In order to exhaustively evaluate the merits and demerits of an early retirement, it is important to consider the longtermview as opposed to a short term view. Reductions in personal expenditures in the short term have to be balanced with increasedpension benefit liability and expenses over thelong term. Nevertheless, budgetary and administrative discipline is necessary in order to get such reductions.
Some issues associated with early retirement should be addressed before deciding whether or not to take an early retirement. It is important to consider the economic, mental and emotional impacts of early retirement. Another important aspect is the decision’s effect on the immediate family. This paper seeks to prepare a decision paper outlining both the advantages and disadvantages of early retirement.
Many people find themselves pursuing money making activities and finding it hard to stop. Either in employment or in business, there is an insatiable urge to attain a social status. Many end up accomplishing the social status and climbing the top of the ladder, but end up having limited time to enjoy their accomplishments.
On the contrary, some people are forced to retire unwillingly or without their consent. Many companies or employers have a policy for retirement after fifty five years, unless an employee has obtained a “chief” management position in the company. Beside the government policy on retirement, early retirement is a personal decision (Martel, 2011).
The first advantage of early retirement is that after the end of a career, it is another new beginning. The retiree has a lot of time to spend with the family and friends. The retiree gets a lot of time to manage and participate in family affairs.There is adequate time to eat healthy cooked food and do more exercises and physical activities as opposed to junk food while sitting in an office. Early retiree can have an opportunity and adequate time to do the things that were impossible when working.
Some of these include travelling around the world, spending time with the grand kids and gardening. The fundamental assumption is that early retirement is for those who have already saved. This gives them a chance to do a lot in their young active lives, as opposed to after fifty five years of age(Zelinski, 2009).
An advantage that accrues to the society at large is the vacant position left by the retiree. A much younger person will be able to occupy the post; this will solve the unemployment problem that is dominant in young generation. In this way, early retirement becomes a program or a mechanism designed to solve unemployment problems in the society.
On the contrary, it should be mentioned that this is not always preferred by employers. For employers, replacing an old experienced employee is not easy. Some characteristics like conscientiousness and reasonableness cannot be easily replaced (Martel, 2011).
Early retirement is an attractive prospect for many workers especially if it is packaged with incentives. It is possible to have an early retirement and still enjoyed a stable and a secure financial ability. However, this applies only to those who spent their time to plan ahead of early retirement.
It is important to accumulate adequate financial and personal resources during employment. The retiree also requires making thorough long time projections. The retiree should hire a qualified accountant or a financial expert to help with the projections. If the income and expenditure projections on long time basis are in a safe position, then it is possible to consider early retirement(Zelinski, 2009).
Early retirement gives a person an opportunity to learn and practice new skills, and have a built-in interaction with people. The retiree gets an opportunity to concentrate on new skills while meeting new interesting people. Another way of utilizing the time and potential is by working with a humanitarian non-governmental organization. The retiree is able to bring in new skills, share with others, and acquire new skills.
The retiree can volunteer as a teacher, a move that has been proven to be successful. This enables the retiree to interact with young people who can listen unlike at workplace. It is appealing to work with a young person about job prospects and life issues than talking to an old experienced person(Zelinski, 2003).
Early retirement incentive programs are very popular strategies applied by companies around the world to reduce the employees. They are also advantage plans for companies in mergers, downsizing or takeovers. Experienced managers have also applied then to reduce layoffs.
To the employee, it is beneficial and the most humane way of ending a career in a company. Early retirement incentives are practically appealing to an employee who does not have a guarantee of keeping the employment. For those aspiring to retire without any benefits, they are the best ways of going for early retirement. However, the retiree should evaluate critically the benefits offered by the incentives, and those that will be accrued for normal retirement (Martel, 2011).
There is always a reason for avoiding early retirement. Getting the free time after retirement has some negative consequences. Some people feel redundant, a symptom for impending depression. Economically, inflation should be used as a determinant for early retirement. The pension and savings should be able to support the retiree. Since the retiree will spend a lot of time in retirement, the effects of inflation will be heavily felt.
The cost of living continues to increase after retirement until the retiree has reached eighty years of old. Statistics shows that those who retire early have an increased percentage of living expenses when they reach eighty (Paul & Townsend, 1992).
A good number of retirees mistakenly assume that their tax responsibilities will reduce after retirement. To some extent, some taxes are avoided after retirement, but on the other hand, they could also go up. Additionally, income tax never goes down than they are before retirement.
Retirees’ lifestyles changes significantly after retirement. Before planning on early retirement, a retiree should be able to curtail their lifestyle. The optimum spending after retirement should be about 75% of what was being spent during the working days. A considerable number of retirees spend more than the optimum amount, a move that complicates and worsen their life after retirement (Paul & Townsend, 1992).
Another commonly ignored expense is the cost of health insurance. This comes as a disadvantage of early retirement unless the retiree worked for a company that extends health insurance until the stipulated age, probably sixty five. The retiree is forced to pay high health insurance premiums from the accumulated savings until sixty five. Some early retirement incentives endorsed by the employer extends the health insurance until sixty five, after which one is eligible for Medicare(Zelinski, 2009).
A considerable number of early retirees gets fed up with their full time working schedules and decide to retire. After retiring early, they proceed to look for part time job without considering its drawbacks. Most of part time jobs do not have regular, fixed or full time schedules.
The catch is that most of these jobs are not financially and emotionally rewarding. It becomes hard to supplement the retiree’s income by working on part time basis. The additional income obtained is also channeled to other additional costs like higher income tax. The retiree is affected both mentally and emotionally due to reduced social security offered by part time jobs (Paul & Townsend, 1992).
The social security benefits will be cut down significantly by retiring early. The early retiree will be forced to start drawing the benefits early. The monthly spending will be lower and the effect of inflation will be hard to deal with.
If the personal savings of a person is not adequate, the social security benefits will be overused and over-relied upon. The retiree will also be forced to start drawing and spending funds that has been set aside for personal retirement plans to supplement the benefits. This will also reduce the time of contribution to the plans, and hence less benefits.
The retiree will also incur steep penalties by withdrawing from personal retirement plans before the stipulated age. The early retiree is also penalized by the company in the company pension plans. For this matter, the person is undoubtedly unfit for early retirement (Baker, 2007).
In conclusion, early retirement is not an overnight or an instant decision. The retiree should compare the psychological and emotional ramifications of continuing to work and for early retirement. Impact on the members of the family should also be put into consideration. The situation should be assessed realistically without a rush decision being made.
If the future of your job is not guaranteed, the early retirement option will be most desirable. If the company is likely to have future layoffs, it is not good to be left behind the early retirement incentive program that has been offered. As mentioned earlier, the retiree needs to hire a competent financial advisor to project the long term income versus expenses. If the figures fallin your expectation bracket, then you should consider retiring early.
References
Baker, S. (2007). Your Complete Guide to Early Retirement: A Step-by-Step Plan for Making It Happen. Ocala, FL: Atlantic Publishing Company (FL).
Martel, J. (2011). Early retirement with no regrets. Retrieved from Bankrate.com: Comprehensive, Objective & Free. Web.
Paul, R. J., & Townsend, J. B. (1992). Some Pros and Cons of Early Retirement. Review of Business , Vol. 14;22-34.
Zelinski, E. J. (2009). How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won’t Get from Your Financial Advisor. Putian District, China: Visions International Publishing.
Zelinski, E. J. (2003). The Joy of Not Working: A Book for the Retired, Unemployed and Overworked- 21st Century Edition. Berkely, Carlifornia: Ten Speed Press.