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Retirement Answers is a podcast built to help you succeed in retirement. The thought of retirement can be overwhelming and downright scary for many... but it doesn't have to be!
The goal of this podcast is to provide thoughtful insights and strategies to give you the confidence you need to retire successfully. At the end of the day, my ultimate goal for my clients and podcast listeners is to live a fulfilling retirement.
Follow along as I publish a new episode each week covering everything from retirement income planning, tax planning, Social Security, insurance planning, investing, and much more.
Here's to learning everything you need to know to live out your dream retirement!
Hey, friends, and welcome back to another episode of Retirement Answers. My name is Jacob Duke. I'm your host as always. Today on the show, I wanna talk about early retirement, but I don't wanna do it in the way that you usually hear it discussed. I'm not gonna tell you how to retire early.
Jacob:Instead, I wanna talk about why so many people who want to retire early don't. Specifically, I wanna walk through the four fears that I hear all the time. These are things that stop people just like you from retiring early, even if the numbers say that you probably could do so. And here's why this fascinates me so much. For the last ten to fifteen years now, we've been hearing nonstop talk about early retirement, the FIRE movement, financial independence, getting rid of all of the rat races as soon as possible.
Jacob:And everyone says they wanna retire early, but what's staggering is that the average retirement age is actually increasing, not decreasing. In fact, a study by the Center of Retirement Research shows that the average retirement age today is about three years later than it was back in the nineties. And while nearly sixty percent of Americans say they want to retire early before age 65, the data shows that many aren't actually doing that. So what gives? Why is there so much disconnect between what you want and what's really happening?
Jacob:That's what I want to unpack here today. So the question is, if early retirement is so desirable, and we talk about it all the time, why aren't more people actually doing it? And after working with hundreds of people just like you approaching retirement, I can tell you this with confidence. For most people, it's really not about the math. That's not what's stopping them.
Jacob:It's fear. It's uncertainty. And more specifically, I think there are just four common fears that quietly keep you working longer than you otherwise wanted to or technically need to. So let's go ahead and jump into those. The first one might be really obvious, but it's what if I run out of money?
Jacob:Now, this is a big one and there's really no retirement without running the math and saying, hey, will I run out of money before I pass away at 90, 95, 100, whatever age you want to plan to in the future, we have to answer this question to be able to retire confidently. Will I have enough and not run out? And here's the thing. This is a fear that doesn't magically go away or disappear once you hit a certain net worth or amount of savings. I've worked with different people that have got a million dollars to 3 to 5 to $7,000,000, and some of them have very conservative withdrawal rates.
Jacob:But here's the reality. Most of them are still afraid to spend. They're still anxious about every time the market dips or what happens if I retire at the wrong time and then the market dips. They always are feeling like one bad year could just change everything and blow up the entire plan. What's interesting, what I see and even research, what it consistently shows here is that many retirees actually underspend in retirement compared to what they thought they would.
Jacob:So what ends up happening is is most retirees end up continue growing their portfolio and their net worth instead of drawing it down to zero over time. So what's really going on here? Well, most of the time, it's because our brain, we think of things in worst case scenarios. We imagine the market crash, the high inflation, the living well beyond what we thought we would, and we connect these dots in our minds, and we go straight to disaster. I'm gonna outlive my money.
Jacob:I'm gonna live longer than I thought. My money's not gonna last. We're gonna have the worst market crash, and now I'm not gonna be able to provide for myself. I'm gonna have to rely on my kids. I'm gonna have to sell the house and move under a bridge.
Jacob:Like, all of those things, that is human nature. We plan against that, obviously. We want to take care of ourselves and provide comfort for ourselves and not be in those situations, but again, here's what I've seen over and over. When you slow down and actually model these different scenarios out, the early market declines, the lower returns, the higher spending even, the outcome is rarely just what you expect. Yes, you might have to make some adjustments along the way, and having flexibility matters.
Jacob:I'm a big fan of having flexibility in retirement in terms of which accounts you can pull from, and even flexibility around how much you really need to spend every month. But the the idea of I'll be broke and working at 85, guess what? I've never seen that if someone starts retirement on the right foot. So the worst case scenarios, they just typically don't pan out that way. And one of the biggest mindset shifts that I love to see when I'm working with my clients is not so much of the the question, you know, will this plan work perfectly?
Jacob:Because we know it won't. Instead, they start asking, hey, can this plan work in reality? Can it survive reality? And that's where confidence ultimately comes from. So instead of only running a Monte Carlo simulation or projecting your spending over time, I'd encourage you to take it a step further by stress testing your portfolio.
