Work Longer And Build More Wealth Or Retire Sooner But Live On Less Income? - Ep. 473

Jan 30, 2020

This week, we’re playing “would you rather” - retirement edition. We all have limited resources and with those limitations in mind, you’ll definitely need to make trade-offs in retirement. By thinking about these conundrums ahead of time, you’ll be equipping yourself to make thoughtful and smart decisions when the time comes. 

Today’s “would you rather” question is: would you rather work longer and build more wealth or retire sooner but live on less income? As you might imagine, this is a very common trade-off that many of us face. If you’ve reached retirement age and are still in good health, you enjoy your work and could see yourself working another 5-10 years, that’s great. 

The bottom line here is that no one should enter retirement without the financial means to live comfortably - however you define that. Now that may very well mean that you retire earlier and make some sacrifices so you can sustainably live on less, and that’s okay. 

However, many people I talk with who are trying to decide what to do about working longer vs. living on less income need to be aware of a couple of traps: 

• First of all, if your motivation for retiring early is because you hate your job, your boss, your co-workers - basically trying to escape where you are right now, that is not a good reason to retire early, but instead maybe it’s an opportunity to consider other employment options or part-time work if you can afford to work less. Many people are so dissatisfied in their work that they would rather put a sharp stick in their eye than work one more day in their living hell, but don’t let your desperation cloud your judgement in making a good, rational decision that is going to have long-term ramifications for you.
• Ok, the other pitfall that I see people fall into with the decision to retire earlier and live on less is that they put themselves in a position of being constantly strapped for cash. The income you draw from your portfolio might support your monthly needs, but when people retire with just barely enough, there aren't any additional safety nets with cash savings or a larger nest egg that can support the new car you’re going to need in 3 years, or the new roof that’s due in 10 years, or the nursing home stay in 20 years that’s going to cost double what you’re drawing from your portfolio in the early years of retirement. 

Again, you need to make the decision that’s right for you, but the risk of retiring early and living on less offers more risk, less options and less flexibility, so if you’re leaning in that direction, be sure that you run the numbers, make sure you have enough cushion for emergencies, the occasional big expenses, and the inevitable curve balls of life. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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