Here are 5 uncomfortable truths about retirement — that you really need to hear. (Especially if you want to call it quits early)

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Here are 5 uncomfortable truths about retirement

Retirement is the true American dream. Sure, many might fantasize about striking it rich and becoming famous, but when it comes down to it, the real goal is to make enough money so that you don’t have to work another day in your life.

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Yet the problem is that this really can be just that: A dream. That is, unless you’re prepared.

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And that means dealing with some hard realities about walking away from the workforce — especially if you’re hoping to hang up your lunch pail a little early. Here are five uncomfortable truths about retirement that you need to face before you can make that dream come to life.

Most Americans are unprepared

A March 2023 survey by Schroders shows that working americans 45 and older believe it will take about $1.1 million to retire comfortably. However, only 21% say they’ll hit that goal. Over 50% of the respondents expect to have less than $500,000, and 34% expect they’ll have less than $250,000.

That means the vast majority of middle-aged Americans are unsure if they’ll be able to live comfortably throughout their retirement, let alone retire early.

How can you determine your retirement confidence? Fidelity Investments recommends a simple method to help you find out what your savings should be. For those close to retirement, you should have six times your salary in savings by 50, eight times by 60, and 10 times by 67.

Don’t have that amount? Then you’re likely not ready to retire just yet.

Retiring early could mean future financial insecurity

Sure, early retirement sounds great! But only if you have the money to support it. While it might seem like your costs will lower in retirement, in many cases, they actually increase. It also means you’re susceptible to lower Social Security benefits, if you choose to start drawing that money rather than holding out until your Full Retirement Age (FRA).

What’s more, those who leave the workforce early are set up with reduced savings, which can lead to financial insecurity later in life. And let’s be clear, later in life is when you’re going to need those savings most.

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Health care costs can be a significant burden

Nearly 60% of adults in the U.S. have at least one chronic illness, according to a 2022 report by the National Association of Chronic Disease Directors. These chronic diseases include diabetes, cancer and heart disease.

Sure, those older adults receive access to Medicare, and there are ways to bridge any gaps through Medigap insurance providers. But even still, there is a huge financial burden associated with retiring and no longer having workplace benefits.

A survey by Fidelity Investments found that, as of 2021, American couples aged 65 would need about $300,000 saved for health care costs through retirement. This number would be even higher for those who choose to retire early and spend fewer years covered by employer-sponsored health care plans.

Early retirement means working harder

Gallup began tracking non-retirees’ and retirees’ confidence in their retirement in 2002. Typicallty, retirees felt more confident than those who weren’t retired yet. Meanwhile, the non-retiree outlook was dependent on swings in the economy. Confidence dipped during the Great Recession of 2008 to 2013, then increased again from 2014 to 2020.. The confidence has now decreased again in the past two years due to high inflation and fears of another recession.

The April 2022 Gallup results show that 43% of non-retirees are optimistic about retirement.

Those seeking early retirement will certainly need to adjust their savings strategies and potentially work longer hours if their goal is to enjoy a comfortable premature retirement.

The average American lives to be about 76, according to the Center for Disease Control and Prevention, and — depending on when you were born — the full retirement age is around 66. That’s at least a decade of extra savings you’ll need if you want to retire early at say, 56.

Inflation can erode your purchasing power

Speaking of savings and the current market, inflation can make an enormous dent in your savings over time. The amount needed to retire comfortably continues to rise higher and higher as inflation climbs, eating away at savings in the process.

A 2022 study by The Senior Citizens League (TSCL) found the purchasing power from Social Security benefits has fallen drastically — by 40% since 2000 — in part due to rapid inflation.

Does this mean you can’t retire early, or even at all? Certainly not. The best advice to prepare you for your future is to meet with your financial adviser. Get on track, discover the best savings options for you, and who knows? You may still be able to enjoy a comfortable early retirement and live the real American dream.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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