Jacob:You need to see what happens if that market drops 30% in year one of retirement. What happens if taxes increase by 20% and so on, right? These are the types of things that we look at with our clients because even if the plan shows that things would be okay, there's always gonna be the what ifs in the back of your mind. And one of those what ifs is around Social Security, and this brings us to fear number two, which is I cannot trust Social Security. And guess what?
Jacob:I've heard this one constantly because we all read the headlines, right? We talk about the projections and how Social Security, it's gonna be, you know, insolvent by 2034 or whatever the new date is. And when you hear this, it's easy to assume that Social Security either won't exist by the time you need it or it's gonna be cut in some fashion whenever you really need it. So our natural instinct here, it becomes either, hey, just don't retire because I need to have more saved because that fixed income source is gonna be gone by the time I get there, or we wanna claim it as early as possible so that we just get something while we can. But here's the part that most people miss in my mind.
Jacob:Social Security, it yes, might need reform, but that doesn't mean it's gonna be going away completely, and here's why. The system is is primarily funded by ongoing payroll taxes. It's what you and I pay as workers, as employees, every single paycheck essentially, and it's funded year to year. So even under pessimistic assumptions here, benefits are not gonna go to zero. At worst, they would just get reduced.
Jacob:But I would argue that even a reduction in benefits, it's just not even on the table. And I want you to think about it. How do you think that would go over with people? Best case scenario, the political party or politician who stepped up to try to solve this issue, it's essentially a political career ender, so all their aspirations, they're now gone because they did something so unpopular by cutting benefits that they're never gonna get a vote again. And worst case scenario, a revolt happens because retirees like you, you paid into the system, and now you're gonna demand, obviously, to out what you paid in.
Jacob:And even we all know that, hey, it's been a bad investment no matter what, but you do want to get at least something back that you put into the system. So I think that cutting benefits will really be the last resort option on the table. Instead, there are a few other measures that I think really could be taken. For example, the age of eligibility, that could be increased from 62 to, I don't know, 63 or even 65. If you increase it to 65, that would then align with Medicare eligibility and reduce the amount of benefits that need to be paid out annually, right?
Jacob:Because you've taken away three years of payments by increasing that age. And what this does is, is maybe now, hey, we've got enough revenue coming in from payroll taxes every year based on this new 65 or older claiming adjustments so that people less than that can't get their benefits, and that would reduce how much benefits are actually being paid out annually. Now another option here is perhaps to increase the Social Security tax component of FICA. So we could do that from 6.2%. I don't know.
Jacob:This is a round number here. It could go up to say 6.5%. Now, obviously, you know, that would be opposed to by the worker, by by me. Right? I don't wanna have to pay more taxes for you, obviously, but it could be a solution to increase Social Security revenue annually or perhaps maybe kind of a far fetched one here.
Jacob:I'm not sure if this is realistic or not, but maybe just establish a standard one or 2% cost of living adjustment rather than having the cost of living adjustment every single year, being tied to CPI. Yes, obviously this would reduce benefits for retirees long term because you're technically, you know, losing money to inflation because you're not increasing at the same rate, but the effect, it's actually less overt and it softens that blow compared to just a 20% immediate cut in benefits. Now, I'll be the first one to admit, I have no idea what's gonna happen here or the way it could go, and I could be way off. But instead of assuming the worst case scenario, just think about things realistically. What is the most reasonable solution to the problem?
Jacob:And then kind of anchor our thoughts and our processing and our planning more to that compared to the most dramatic or worst case scenario. And when you're doing your planning, I would plan a little bit more conservative. So as an example, think about the combination of your portfolio, you know, and your Social Security benefits and how they produce retirement income, when you combine them together. I would suggest thinking of your portfolio as the thing that provides your basic everyday needs, while Social Security and the benefits you get there, well, those are gonna actually be funding your discretionary spending or all the extras. And what's interesting about this is that this is a little bit different compared to how we normally plan because we often start with Social Security as a fixed income, kind of as your base or your floor income throughout retirement, and then we use your portfolio to supplement that above and beyond the base amount we expect to get.
Jacob:And so your portfolio in that situation, it would actually be funding the discretionary and the extras, and you know you can turn that lever off here and there. So flipping this on its head and thinking of it in an opposite way, maybe that would help you plan a little bit more conservatively and help you feel the potential benefits of a Social Security cut even before they happen. It helps you get ahead of that curve knowing that this is kind of lurking in the background here in 2034. And the final point that I want to make here is, is if, and that's a big if, they do cut your benefits, I want you to ask yourself this. Does it really make sense to take your benefits early?
Jacob:Because if they do cut your benefits, by taking your benefits early, you will just have your cut taken from an already reduced amount. If a reduced Social Security income is your fear, then mathematically, it would make more sense to do everything that you can to increase your benefits before that cut happens. So that's kind of the final thought I want to leave you with there on Social Security and the potential cut to benefits or that it's not going to be here at all. Obviously, those are doomsday kind of thinking, and I don't want you to be in that world. So maybe take some of these ideas and apply them to your situation to kind of get more of a reality based approach to your planning around social security moving forward.
