Are most people working too long unnecessarily?

[disneysteve]

Someone posted a poll at another site asking for people who retired 10 or more years ago to indicate how their net worth has changed since retirement.

84% say since retirement their NW has increased.
12% say their NW is about the same.
Only 4% say their NW has decreased.

That really raises the question if most of those
people would have been just fine had they retired sooner. Did they work for possibly years longer than they needed to?

I saw this play out first hand with my cousin. He retired at 55. When he died at 66, he had more money in his retirement accounts and overall portfolio than he had at retirement.

Being right on the cusp of full retirement myself, I definitely wonder if there’s really any reason financially speaking for me to still be working at all. I mean I’m not doing much - I’m only scheduled to work 17.5 hours this month - but I most likely don’t even need that. We’d be just fine if I stopped. It’s just mentally hard to cut that cord. And I do still enjoy what I do.

I guess the point is that if you want to retire, really crunch the numbers. You may be able to do it much sooner than you think.

[kork13]

Generally there's something holding people back. It could be healthcare coverage, qualification for a pension, OMY-itis, or simply being afraid of the major change in lifestyle (whether admitted or not). Could also be a matter of where/how everything is saved -- perhaps everything is locked away in retirement accounts but they're still in their 40s/50s. Not to mention the desire to simply keep working to stay busy & occupied.

I think in many cases, I think it's simply being overly conservative. You're talking about a group of people who spent 20-30+ years squirreling away their earnings. We've all discussed how it's not an easy transition to shift into spending more & drawing down those savings. Likewise, in the process of saving all of that nestegg, people likely plan for worst case scenarios that never come to pass & >99% chance of success. When the worst case never happened, their portfolios kept growing.

Personal case in point: Most of those factors apply to us. By the numbers, I'm probably pretty close to being able to retire today -- $30k/yr income from DW's pension & rental real estate, with $1.8M assets. But I'm sticking in my job another 4.5 yrs to earn a pension. By then, I expect we'll have ~$80k/yr in pensions, $10k-$20k/yr rental income, and $2M-$2.5M in assets ..... definitely enough for us to easily retire on. But even at that point, over 65% of our assets are in retirement accounts, so I'd have to do 72t withdrawals in order to access any of that to draw down our NW. And we'll only be in our early 40s, so we're going to need some kind of outlet to stay occupied & engaged, and some form of a job is likely a part of the solution. All of that will mean that no matter what we do, our NW is likely to continue growing in spite of being FIREd.

[disneysteve]

Great points, kork, especially about where the money is. Plus the poll I referenced was about NW, not portfolio size which could be two very different things if someone has a lot of money in their house. And if they've been retired for 10 or more years and stayed in the same house, that could easily explain their NW going up but doesn't mean they have any more spending money.

[srblanco7]

The other potential outcome from that poll is that many are unnecessarily limiting their withdrawal rates. I'd also note that the return of the S&P 500 is 12.3% for the last decade (above long term average). So those responding to the poll may have benefitted from above average returns.

So many unknowns entering retirement - longevity, sequence of returns risk, healthcare and long-term care costs, the "threat of running out of money" etc.- which can drive a conservative mindset, as it relates to OMY and/or withdrawal rates. It's easy to focus on what can go wrong during retirement and ignore what can go right.

I've been messing around with a CAPE based variable withdrawal strategy which also factors in capital preservation and ignores social security. Certainly (likely) a conservative approach - but it's where we'll start. Like you I'm likely to transition to PT work next year (thinking for 12-18 months) before full ER.

FWIW - for a 37 year projected retirement
CAPE based withdrawal strategy w/ capital preservation and not considering SS results in 3.4% starting withdrawal rate projection.
CAPE based withdrawal strategy w/ capital preservation and considering SS results in 3.8% starting withdrawal rate projection.
CAPE based withdrawal strategy w/ 50% capital preservation and considering SS results in a 4+% withdrawal rate projection.

[bjl584]

Most people who are of a like mindset that you find on this forum and on similar forums are most likely working too long.
That is, if you boil things down to a math problem.

