NEW YORK (MainStreet) – Are you making enough early in your career to consider retiring in your 30s? Don't.
A few weeks ago, Forbes shared the story of Jeremy and Winnie, a Seattle couple who downsized their living expenses and increased their investments to retire in their 30s. It's a story of savvy investment and romantic notions of what retirement can look like, but it's one being told two years into what could be a 60-year retirement or more. Not surprisingly, regardless of investment strategy, most financial advisors can't get behind this plan.
Michael Wall is the president and founder of Retire Well in Altoona, Pa., and Palm Beach, Fla. His firm requires a minimum investment of $1 million and deals regularly with pro athletes and their spouses who are retiring from high-earning careers during their 30s or early 40s. Though some of his clients face a lot of physical wear and tear in their primary careers of choice, he says sitting on millions and letting those wounds heal doesn't make for much of a life.
“My thought on that is being 30 or 40 or whatever and pulling the plug and retiring — kind of putting your brain on autopilot — I don't advise that,” he says. “You're in a situation where you're adding no value to anyone: You're going out looking for the next vacation and next thrill. Maybe you retire from a job, but you don't retire from life.”
With high-income earners, the question isn't whether they can retire young, but whether they should. Benjamin Sullivan, a certified financial planner with Palisades Hudson Financial Group, of Scarsdale, N.Y., notes that if the value of your assets, market returns, your other income and your living expenses add up to a comfortable figure, a financial adviser can help you figure out how long all of that will last through retirement in a variety of scenarios.
“Even with all else being equal, a $10 million portfolio might be sufficient for one young retiree, while being way too little for another individual who wants a higher standard of living,” he says.
The one variable that doesn't change all that much when retiring that early: time. You're talking about decades — for some, a full lifetime — that you'll have to fill on a fixed income. Even if you don't get bored, you might have a child (or another one), get divorced, get remarried or become ill. You can plan for a few of those scenarios, but it gets tougher to prepare for all of them if you're going into this plan with someone else.
“It's not our parents or grandparents' retirement anymore,” says Mike Lynch, vice president of strategic markets at Hartford Funds. “Chances are I might spend 20, 30 to 40 years in retirement if I retire in my 50s. That's a lot of time, so if I retire in my mid-30s, that money will have to last me 50-plus years, and I just don't see how it happens.”
And that's the least of it. As Sullivan points out, even a portfolio that looks like it will easily cover living expenses can shrink substantially over a long retirement as inflation increases those expenses. Continuing to earn income would not only prolong contributions to, and delay withdrawals from, a retirement portfolio, but allow you to keep up with your friends' and family's spending as they continue to earn. Plus, all of those retirement perks such as travel and hobbies tend to come at a cost.
“Working keeps you occupied and prevents you from spending money,” Sullivan says. “Unless you plan to sit at home idly once you retire, your expenditures might grow in retirement rather than shrink.”
At its worst, an extremely early retirement means that you're just not doing anything. Sullivan notes that if you're successful enough to retire in your 30s, chances are you're highly skilled and are just letting your talent and skills go to waste by shutting them down early. Even if you are open to returning to the workforce, many of those atrophied skills might not translate to the modern workplace once your return. Even if you're an athlete and your physical skills diminish with age, you likely still have something to offer once your playing days are over.
Someday you will either say 'I'm glad I did' or 'I wish I had,'” Wall says. “No one can use the talents and gifts and abilities that you have. Too many people go to their graves with their music still in them. What if you were supposed to be the next Steve Jobs, but because you didn't even try, that didn't happen?”
After consulting with several clients who've had to face the prospect of retiring in their 30s, Wall has advised them to step back and reevaluate who they are before stepping into the next stage of their life. If someone was entrepreneurial, had an A-type personality, really went after their goals and produced wealth through their efforts, chances are that they won't want to coast for the rest of their life. In many of these cases, Wall says there's a chance they could cut back hours significantly but still work as consultants or in other capacities that aren't nearly as taxing.
For many of Wall's clients, however, the answer to all of that downtime lies in the nonprofit sector. They get to give their time and be involved in activities that have a greater purpose. They're involved in something greater than themselves, but they get more time off and don't feel as if they're working. Most importantly, they're making a contribution and leaving their mark.
“We try and have a conversation about what they want their life to look like: Do you want it to count or not?” he says. “You either make history or fade into it.”
— Written by Jason Notte in Portland, Ore., for MainStreet
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This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.