Should My Friend Retire

A close friend of mine, Steve, is thinking about retiring this coming summer from a job he’s had for over forty years. He’s ~67 and is in good health, and he’s trying to figure out if he can afford to retire. His investment advisers tell him he’s ready, but he’s not convinced. I don’t know all of the specifics of Steve’s financial situation, but I’m assuming that he makes a upper-middle class income  (~100k) and has been saving a little in his retirement account each year.

The primary portion of Steve’s retirement income will come from his pension, which with social security will cover about 70-80% of his current income.

The question I’ve been thinking about lately is how do you know when it’s (reasonably) safe to retire? Given the economic uncertianties today I would be hesitant to retire personally. Few of us will ever be in a position where this decision is straight forward. My primary concerns about Steve include:

• the fact that he is due a pension, and I don’t know if the pension payments will be adjusted for inflation. My assumption is that the pension payments will NOT be adjusted for inflation.
• At his age, it is unlikely that Steve would be able to get another job that pays what his current job pays if he ever needed to return to the work force. Although everyone’s situation is different, for those 50 and above that have worked for a single company for decades I think this is probably an accurate assumption. At a time when unemployment in many industries is rising, I think this is also likely.
• Steve is debt free except for his home, but I worry that even a 10 to 20% reduction in spending will be difficult to maintain.
• Even if Steve had health care through his company into retirement, the premiums are likely to be higher than when he was an employee. Is he really prepared for rising health care costs?

Given the looming threat of inflation and Steve’s good job and health, part of me thinks that it’s negligent (to him or to others) to quit at this time. I suppose, however, that there will always be economic concerns and that this argument could be used on every working person until the day they die.

What would you do if you were in this situation?

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