by Bill Houck, CFP®, ChFC®, Modera Wealth Management

As the pandemic grinds on, we wouldn’t be surprised to see a surge of Americans entering retirement—or at least seriously thinking about it.

Perhaps you’re one of them. After the past extraordinary year and a half, you may be wondering whether life is too short to spend much more of yours working 9 to 5.

A Perfect Storm of Retirement Planning

As financial planners, we’ve been noticing a perfect storm of potentially ideal retirement conditions forming:

> The Baby Boomer generation is largely in or near “that age.”

> Not everyone is keen about returning to their old, pre-pandemic routines such as extensive business travel or daily commuting.

> Strong global stock markets have been delivering satisfying investment returns for the past decade-plus, allowing many retirement nest eggs to grow nicely.

> Business and property values have been on the rise.

> Some employers are encouraging workforce shifts through early retirement incentives.

Being Realistic About Early Retirement

Any of these can be valid reasons to retire. But are they valid for you? It’s always important to be clear-eyed about the financial and emotional impacts involved. This is especially the case if you plan to retire on the early side, before traditional retirement benefits such as Social Security and Medicare fully kick in.

As you think about early retirement, you need to consider what will affect your financial well-being. Do you need to bring down living expenses? Do you need to save more now to maintain the same standard of living? Do you need to make more now to get to your goal?

As you can see, there are many moving parts to consider! We explore some of them here:

The Hidden Danger of Sequence Risk

One of the most important areas to consider when approaching retirement is the “sequence of investment return risk,” so let’s explore this first. This basically refers to the timing of withdrawing from your portfolio to meet your cash needs and the risks involved in doing so.

A sustained systemic downturn in early retirement can have a dramatic influence on potential retirement outcomes. You probably recall the tech bubble, the great financial crisis, Q4 2018, and the early pandemic. Black Swans come along from time to time as well as the regular frequency of market corrections and bear markets. How is it ever possible to stop worrying?

Once you retire, you usually start withdrawing from, instead of adding to your investment accounts. When markets are up, you can sell fewer shares to generate your desired income stream. When markets are down, you must sell more shares to generate that same income. Once you do sell them, they’re gone from your portfolio for good, with no chance for future growth.

So, what if you encounter a down market early in your retirement? Unless you’re willing to withdraw less, you’ll need to sell extra shares to achieve your desired income stream. By more heavily tapping your investments earlier on, you’ll leave your portfolio with a bigger, longer-term dent, handicapping its ability to continue growing nicely over time.

There are certain strategies to potentially hedge “sequence of returns” risk:

> One strategy is incorporating a dedicated emergency cash bucket with two years of living expenses and spending from the emergency bucket if markets become dislocated from a systemic issue.

> Another strategy is using two portfolios to mentally segment a longer-term risk portfolio from shorter-term income spending portfolio.

> The two-portfolio approach is usually in conjunction with a reduction in overall risk at retirement, the so-called reverse glide path, where the mechanism of spending from the shorter-term portfolio increases overall portfolio risk over time.

> Dynamic portfolio spending strategies are also part of the equation, adjusting spending based on conditions.

> Finally, every situation typically includes strategic rebalancing under a sell high disciplined process, aka pruning, to replenish a cash bucket.

When it comes to the “sequence of returns risk”, there’s no magic bullet, as all strategies are customized to personal risk and return objectives. The analysis typically starts with providing very accurate expense data – do the work!

Considering Healthcare Costs

If you retire before age 65 (before qualifying for Medicare), it’s easy to underestimate the full costs of individual insurance coverage plus out-of-pocket expenses. Unless you can get on your spouse’s employer-sponsored plan, expect the annual cost could be around $33,000 per couple or $16,500 per individual1 depending on the type of plan you use and other factors.

Which type makes the most sense for you? It’s a juggling act among healthcare, income, investment, and tax-management considerations.

Taking Your Social Security Benefits/Pensions

Are you counting on Social Security to supplement your retirement from day one? There may be valid reasons to do so. But remember, the earlier you start taking Social Security, the lower your lifetime monthly payments will be, depending of course on how long you live. Your collection strategy should be customized not only for your benefit, but also the spousal benefit with consideration and discussion for both longevity and early death. Modern software can illustrate various scenarios to help with your decision making. Pensions often call for similar decisions, with different total payouts depending on how and when you draw from yours.

Measure Twice, Retire Once

Whether you’re retiring early, late, or right on schedule, it’s worth “measuring twice” before entering into your one retirement. At Modera, we help you carefully consider the real costs involved, weigh the pros and cons of various opportunities, and chart the best course forward. Upfront and ongoing planning offers the financial confidence you need to determine when, how, and if retirement is right for you.

Bill Houck, CFP®, ChFC®is a CERTIFIED FINANCIAL PLANNER® professional with Modera Wealth Management, LLC in Westwood, NJ. He may be reached at or 201-768-4600.

Modera Wealth Management., LLC (“Modera”) is an SEC-registered investment advisor with places of business in Massachusetts, New Jersey, Pennsylvania, North Carolina, Georgia and Florida. Modera may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. SEC registration does not imply any level of skill or training. For information pertaining to our registration status, fees and services, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov) to obtain a copy of our disclosure statement set forth in Form ADV Part 2A. Please read the disclosure statement carefully before you invest or send money.

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