Jacob:The third fear is if I stop working, what will I do? Now, this is a fear that you rarely say out loud, right? You don't go around talking about this one very often, at least with just anybody. Maybe you talk to your spouse or loved ones about it or someone close to you, but what's interesting about this one is it's just not about money. It's really about who you are.
Jacob:It's about your identity. It's it's about maybe just like a day to day structure and the fact that maybe we'd need some sort of structure or maybe, hey, that's where my friends are. I love going to work every day. My friends are there. It's who I, kinda socialize with.
Jacob:Or maybe it's a sense of fulfillment and contribution, and it's kind of a reason to get up every morning. If you take that away from yourself by retiring, you know, what happens next? Retirement might end up feeling like less of a freedom and more like, you know, just being disoriented and not sure of where you're at in life and kind of what footing you have. And what's interesting is that studies have shown that loneliness and kind of isolation, they actually increase after retirement if you don't have that intentional way to replace what work used to provide. So the happiest retirees that I know, they don't retire from something, they retire to something, and if you've been listening, you've heard me kind of talk about that in that way, but what they've done is they've thought through things.
Jacob:They've thought through how their days are going to be structured, who they're going to spend them with, how they're going to mentally and emotionally stay engaged, you know, where their maybe sense of purpose or their why is going to come from, and this can happen in different ways. You can do it through family, through, hobbies, or volunteering, or learning, or teaching, or or whatever interests you, but none of it happens accidentally. Okay? So it's all intentional. You've gotta evaluate yourself and kinda plan for this part of retirement, not just the money side, but the the human side, the you side of retirement, if you want to be that much farther ahead and be prepared for it.
Jacob:Now what I want to say next is very important, so I want you to listen. Now you're hearing me talk about this and kind of this, hey, what's my purpose in retirement and my identity and all this sort of stuff, right? And you're like, Jacob, I don't feel that. That's not really, you know, an issue of mine. And here's what I'll say, because I might end up falling into this camp one day, and it's really interesting for me to talk about this.
Jacob:I don't know because I'm not there, but it's okay to enjoy work. Okay? I love work. I love what I do. I love serving our clients.
Jacob:I love having a great team. I love figuring things out and moving forward and getting better. And if you aren't sure what you'll do in retirement, okay, maybe it's a sign that work is actually a good thing for you rather than something you need to escape. Right? We hear this retirement thing and we say, oh, I've got to stop doing something and figure something else out.
Jacob:But maybe you don't have to reinvent yourself, and that's okay. Maybe you don't have to find this new magical purpose that I often talk about. Maybe your purpose is the same thing, just do it more. Right? Maybe it's the same thing over and over again.
Jacob:Maybe you've already found it. Maybe you already have it. And guess what? That's okay. And so the point I want to make here is this.
Jacob:Don't be pressured into retirement. Okay? Don't be pressured into doing something that you think is right because that's what others have said is right for them or even I talk about. You've got to evaluate what's right for you. And personally, I'll share my personal opinion here and kind of pull the curtains back just a bit.
Jacob:I personally believe we're all meant to contribute until the day we die. Contribute to something big or small. Doesn't mean working for a company and making a paycheck. It means working or contributing in some way for free, with family members, with community around you, whatever that looks like. I just don't think we're meant to just have fun all day every day.
Jacob:I'll I'll put it that way. We're meant to actually work in some capacity and use our hands towards some sort of benefit for us, for our families, or for those around us. Like, it is good to work, whether it's for money or not. Okay, so that's my personal take on this, and I wanna kinda round this off by saying, if work is fulfilling and joyful and fun and that's where you find satisfaction, great. You don't have to retire.
Jacob:No one's making you. Right? And if you do end up retiring for various reasons, it could be health related, maybe you have to find that new thing, but it's okay for it to be work of some capacity. It doesn't have to be, you know, pickleball or golf or, you know, or whatever you think is retirement is supposed to be based on what I talk about or anyone else tells you it should be. Make it your own.
Jacob:That's what I'm trying to say here, is make it your own. Figure out what's important and valuable to you and do that. There's no right way to do it, but there is a right way to do it for you. Now the fourth fear is one that holds most people back most of the time, and it's the health care before Medicare thing. Right?
Jacob:Jacob, I can't retire before 65 because what am I gonna do for health insurance? And for a lot of people, this is just a deal breaker. Right? Your employer insurance, it goes away. Medicare is way too far away, and then health care costs, they they probably feel unpredictable or perhaps overwhelming because it is an increase most likely.