There are more factors at play. Kork pointed to many of them.

My mom retired about 10 years ago, and her net worth has increased substantially since then.
Thankfully, she has many hobbies that keep her occupied, or she may still be working simply for something to do.

[disneysteve]

The other potential outcome from that poll is that many are unnecessarily limiting their withdrawal rates. I'd also note that the return of the S&P 500 is 12.3% for the last decade (above long term average). So those responding to the poll may have benefitted from above average returns.

So many unknowns entering retirement - longevity, sequence of returns risk, healthcare and long-term care costs, the "threat of running out of money" etc.- which can drive a conservative mindset, as it relates to OMY and/or withdrawal rates. It's easy to focus on what can go wrong during retirement and ignore what can go right.

I've been messing around with a CAPE based variable withdrawal strategy which also factors in capital preservation and ignores social security. Certainly (likely) a conservative approach - but it's where we'll start. Like you I'm likely to transition to PT work next year (thinking for 12-18 months) before full ER.

FWIW - for a 37 year projected retirement
CAPE based withdrawal strategy w/ capital preservation and not considering SS results in 3.4% starting withdrawal rate projection.
CAPE based withdrawal strategy w/ capital preservation and considering SS results in 3.8% starting withdrawal rate projection.
CAPE based withdrawal strategy w/ 50% capital preservation and considering SS results in a 4+% withdrawal rate projection.

What is a CAPE strategy? Is there a site online where you can run those projections?

[Drake3287]

Having answered that same poll, unfortunately I think the majority of the people on that other financial forum tend to be more financially well off than the typical American is. I do agree though that people that are generally well off work longer than they probably should have and I think that comes from being financially responsible over their lifetime so they tend to save that "little extra" before retirement. I find myself in this same situation, I could have retired a little earlier then I did at 54 but felt the added income and savings would make retirement life more comfortable. I guess it worked.

[disneysteve]

YTD I’ve averaged less than 8 hrs/wk at work. Our withdrawal rate is about 1.33%. If I stopped working completely maybe that would double or so to 2.75% perhaps. I think we’d manage just fine. I don’t need to be working.

[LivingAlmostLarge]

So i'm at a funeral for my uncle this weekend he was 74. Good thing he retired at 53. My mom retired at 55. My aunts are both still working 68 and 70. The 68 year old is retiring end of the year beause her brother just died. Do they need to work? Nope, I highly doubt it. My other aunt 70 says she is going to retire but has no plans and admits she likes the money.

My FIL just had double valve surgery at 73. He's been retired like 5 years. I don't think he'll be outliving his money. Too bad it's going to be hard to spend it all.

My DH and I decided he's retiring asap. Could we do it now? It's a close, close call. I think we probably could. But he's working for generational wealth right now and just the way it is that he really can't quite stop without repercussions. But when he can, he will. But now he says to me " we need to spend it now because who knows what tomorrow brings?" So we are saving but now we're also spending.

I'm pushing myself to stop saving more and more and more. I push myself to not feel like I should save 50-60-70% and instead say enough is enough. I'm good, we need to spend.

[srblanco7]

What is a CAPE strategy? Is there a site online where you can run those projections?

In short, a variable withdrawal strategy that adjusts based on the CAPE (10 year cyclically adjusted price to earnings ratio) of the S&P 500 (aka the Schiller PE ratio). So when the market is "overbought" your portfolio value is high but the CAPE is also likely high so it dampens the withdrawal and .vice versa

Link to the article: https://earlyretirementnow.com/2022/...eries-part-54/

This site has a lot of great articles examining various safe withdrawal rate (SWR) strategies and a "toolkit" for running the projections. At this point, I've just recreated the basic calculation in my investment tracking excel file (simplified in that it ignores future cash flows - aka social security - and targets capital preservation).

