Hows Early Retirement Going For the Over 50s
Well, it turns out its a bit of a mixed bag. In recent years, there has been a growing trend of over-50s returning to work, often spurred by financial concerns as the cost of living continues to rise.
This phenomenon, often termed ‘pretirement’, is becoming increasingly common as older adults seek to bolster their retirement savings and maintain their standard of living.
By exploring this trend, we can better understand the financial pressures facing this demographic and the potential solutions available to them.
Understanding Pretirement
‘Pretirement’ is a term used to describe the period in an individual’s life when they are closer to retirement than the start of their career, yet are still actively planning for their financial future.
It’s a time when many are considering what retirement could look like, yet are concerned about their level of preparation.
The American Association of Retired Persons (AARP) and the Ad Council recently launched a new initiative called ‘This is Pretirement’ that encourages those nearing retirement age to plan for their financial future.
This initiative aims to tackle the fear and anxiety associated with retirement planning head-on, offering resources and small steps that individuals can take to get on track with their retirement savings.
“Pretirement refers to the period in people’s lives – typically during their 40s and 50s – when they are closer to retirement than they are to the start of their career and beginning to plan for the next phase of their life.
The Financial Reality of Early Retirement
While the idea of early retirement may seem appealing, the reality is that many individuals who retire in their 50s or earlier find themselves facing financial difficulties. Research conducted by the Institute for Fiscal Studies (IFS) revealed that nearly half of those who retired in 2020-21 were now living in relative poverty. These individuals were less likely to receive a pension and reported lower levels of wellbeing than other retirees.
Additionally, a survey by Nucleus and The Lang Cat found that nearly half of UK adults over the age of 50 did not have a detailed retirement plan. This lack of planning, combined with the financial strain of retiring early, can lead to a significant financial shortfall in retirement.
The Cost of Retiring at 50
Retiring at 50 might seem like a dream come true, but it requires careful financial planning. The Federal Reserve Survey of Consumer Finances found that the average savings for Americans between the ages of 45 and 54 was $254,700. However, retiring at 50 could require much more than this average savings amount.
When considering whether $2 million is enough to retire at 50, it’s important to calculate your annual cost of living. Financial advisor Joe Wilson suggests starting with your yearly expenses and subtracting any income, such as a pension. This figure can then be multiplied by 25 to give a basic estimate for how much someone should have saved for retirement.
How Inflation Impacts Retirement Savings
While planning for retirement, it’s crucial to consider the impact of inflation on your purchasing power. In recent years, inflation rates have been near two digits, with a peak of 9.1% in June 2022. This means that your retirement savings will need to stretch further than you might initially expect.
“Keep in mind that the amount you need to spend to maintain the same quality of living will rise with inflation, which will most likely outpace your interest if you keep your money in a conventional term deposit,” says Samantha Hawrylack, co-founder of How to FIRE.
The Role of Social Security Benefits
Social Security benefits can provide a significant source of income during retirement. However, these benefits are only available from the age of 62, and the amount you receive will depend on your work history and the age at which you start claiming. If you retire at 50, you may need to find a way to bridge the gap until you can start receiving these benefits.
The Risks of Early Retirement
Early retirement can come with its own set of challenges. A senior Bank of England policymaker, Catherine Mann, warned that over-50s who retire early may need to return to work to top up their pension pots. This is due to the fact that those retiring at the age of 55 would need to ensure their retirement savings ‘match their longevity’.
This problem is further compounded by the fact that early retirees may find it more difficult to re-enter the workforce after several years out of work. They may also find that their pensions are insufficient for their desired lifestyle, which could result in financial hardship in their later years.
The Trend of Returning to Work
As the cost of living continues to rise, more and more over-50s are choosing to return to work. The Office for National Statistics (ONS) reported a decrease in the number of economically inactive individuals, particularly among those aged 50-64. This suggests that many early retirees are re-entering the workforce to bolster their finances.
The trend of over-50s returning to work is not limited to the UK. In the USA, many 55-plus communities are seeing an influx of residents in their 50s, who are moving to these communities for the sense of community and social activities, but also continuing to work.
The trend of over-50s returning to work highlights the financial pressures facing this demographic.
While early retirement may seem appealing, the reality is that many individuals are finding themselves financially unprepared for this stage of life.
By understanding the financial implications of retiring early, individuals can make more informed decisions about their retirement planning and potentially avoid financial hardship in their later years.
Whether through pretirement initiatives, returning to work, or careful financial planning, it’s clear that the over-50s are finding innovative ways to navigate the financial challenges of retirement. As the cost of living continues to rise, it’s likely that this trend will continue to grow in the coming years.
