Retiring Sooner

The Transcontinental Railroad brought thousands of settlers westward. In 1879, people began eyeing a dusty region known as the “Unassigned Lands.” The early group of supporters and promoters were known as “Boomers.” Farmers and ranchers sought new virgin territory to apply their advanced ranching and agriculture techniques and transform the arid and treeless landscape. Some began to survey, plant crops and even built homes on the yet-to-be-opened land. And a decade later, President Harrison finally declared that the region would be opened.

Cannons boomed precisely at noon on April 22, 1889, and the race was on. 50,000 land hungry settlers were eager to stake their claim for 160 acres of free land. However, there were some cheaters who illegally staked claims early. They were known as “Sooners.“ Together, the Boomers and Sooners became known as the Eighty-Niners. And regardless if the settlor was toeing the start line at high noon, or well beyond it hiding in the brush ready to claim his or her slice of heaven as the riders approached, those who would persevere in the new frontier likely possessed two characteristics – well prepared and full of grit.

What is your expected retirement date? Age 65 or 67 or whatever your full retirement age per Social Security? Later? Alternatively, when would you like to make work optional and retire earlier? Maybe you’re evaluating an early buyout, you’re tired, or expecting an inheritance. What are some of the implications of early retirement?

Fixed income sources may be lower. Common sources include Social Security, pensions, and annuity-like income. They’re considered fixed because payouts are generally consistent. However, payouts will be lower due to longer periods of payment and/or less benefit earnings.

Social Security benefits are generally determined by your Average Indexed Monthly Earnings (AIME) over 35 years. Generally, the longer you work, the higher your AIME and your accrued benefit. However, once you retire, you cease accruing additional benefits. The reduction in SS benefit at 62 is roughly 25 to 29% versus full retirement age, and the spouse’s benefit is 30 to 34% lower. Visit for more information.

Let’s take Nevada PERS as a pension example. This benefit also is driven by your covered service – the longer you work (2.5% or 2.67% per year) and the greater the compensation (high 3-year compensation), then the greater the retirement benefit. Your retirement benefit may be reduced 10% if you retire 4 years early (4 times 2.5%). However, additional reductions may occur based on your age (with 5 years of service you can retire at 65, 10 years at age 60 and 30 years at any age), and the spousal benefit you chose. Other pension plans have similar provisions (STRS, FERS, etc.).

Annuity payouts – Say there’s $100,000 in an annuity with two scenarios (a) 10-year payout, or (b) 30-year payout. Which scenario will have the higher payout? The first one. The longer the money must “stretch,” the lower the payout.

It’s scary to switch from a saver to a spender. You’ve been hard-wired to save for decades, and it can be difficult to withdraw more than the account earnings. But consider a shift in your thinking. Instead of being like tens of millions of Americans who compulsively check their account balances, think of your savings as your personal pension (and prudently invest like one).

  • Retirement paycheck for lifetime
  • A periodic raise to keep pace with rising living costs
  • Have a cushion for the “just in case”
  • And the final check you write bounces (or reduce your paychecks to leave the desired amount at the end)

Any retirement takes preparation and grit. Early retirement might take a little more work – increase savings, adjust lifestyle, and plug cash flow gaps. And if you’re afraid to quit early, that’s ok too. A friend told why he continued to work … “I’m afraid if I get off the horse, it’ll be difficult to get back on.” He was talking about the speed of change, technological advancements, and the need for continual learning. Good luck.

About Brian Loy

Brian Loy writes insightful and inspiring articles about the ever-changing world of personal finance and the global trends that affect the risk and return on investments and shape the financial- and retirement-planning process.
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