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Personal Finance FAQ

The Case Against Early Retirement is Wrong

I want to die young at a ripe old age.
–Ashley Montagu

A recent study by the Boston College Center for Retirement Research showed that there is a statistically significant reduction in mortality rates for people who delay retirement. Finance journalists used the study as an excuse to bash the FIRE (financial independence retire early) movement, and even caused the phrase “the case against early retirement” to trend on Google search.

The cited study evaluates a program in the Netherlands which provides a tax break for older workers, meant to encourage them to continue in the workforce. The tax break was highest starting at age 62, and tapered off at age 67. The program was made available to all citizens, so this is as close to a designed experiment as economist statisticians could hope to get. The study found that delaying retirement reduced mortality in men ages 62-65 by 2.4%, although the data set was too weak to produce results for women. The Boston College researchers then sought to identify whether or not there was causation of death from two easily identifiable conditions: diabetes and depression. While both were strongly suggestive, neither was statistically significant, meaning that the researchers could not claim with the same level of certainty that there was an increase in diabetes and depression amongst the people who did not choose to retire.

Nonetheless, this study is reasonably conclusive evidence that if you want to live longer, you should keep working.

If that is the conclusion one can draw…

Why is the Case Against Early Retirement Wrong?

If everyone thinks that you will retire early and die, then shouldn’t you keep working? Isn’t the goal to maximize your lifespan?

One would think that is a reasonable conclusion. However, as we shall find out, it is an incorrect one.

Other Studies Disagree

Another study cited by the Boston College researchers shows that found that decreasing the retirement age in eligibility for retirement benefits (and, thus, encouraging early retirement) decreased mortality in the next five years by 2.5%.

The Boston College paper cites other studies whose results contradict each other.

If you went on the bases of these papers, then the optimal time to retire is before 62 and after 67! However, this seems unlikely.

No Studies Appear to Have Been Conducted on FIRE Participants

Scholarly work focuses on older workers who then retire. For example, the National Institute of Health conducted a study on the mortality bands for older retired workers.

Nothing said about the twenty-, thirty-, forty-, and fifty-somethings who retire.

The Netherlands Study’s Results Have a Small Magnitude

Yes, there’s a great big headline about decreased mortality rates amongst people who work longer, according to the aforementioned Boston College study.

What does that translate into for practical results?

An increase in the expected lifespans of those workers by approximately 3 months.

Work 5 more years.

Live 3 months longer.

Let’s assume that the study is indisputable (the authors state that they’re throwing their study into the pile, rather than definitively making an assertion about the right results), and that if you work 5 more years, you can live 3 months longer.

Assuming that you have the financial wherewithal to retire earlier so that you have the choice, is this a tradeoff you want to make?

Yes, a lot of people I know, when I told them I was going to retire, told me that they could not imagine not working. These were people who were probably in better financial shape than my wife and I are, so they aren’t working because they need money to put food on the table. They are making the choice to work.

I assert it is because they are framing that choice incorrectly.

If you won the lottery tomorrow, would you show up for work the day afterwards, and continue to do so the rest of your life? Is that the highest use of you time? Is that what would provide you with the greatest joy? If going to work is what provides that for you, then, absolutely, continue working, because the extra three months will be happy months for you.

If not, then why would you trade five years of less happiness and joy just to live another three months?

That tradeoff was not worth it for me.

By

Jason Hull, CFP®, was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He and his wife FIREd (financial independence retire early) at 46 and 45, respectively. He has a BS from the United States Military Academy at West Point and a MBA from the University of Virginia Darden Graduate School of Business.

You can read more about him in the About Page.

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