Hindsight 5: early retirement vs not-early retirement

One of the consistent themes in my posts has been harping on the difference between two types of retirements: early and traditional.  I no longer think the differences are quite so stark as I used to at least in the private economy where I think at some point all private or independently employed retires are headed towards the moral equivalent of early retirement the way I am thinking about it: laid off early by a robot, no pension except the one you make yourself, no paid-for health care, side gigs, extreme longevity horizons, etc.  Public employees with pensions are a different story not told here.

In a past post I quoted Darrow Kirkpatrick from his book "Can I Retire Yet? How to Make the Biggest Financial Decision of the Rest of Your Life" on this difference.  This is how he puts it:

"In my experience, there are two distinct classes of retirement: early retirement and traditional retirement [his emphasis] ...There is no official definition, but the following table of relevant factors might help clarify what I mean by those terms." 

Retirement	Age	Length	Pension	Health Insurance	Could Work?
Early	50's or younger	40+ years	No	Purchased	Yes
Traditional	60's +	20-30 years	Yes	Medicare/benefit	No

I think he is correct.  In my opinion, the challenges with early retirement start with the duration. In the old model one planned from a decisive age 65 for a fixed 30 years.  In the new model both the front end (due to layoffs, choice, health problems, care-giving demands, whatever) and back end (death) are stochastic processes.  Whether by choice or circumstance it can be quite a bit longer than the traditional model.  Here, let me illustrate what I mean.  Below on the left is a distribution of retirement ages (I tried but failed to find where I got this from a couple years ago so you'll just have to trust that this is legit, otherwise let's just call it illustrative). Notice that there is a decent mass of (voluntary and involuntary) retirements to the left of age 65. On the right is a mortality distribution for a 60 year old using the more conservative Society of Actuaries Individual Annuitant Mortality table with an adjustment for it being in 2017.  Why not age 50 or 65? Too lazy to recast it.  I already had one for a 60 year old. It'll do for now.

The point here is that some people choose early retirement others have it chosen for them whether they like it or not. Either way it (early retirement) is a different beast when compared to the old model especially when you consider that both the beginning and the end of retirement can be random and unpredictable. Without getting into specific analysis we can say (or at least I can say) that in that "early" world things like the 4% rule start to fall apart, sequence risk intensifies, human capital is probably still in play at least in side gigs, fail rate estimates can go parabolic, pensions are scarce except for self- or formal-annuitization, affordable low-deductible health insurance is a pipe-dream while the distance to medicare is far away, distance to an optimal annuitization age is further away than you think, etc. 

Think about it this way, in a recent post by Corey Hoffstein at Thinknewfound called "No Silver Bullets: 8 Ideas for Financial Planning in a Low-Return Environment" he pitches the idea that given forward estimates for equity and bond markets that the 4% rule is now compromised for 30 year plans or "When adjusted for current forward return expectations, "safe" moves from 4% to just 2.6%."  I've seen similar numbers from Wade Pfau. I ran my own numbers and don't think this shift downward is totally, outrageously conservative.  But note these are for 30 year plans. What do you think it says for a random 50-ish year plan? Probably nothing good.  

The hindsight part of this post is that if I had known half the risks of early retirement back in 2008 as I do now, especially given the forward market estimates we have today*, I would have not been nearly so cavalier about my decision to do what I did...although with respect to my family I still think it was the right choice.  The "foresight" portion of this post is that I wish "the industry" however you define it, would give more respect and consideration to these high risk long retirements.  I'm making this up but I'm guessing that 7 of 10 papers I read keep their head down and focus on 65/30 exclusively.  Of the other three, two might make a brief acknowledgement of long or early or stochastic retirement but then they run as quickly as they can to 65/30.  The last one I don't think I've read yet.

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* On the other hand I fell blessed that I retired into one of the great bull markets we've had in a while. But with perfect foresight I would have reserved more of that run than I did.