While some of your clients may dream of retiring early, make sure to remind them that claiming Social Security retirement benefits before reaching the full retirement age of 67 may have financial implications worth considering, such as getting less in Social Security.
But other clients may never have the luxury of choosing when to claim. A 2017 survey from the LIMRA Secure Retirement Institute found that 53 percent of people retired earlier than planned. Of these retirees, 19 percent retired earlier than planned because of health problems.
Share these four implications of early retirement with your clients so that they can be prepared, whether they leave the workforce unexpectedly or choose to retire early on their own.
1. Expect a longer retirement
Your clients may have saved for decades, but once they retire, they’ll start spending what they’ve put away. Remind them that people are living longer than ever, and the sooner they retire, the more they’ll have to watch every penny.
Explain to your clients that they will need a conservative starting withdrawal rate to make their portfolio last. It’s extra important to stress the long term when working with women, who live longer and make less than men.
2. Plan for early heavy withdrawals from assets
You know that if your client retires early they will have to withdraw money until their Social Security and/or pension benefits kick in. Make sure they understand that these early withdrawals are more likely to expose them to sequence-of-return risk in their early retirement years, meaning that two retirees who have the same amount of wealth can have entirely different financial outcomes, depending on the state of the economy when they start retirement.
Unpredictability is an important factor for your clients to consider – make sure they understand that retirees cannot afford to take a large hit. In the event of an unexpected drop, explain that their plan may have to be adjusted.
3. Account for healthcare costs
With healthcare costs rising, retirees may find that they’re putting more money toward healthcare to cover unexpected expenses. If your client has the option to keep working, remind them that this would allow them to keep their employee benefits, including healthcare coverage. This can help cover bigger medical bills with lower out-of-pocket liabilities.
They might not know that if they retire early they will have to finance their health insurance premiums and out-of-pocket healthcare costs until Medicare kicks in at age 65. You may consider providing them with information about a Health Savings Account or a Health Reimbursement Arrangement.
4. Know that retiring early will affect their Social Security benefits
Help your clients understand that if they retire early and claim Social Security benefits early, they must accept a reduced benefit throughout retirement. If they delay retirement until the full retirement age, their Social Security benefits will be increased by a certain percentage, depending on their date of birth. Share this handy planner with clients to help them calculate the impact of early retirement on Social Security benefits.
You play an important role in helping your clients understand the pros and cons of retiring earlier than planned. To help your clients determine whether they can retire early, here is a checklist of important life changes that will play a role in the early retirement decision-making process.
Learn more about helping your clients set smart and realistic retirement goals.
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