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Early Retirement, Both Voluntary And Forced: Financial Advisors' Daily Digest

Various market performance charts

By SA Gil Weinreich :

A career comeback, or "second act" as it is often called, has become a thing. SA contributor Roger Nusbaum, a veteran investment strategist, has written often on his work as a volunteer fireman and photographer . The essence of the American Dream is that anyone can achieve anything they want if they just set their mind and energy to it. That dream, as demonstrated in the lives and careers of many famous Americans who have risen from obscure and humble origins, has become democratized in the experience of large numbers of Americans who use their retirement years to pursue work they have always wanted to do, but perhaps could not afford to pursue under the demands of raising a family and paying a mortgage.

But in addition to this form of the classic American Dream, due acknowledgment must be given to the American Nightmare of inadequate retirement savings that forces a person to return to work. SA contributor BeatlesRockerTom addresses this phenomenon in the second of his 10-part series on America's changing economy , in which he notes:

While some may keep working once they reach retirement age, statistics show the majority retire before they expect to, and at some point in time they may become physically or mentally unable to continue working.

Tom then quotes some statistics, which should be disturbing to those who have not yet retired but who may be counting on their earnings from work. Health issues (either one's own or those of a loved one) were the biggest factor in forced retirement, though downsizing or a business closure still accounted for 23% of earlier-than-expected retirements.

Let's sort out the financial, investment and lifestyle issues implied here. First, from all that I have heard and seen anecdotally, it seems that retirees, whether voluntary or forced, typically earn less in their second acts than they did previously. For a voluntary retiree who has saved for retirement, even a small income may be all that is needed to supplement Social Security and an IRA.

But for someone who has been edged out of the workforce before accumulating a substantial nest egg - or worse, someone confronting unpleasant and costly health issues - work may be physically impossible or compensation options paltry. Tom cites numerous sources that are unencouraging, for example, a study by McKinsey Global Institute that AI technology puts a large segment of automatable jobs on the chopping block.

That could change, of course. But even assuming it does not, we can begin to derive some implications. The first, as pointed out in yesterday's post , is that the trend in advanced economies over the past decades is for capital to take a disproportionately higher share of national wealth, in comparison to labor. Here's how an OECD report of the G20 economies puts it:

One study shows that in Europe, the top 10 per cent in the 11 wage distribution earns 25 per cent of the total wage bill while the top 10 per cent in the capital distribution owns 60 per cent of total capital, so that - ultimately - the top 10 per cent in the distribution of incomes (wages and capital) obtains 35 per cent of national income. In the U.S., these figures for the top 10 per cent are estimated, respectively, at 35 per cent for wages, 70 per cent for capital, and 50 per cent for incomes (wages and capital) (Piketty, 2013).

That suggests that people would be wise to invest in capital assets like stocks and real estate early and often. If retirement comes earlier than expected, the likelihood of low-paying supplementary income will be less of a threat and more of the blessing that second acts are supposed to be.

Finally, the lifestyle issue: It's not for nothing that people tend to select their careers with a view toward income maximization. There are certainly people who have managed to turn their hobbies into lucrative careers. It behooves those unable to do so to learn to love their jobs, which will only enhance the quality of their lives and their value to their customers and employers.

But back to that American Dream. An early focus on investing for long-term asset growth increases the likelihood that their second act will be the outlet for their talents they've always dreamed of. But, whether one's work is his avocation or "just" an occupation, we all have an opportunity to contribute to the material progress of the world - in both Acts I and II.

Do you have experience retiring early voluntarily or involuntarily? Your thoughts, as always, our welcome in our comments section. For now, here are other financial advisor-related links:

See also Realty Income's Fair Value on seekingalpha.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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