admitted they didn’t start investing in retirement funds early enough.
Early retirees, who may need to stretch their savings over a longer period, face a heightened risk of depleting their funds. Running out of money in your 70s or 80s, after being out of the workforce for decades, can be a daunting and difficult problem to solve. Starting to save and invest early is crucial to building a robust financial cushion that can support you through a potentially extended retirement period.
3. Failing to Make a Healthcare Plan
Healthcare is a significant concern for retirees. According to the TransAmerica Institute, about three-quarters of retirees worry about their health in older age, and 52% of respondents in the MedicareFAQ study wished they had prioritized their health more before retiring.
Many early retirees find themselves unprepared for healthcare costs. It’s a common misconception that Medicare will cover most medical expenses, but this is far from reality. Fidelity’s 2023 Retiree Health Care Cost Estimate suggests that an average senior could face out-of-pocket costs of $157,500 (or $315,000 per couple) for healthcare in retirement, even with Medicare. Early retirees who leave the workforce before age 65, when Medicare kicks in, must rely on expensive private health insurance without employer subsidies, which can be a substantial financial burden.
4. Foregoing Long-Term Care Insurance
Long-term care is another area where many retirees express regret. Seven out of ten people aged 65 and over will need long-term care at some point, and the Genworth Cost of Care survey indicates that a semi-private room in a nursing home can cost $8,669 per month, while assisted living facilities average $5,350 a month.
Given these costs, it’s not surprising that one-third of retirees in the MedicareFAQ study wished they had purchased long-term care insurance. The longer you wait to buy this insurance, the more expensive it becomes, and the financial strain of paying for long-term care can be especially acute for early retirees who may have already depleted their resources.
5. Leaving the Workforce at a Young Age
Finally, many retirees regret leaving the workforce too early. According to the NBER study, about one-third of retirees wished they had worked longer. Of those surveyed, 52% regretted not saving enough, and 19% regretted claiming Social Security too early.
Before deciding on early retirement, it’s crucial to ensure your finances are in order. Research how different Social Security claiming ages affect your benefits, plan for healthcare costs, and make sure you have enough savings to cover unexpected expenses. Creating a detailed retirement plan that includes potential costs for home renovations, travel, and other activities can help you avoid the financial regrets that many early retirees face.
In conclusion, while early retirement can be appealing, it requires thorough preparation and realistic planning to ensure financial stability throughout your retirement years. Taking the time to plan carefully can help you enjoy your retirement without the financial regrets experienced by many who retired too soon.
