Don’t Let Robust Portfolios Seduce Clients Into Retirement

The first time it took place, I have to admit I was oblivious to the situation. I didn’t see it coming. I was a young advisor and when I got the call I was enamored with the offer.

It was the first time a client received a buyout offer that was several years ahead of their anticipated retirement date—and we both were in love with the details.

There was a one-year severance, a pension multiplier and substantial credit for health insurance. On the surface, it was a financial no-brainer. The offer was so lucrative, I couldn’t rationalize passing it up, and to be honest, I found it pretty appealing that a large 401(k) was coming over, plus a pension rollover, since I had only been in the business for a couple of years at the time.

In the early days, I didn’t understand the psychology of retirement and put myself in the camp that retirement at any age must be good—especially if it was five years ahead of schedule. But early retirement isn’t all peaches and cream, and seducing people into it with money can be particularly harmful. This point is important when you look at the definition of seduction.

Seduction stems from Latin and means literally to “lead astray.” It usually involves using temptation and enticement to lead someone into a behavioral choice that he or she would not have made if not in an aroused state.

I realize the term seduction and arousal aren’t typically associated with retirement planning, but let’s be honest, early retirement is sexy. It’s hot, popular and what many people think they want. Frankly, a significant buyout offer can be euphoric because it conjures up ideas of endless freedom and unlimited possibilities. As a result, it can cause both an advisor and client to miss other aspects that should be considered. A variety of studies show early retirement can have a negative impact on physical, mental and social health.

• One 2016 study published in the Journal of Epidemiology and Community Health suggests that retiring early may actually increase your risk of dying early. Findings showed that healthy people who postponed retirement and chose to retire a year later than those in a comparison group had an 11% lower risk of dying early.

• A 2013 study from the Institute of Economic Affairs in the United Kingdom found that retirement increases the probability of having at least one diagnosed physical condition by 60% and suffering from clinical depression by 40%.

• A study from Cornell University and the University of Melbourne shows a striking correlation between Social Security claims for early takers and a jump in mortality. The effect is biggest on men in this scenario, who see an increase in mortality risk of about 20%.