Rezny, the principal at Rezny Wealth Management in Naperville, Ill., has numerous policemen and firefighter clients who aim to retire early.
“They come in making $100,000 a year with $1.2 million in their drop program (403 B plan), and they think they’re all set to retire at 55”, he says. “But if they need $60,000 a year to live on, that simply won’t work with inflation.” Rezny recommends that these folks switch to part-time work.
For many of Rezny’s clients, full retirement – even at age 65 – is no longer realistic. He points out that people are living longer and can expect a 30-year retirement based on current demographics. With an inflation rate conservatively estimated at 3%, and a total portfolio return estimated at 5%, even his relatively well-set clients like the policemen and firefighters need to find ways to stretch their retirement dollars.
That, Rezny says, leaves most of his clients with one of three options. They can cut back and spend less, which can be very painful and unrealistic for some people. They can seek reverse mortgages, which Rezny says is often a great option, but one that only applies to clients who own their homes outright. The third option is for clients to extend their working lives by remaining on the job or switching to part-time work.
“If people like their jobs they should consider continuing working another two to five years,” until age 67 or 70, he says. That could give them additional time to grow their portfolio, and fewer years to draw draw down on their savings.
He concedes that most people want to retire by age 65 or earlier because they’ve come to hate their jobs. He estimates that more than 75 percent of his clients struggle with burnout.
He urges those clients to quit their current jobs, but continue to work part time at something else that appeals to them, noting that the additional $15,000 to $20,000 per year they can continue to earn can make a huge difference in their overall retirement outlook. He’ll run projections for clients that illustrate how much longer their money will last if they continue working for a while longer.
A quarter to as many as half of his clients return to work within a year of retirement, “not necessarily because they need more money, but because they’re bored stiff,” he says. “They didn’t necessarily want to continue doing what they were doing, but they want to keep busy. They just want to do something different.”