Personally, I'm leaning toward a variable withdrawal rate strategy as it intuitively makes sense to me - that is, tighten the belt a bit when the market is down. The CAPE based approach seems feasible though I have not completed sensitivity analyses as of yet. Vanguard also has a white paper on the utility of a variable withdrawal strategy that I found interesting. If I can find it, I'll post a link (as of now, the link to the Vanguard white paper is not working. it's titled "from assets to income: a goals based approach to retirement spending" if you want to try to track it down).

[Fishindude77]

If you took a cross section of groups like this forum, I'm sure many are working and putting off retirement much longer than they would need to, largely due to the fact that it's hard to change old habits and fear of the unknown. However, if you look at the country as a whole the majority hasn't put in near enough effort working or commitment to saving in their prime working years and probably need to pretty much work until death to maintain any kind of decent lifestyle.

[LivingAlmostLarge]

If you took a cross section of groups like this forum, I'm sure many are working and putting off retirement much longer than they would need to, largely due to the fact that it's hard to change old habits and fear of the unknown. However, if you look at the country as a whole the majority hasn't put in near enough effort working or commitment to saving in their prime working years and probably need to pretty much work until death to maintain any kind of decent lifestyle.

Maybe but a lot of people i know whose parents didn't prepare are still inheriting a lot. Why? Mostly because people who own homes never tap that last asset. The home. The home is what usually gets liquidated and spent. People don't need as much as you think with SS replacing such a large portion of people's incomes. If you make the medican $73k/year and you both make $4k/month combined from SS which is around average if you are FRA, then you only need $2k/month to get back to your preworking income. If you ended up paying off your home you might be only need $4k/month now to live. So SS covers everything and thus retiring with say $500k is more than enough for many people if SS covers most of their needs.

The people who really struggle are those who made a lot and never saved. If you were median income family and you managed and you bought a reasonable home you paid off at 65 and wait until FRA to retire, well i think you don't need much to retire.

[disneysteve]

Social Security is something that I think a lot of us overlook. I've seen many posts here and elsewhere saying that people did their retirement planning without counting in SS. I did it too. I didn't want to count on it without really knowing how much it would turn out to be and I wanted to be sure we were secure no matter what happened with SS.

So here we are at almost 60 with enough to support us for the rest of our lives and in as little as 2-3 years we could start collecting SS if we want or need to on top of everything else.

[kork13]

Social Security is something that I think a lot of us overlook. I've seen many posts here and elsewhere saying that people did their retirement planning without counting in SS. I did it too. I didn't want to count on it without really knowing how much it would turn out to be and I wanted to be sure we were secure no matter what happened with SS.

So here we are at almost 60 with enough to support us for the rest of our lives and in as little as 2-3 years we could start collecting SS if we want or need to on top of everything else.

Personally, I think it makes sense to exclude SS in retirement planning until you're actually evaluating when to retire. For most, the time difference between retiring and collecting SS is probably less than 5 yrs. I can't foresee circumstances where SS would suddenly dry up in less than those 5 years without having some very clear indicators for which you can start planning & adjusting. So once you're close to retiring & drawing SS, totally include it.

It's more for early retirees (in their 40s/50s) that it gets more uncertain, especially as Congress continues to kick the can down the road. If they could take action now to stabilize the program, they would have a couple decades for the changes to take effect & steady out. The longer they delay, the more it's gonna hurt when change is forced upon the country.

[LivingAlmostLarge]

Personally, I think it makes sense to exclude SS in retirement planning until you're actually evaluating when to retire. For most, the time difference between retiring and collecting SS is probably less than 5 yrs. I can't foresee circumstances where SS would suddenly dry up in less than those 5 years without having some very clear indicators for which you can start planning & adjusting. So once you're close to retiring & drawing SS, totally include it.

It's more for early retirees (in their 40s/50s) that it gets more uncertain, especially as Congress continues to kick the can down the road. If they could take action now to stabilize the program, they would have a couple decades for the changes to take effect & steady out. The longer they delay, the more it's gonna hurt when change is forced upon the country.

I also agree that you don't depend on SS retirement planning if you are further out. But for those retiring soon you can factor it in.