How to Help Clients Retire Early

Conservatively, we can assume their portfolio stands to yield between $35,000 to $40,000 a year in spending. On this basis, including Social Security, the couple can reasonably hope to fund a lifestyle costing between $65,000 and $70,000 a year until they reach age 90.

But that’s only if everything goes according to plan. In practice, there are additional factors this couple should consider before setting a date for an early start to their post-career lives. Here are the big three.

1. Longevity is – or should be – a paramount concern for early retirees. With life expectancy at 82 for males and 85 for females, couples facing retirement much earlier than 65 must grapple with the reality of planning for a retirement that can last at least three decades. In short, their resources must meet their evolving needs and varying expenses over time.

a. Assuming 2.75% long-term inflation, 60,000 today would be $100,000 at age 75, and $150,000-plus at age 90

b. What happens if they live until their early 90s? And if you factor in inflation, what could that $60,000-$65,000/year be worth 20-30 years into retirement? Will it be enough?

2. The cost of healthcare can be a significant obstacle to early retirement. Early retirees find themselves bridging the gap to Medicare, which typically kicks in at 65. This can entail substantial health insurance expenses in the years between retirement and Medicare eligibility. Opting for exchange-based plans, individuals could face premiums nearing $2,000 per month, coupled with annual deductibles of up to $5,000. These costs, averaging $24,000 to $29,000 annually, can make up a substantial portion of a family’s achievable lifestyle and diminish sustainable portfolio withdrawals, highlighting the importance of health-coverage planning for anyone contemplating an early retirement.

3. The “multiplier effect” on portfolios can take a big bite out of an early retiree’s savings. Every early retirement year means one less year the portfolio can accumulate savings, and one more year the portfolio experiences withdrawals. This effectively multiplies the cost for every year in early retirement up to the typical retirement age of 65. So, our couple, who might hypothetically add $30,000 per year to the portfolio in savings, instead experiences a $60,000 annual cost in their first years of retirement – $30,000 from lost savings, and $30,000 from portfolio withdrawals. Longevity, healthcare costs, and the multiplier effect underscore the need for careful and unemotional planning for early retirement.

Consider a second act

For those facing a potential shortfall in their early retirement plans, I find most clients are willing to consider a “second act” that involves transitioning from a grueling traditional career to the more autonomous alternatives of self-employment (perhaps as a consultant) or meaningful part-time work. Finding creative ways to earn income that offset living costs and grant control over schedules can even be preferable to stopping work altogether – especially for those who thrive on staying engaged. Sometimes the decision to retire early is not a financial one but driven by satisfaction and fulfillment of their current career. Often making the switch and planning on semi-retirement or a second act will unlock a new source of fulfillment and keep them working beyond what we had originally planned. For many clients, it’s not that they’re looking to fully retire, but rather carry the peace of mind knowing they can retire if they had to.

They feel they’re working because they want to, not because they have to.

Client example 1

We have a client relationship who worked as in-house counsel for a large corporation. The pressure of a corporate career made early retirement an important goal. They believed they’d be able to generate 50% of their pre-retirement income through consulting work for another 3-5 years. We ran planning scenarios both with and without that income. Now, after having made the transition from full employment to consultancy, it turned out the client is earning over 75% of their pre-retirement income. With the autonomy and flexibility that comes with being self-employed, the client has the energy and satisfaction to be able to continue well over 5 years, which only adds to the health of the financial plan.

Client example 2

Our client’s employer is going through a transition they’re not pleased with. They feel they don’t have the energy at this stage in their career to make the switch to a new, comparable role. This brought up the idea of early retirement. But they did not like the idea of being fully retired, particularly how they would spend their day, lacking a sense of purpose and fulfillment. As a result, after talking through many different options, we agreed to consider a job as a customer support rep at a company this client had always admired as a customer. The projected income would only be 20% of pre-retirement income, but we already established the client had the means to retire early without any additional sources of income. Despite this, they felt most comfortable with a larger margin of safety, particularly to cover health insurance costs, and loved the idea of staying engaged by staying employed.

Having the conversation

Some families have a clear picture of how they’d like to spend their time in retirement, but they’re not in the majority. It’s vital that a retirement strategy captures the non-financial aspects of retirement – especially since retirement can account for a third of a client’s lifespan. Thoughtful conversations between clients and their advisors on topics such as health and wellness, family and relationships, leisure and social life, and personal development will put those important matters into perspective. This process could also include bringing in a retirement coach.

One couple we work closely with had a disagreement about where they’d live in retirement. One spouse was set on Florida; the other hated the heat and was against the idea. After providing the setting for a discovery and identifying the conflict, they compromised and decided to spend three months out of the year in Florida, and the rest at home in New Jersey.

Another family we work with had a difficult time adjusting to the transition from their corporate to retired identity. In their career, this client was part of senior leadership and commanded significant respect in their role. Being retired, they were suddenly stripped of their identity they worked their entire career to build and had to adjust to a life of anonymity and the loss of “perceived status.” After discussion, they decided to serve on the board of a local company. They also volunteered their time in mentorship programs to pass along the wisdom they accumulated over their successful career.

A business-owner we work with shared their strong interest in philanthropy . When we had a deeper conversation, the client shared they weren’t entirely sure which philanthropic causes they felt strongest about, but only that they wanted to become philanthropically active. We introduced great partners on the charitable-giving side to continue this discovery process. After much discussion, we helped narrow down three organizations the client felt strongly about, and that they were as interested in donating their time as their money to maximize their intended impact.

Early retirement is about more than the raw numbers. It's about establishing a sound financial base on which to shape a life imbued with purpose and prosperity. To achieve that, have a trusted advisor working on your behalf and committed to helping you bridge the gap between pragmatism and personal fulfillment. In the face of unpredictable lifespans, shifting career dynamics, and aspirations that defy traditional norms, clients need to write their own retirement narratives by making the very most of their resources.

Derek Wittjohann, CPWA, CFP is chief operating officer and partner of Premier Path Wealth Partners located in Madison, New Jersey. Learn more about Premier Path here.

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