Jacob:So to start retirement early, it feels kind of unrealistic. But once again, the assumptions you're making here before you even evaluate it are often the part that's damaging you and your plan. Okay? Private insurance is not the boogeyman. It's not this monster that must be avoided at all cost.
Jacob:Okay? So here's the reality. Here's what I want you to look at. I want you to weigh out what is the cost of another year of work to myself, my family, my my mental, my physical, my emotional, my spiritual self compared to an extra few $100 of insurance or maybe a few thousand dollars of insurance cost every year. Now, I don't know the answer to that, and this is gonna be different for every person.
Jacob:Okay? But I want you to think about it. Right? So just because you have an increased cost somewhere, does not mean it's the wrong answer to choose that cost. Okay?
Jacob:Because you have to evaluate what are the other costs I'm still taking on if I don't go with this other increase. And so there could be this leveling or offsetting, whether it be in dollar terms or personal terms, There are costs and benefits of everything. But I don't want you to be scared off from early retirement just because of having to go find private insurance compared to not having the ability to jump on Medicare just yet. Now, there are a few other options, right? You can have part time work and you can actually maybe get benefits from that.
Jacob:You could obviously get subsidies through the ACA Marketplace plans. There are options. And I know that some of the things around ACA that's going be changing in 2026 and beyond, but the key is this: just because you have to find private insurance does not mean you cannot retire. Okay? So what I want you to do is think about, hey, what if my insurance costs went up for a few years?
Jacob:Okay? And how does that fit into my plan? And so when you actually plug the numbers into a plan, real numbers, don't assume $2,000 a month premiums for you. That's, in my opinion, not realistic, especially if you do qualify for the subsidies and can find a way to keep your income low. Right?
Jacob:I would say plug the real numbers, get quotes, like get the data, run the numbers, and say, hey, if I retire today, what would my insurance be based on x amount of income? How much would that cost me every single year? Okay? And so run the numbers and just understand, health care is not cheap and it never will be. It'll always be expensive whether you do it through premium on an insurance policy or if you don't have an insurance policy, it'll be on the actual care itself.
Jacob:Like, there's no perfect solution. But just because you're uncertain about it, doesn't mean that it's impossible to retire before you get to 65. So don't let this insurance question be the boogeyman that stops you from doing what is most valuable or most important. It might mean that you're trying to retire to move across the country to be next to your kids and grandkids because that's the thing that's eating at your soul. Right?
Jacob:Like you wanna be there with them and for them, and you think that you can't retire because of a health insurance. Like, I got news for you. We can figure that out. Like, we can figure that out. So that's the fourth fear and it's often a deal breaker and I hate that it is because we've got solutions.
Jacob:There's ways you can manipulate your income. There's ways to plan for it. Even if you can't retire today, maybe the next two years, we could put a savings plan together that can help you have the flexibility to not pay those way high increased premiums and actually qualify for the subsidies because of the new type of money you have, you know, through tax diversification. So there are solutions. Maybe the solution is not immediate.
Jacob:Maybe you just need a plan put together to actually have the solutions you need in two or three or four years to be able to still retire early before 65. So if you're in your fifties and you're like, hey, I feel close to retirement in terms of what I want to do and how I'm going to do that, but you feel like something's holding you back, I want you to ask yourself this. Is it really the math? Is it really how much money you have? Or is it one of these types of fears that we've talked about here that's kind of keeping you stuck?
Jacob:That's not letting you pull the trigger and say, yep, I'm done. Because I've found that you have to be able to pinpoint really what it is that's holding you back instead of just say, I don't think I have enough yet. You know, I want you to be able to pinpoint those things, like what is it that actually is holding you back? Because once you know what the problem is in your own mind, then you can start planning a lot more clearly, and that's where the confidence will come from. And that's when retirement for you, at least early retirement, becomes more possible and realistic.
Jacob:So if you're in that situation, you're like, I think that's me, Jacob. I think I'm close. I'm not really sure what to pinpoint. I'm not you know, is it some of these things? Maybe, maybe not.
Jacob:What is it for you? I want you to ask yourself that question. If you're needing help with that type of thing, hey, Jacob, I'm trying to figure out what my problem is. I'm trying to figure out what I'm scared of. Are you open to conversation?
Jacob:And the answer is absolutely yes. I want to talk to you. I want to hear your story. I want to get to know you. And if you're interested perhaps in engaging with us and what we do for our clients in terms of the planning and everything we do, you can book a call with myself using the link in the description below.
Jacob:Happy to have a conversation. If we're not a great fit, wonderful. You can keep on doing what you're doing. If we are, wonderful. We'd love to serve you.
Jacob:So I hope this has been valuable to you. Share with a friend if it has, and we will talk to you again very soon. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode.
Jacob:I look forward to talking with you again next week.