The Real Reasons People Retire Earlier Than Planned May Surprise You

Retirement planning is an endeavor that you'll likely spend decades on. No way around it -- to build up enough of an investment portfolio to live on after you stop working isn't something most of us will be able to do quickly. And the closer you get to the finish line, the more clarity you'll get about what you need to accomplish before you get there. However, as the old proverb goes, "Man plans, and God laughs."

In this "What's Up, Bro?" segment from Motley Fool Answers, Robert Brokamp and cohost Alison Southwick discuss a new survey that maps out the reasons why so many seniors' schedules go awry. They also discuss a job that one never really retires from -- being a mother -- and the value of all that moms do in strictly financial terms.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

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This video was recorded on May 14, 2019.

Alison Southwick: So, Bro, what's up?

Robert Brokamp: Just a couple of things this week, Alison. No. 1 comes from the Center for Retirement Research at Boston College. The name of the study is, "Retiring Earlier than Planned. What Matters Most?" And I think of this, often, because we've talked before about the power of delaying retirement. We've referenced the study that found that just retiring one year later has the same power in terms of your income as saving 1% more over the course of your career. So it's pretty powerful. The thing is not everyone can work later. This study took a look at how many people retire sooner than they expected and why they retired sooner.

The number they came up is exactly 37% of people retiring sooner than they expected, which is higher than I have read in the past. So that's a little surprising. And then it looked at the causes and, as I think we could all expect, the No. 1 cause is health issues.

Southwick: Health, yeah...

Brokamp: But it was surprisingly small. So if you took out the health issues, it dropped it down from 37% to 32%, so there's all these other reasons why people retire sooner.

Some of them are a little surprising. One is that your parents move in with you. It doesn't happen that often, but it does happen to people. Your parents move in with you and you have to take care of them, so you retire sooner. Another one is you get divorced. I don't quite understand why that would cause you to retire sooner, because divorce is financially devastating and it should make you have to work later, but for some reason it leads to that.

Southwick: Well, with this survey, are they always assuming there's a negative reason why you retired early?

Brokamp: No, it has some positive ones, too. Like if you had a positive wealth shock. In other words, if you inherited a lot of money.

Southwick: Yes, ooh, a positive wealth shock!

Brokamp: Yes, a shock meaning something...

Southwick: That's a fun phrase!

Brokamp: Yes, it is. Another one is your spouse retired and we've talked about this before. Spouses often tend to retire together, even though that's not necessarily the thing you should be doing. So it turns out there are just all these reasons why people retire sooner.

And I'll just add, anecdotally, that I've talked to people who said they had to retire sooner. Let's just use the health example. Something happened to their health. And I've often thought it's because that happened to you and because you were around retirement age, and if this health thing had happened to you when you were in your 40s, you probably wouldn't have retired. You would have said, "I'm too young to retire. I'm going to keep working."

Of course, what happens to these people who retire sooner than they expected is they may not have as much as they expected. My advice, here, is if something happens to you where you feel like you should retire sooner than expected, take the time and spend the money to see a qualified fee-only financial planner to make sure that's the right decision for you, because if you retire sooner and you run out of money 10 minutes later it's a lot harder to get back into the workforce.

And then the second is we just celebrated Mother's Day. Did you have a nice Mother's Day, by the way, Alison?

Southwick: Yeah, Bro, I did have a nice Mother's Day. Thank you!

Brokamp: Well, good, because I'm going to follow up with a piece of Mother's Day advice for people -- and this comes from, which does a Mother's Day Index every year. What they do is calculate how much it would cost to pay someone to do all the jobs a mom does. And the figure for this year comes in at $71,297 for the 13 different jobs that your typical mother does.

Now they admit that this is somewhat lighthearted, because some of the jobs are like private detective investigator, licensed vacation nurses, party planner, so it's kind of funny. But clearly stay-at-home moms and stay-at-home dads do a lot of work that if they were not around, you'd have to pay someone to do it, which is why comes up with this. Point being it's not just the spouse that works that needs life insurance. The spouse that stays at home takes care of the kids. That person also needs life insurance because you're going to have to pay someone to do it.

A rule of thumb we've talked before about in terms of life insurance is 10 times the salary plus maybe another $100,000 for each kid you have to put through college. So using the number they've come up with, you'd say, "The typical stay-at-home mom or stay-at-home dad should have about $700,000 in life insurance and then you add on the $100,000-300,000 for the kids." You're talking about $1 million. I think, actually, that's pretty reasonable for someone, these days, to have in terms of life insurance.

It included a couple of other interesting stats. First of all saying that more than 40% of people don't have life insurance, but one of the big reasons people have said why they don't have it is they think it's going to be too expensive. But what they found is that a lot of people overestimate the cost of life insurance. For example, they said that a $250,000 term life insurance for a healthy 30-year-old would only cost $160 a year, but people estimate that it costs 3X that much.

So if you're one of those people who thinks, "I can't get life insurance. It's too expensive," chances are it's actually not going to be as expensive as you think, so go ahead and look into it because it's really important to have it. And that Alison, is what's up!

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