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 buy-out 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, knowing a large 401(k) was coming over, plus a pension rollover was pretty appealing 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 temptation and enticement to lead someone into a behavioral choice they would not have made if they were 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 buy-out offer can be euphoric as 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. In particular, there are negative aspects of early retirement, which a variety of studies show can have a negative impact on physical, mental and even social health.
• One 2016 study 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 percent lower risk of dying early.
• A 2013 study from the Institute of Economic Affairs in the United Kingdom found that retirement increases the probably of having at least one diagnosed physical condition by 60 percent and suffering from clinical depression by 40 percent
• 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 percent.
• Retiring later appears to delay the onset of Alzheimer’s, according to the International Journal of Geriatric Psychiatry.