Why Credit Report Errors Are Harder to Fix and How to Prepare for Involuntary Early Retirement

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15:51Sean Pyles:This episode, we're discussing an interesting comment that we received from a listener named Lisa, who sent us an email. Hello, thanks for the great content and breaking up the monotony during my weekly travels around Texas. I was a retirement advisor for over a decade, and I always wish people would start learning sooner. It's been wonderful to see the increase in interest in finance. One thing I noticed in my experience is the number of people who plan to work a lot longer, but were forced to retire because either they or someone they cared for could no longer physically work. A question I would always ask is, if something happened to you today and you or your family lost this income, would they be able to survive or thrive with the resources you currently have?

16:31Sean Pyles:Thanks again, Lisa.

16:33Elizabeth Ayoola:All right, this episode, Sean and I are exploring what exactly Lisa's comment means for your retirement planning. And also, like, what do you do if you end up retiring earlier than you plan to? I don't know, sounds like a dream, but there are also maybe some, you know, pitfalls here.

16:48Sean Pyles:Yes, especially if you're not ready for it. And something people get wrong about retirement is that they will for sure have a say in when they retire. And here's the reality. About 50 % of people retire earlier than expected, according to MassMutual.

17:02Elizabeth Ayoola:That's a huger number than I would have thought, Sean.

17:05Sean Pyles:Yeah, and we can save as much as we want for as long as we can in anticipation of this one specific day where we might retire. But, you know, life often has other plans.

17:13Elizabeth Ayoola:It does sometimes. I know some people who had planned to retire in their 60s and got laid off, and especially they maybe were higher earning people and then couldn't find another job and they're forced to retire, right? Yeah.

17:27Sean Pyles:And that made me think about when people actually retire. The average retirement age in the United States is 62, according to a 2024 report by MassMutual. The figure has gone up over the years. Back in 2002, the average retirement age was 59. That's according to a Gallup poll. And I'd mentioned earlier that about 50 % of people retire earlier than expected. And why people retire earlier than they want to is kind of interesting. About a third of people retired early because of unexpected changes at work. And that might be what our listener was alluding to. Although around 28 % of people retired early because they could afford to do it.

18:07Sean Pyles:So those are our fire people. That's going to be you one day, Elizabeth.

18:10Elizabeth Ayoola:It's going to be me one day. I'm sorry, Sean, if we are on this podcast, hopefully until we're old and gray, I'm going to be leaving you first.

18:18Sean Pyles:I would say let's have a race to see who can retire sooner and do it on our own timeline.

18:23Elizabeth Ayoola:Oh, don't tempt me with a good time, OK? Because I love a good competition.

18:26Sean Pyles:Yeah, I mean, I'm about to turn 35 this year. And as much as I love my job, the idea of working another 30 years doesn't sound like my dream.

18:34Elizabeth Ayoola:Don't get me started, Sean. I feel like they told us so many things when we were younger about what to prepare for when you're older. but I don't think I ever really conceptualized that I would be working for multiple decades.

18:48Sean Pyles:Yes, almost 50 years of working. And just so you can have maybe a few years of not working or working on things that you care for that maybe aren't bringing you money every day.

18:58Elizabeth Ayoola:Right. And that's why I think retirement planning can be so fun, right? Because you spend all this time working and then you get to daydream a little about what you want to do when you're not working. But as we're talking about, I guess, with addressing these comments, it's so important to have a plan in place and make sure you've saved enough.

19:13Sean Pyles:I'm thinking too about the various steps of retirement planning because there are a lot of phases of retirement planning that I learned about during my CFP education. There are five specific phases. I'll walk through them really quickly. The first one is the accumulation phase, which is exactly what it sounds like. It's what we're doing right now, Elizabeth, just tucking away as much as we can for as long as we can. And then as you get nearer to retirement, there is what's called pre-retirement. This is around the 10 to 15 years before you expect or hope to retire. And then there's early retirement, step three, and that's the years immediately after you actually retire.

19:48Sean Pyles:And then heading on down the line, there's mid-retirement and late retirement, which again are pretty much what they sound like.

19:54Elizabeth Ayoola:Multiple, multiple steps here. But it makes sense, I guess, when you look at it within the context of your whole lifetime or working years. Sean, which steps should we focus on because you've outlined multiple here?

20:04Sean Pyles:Yeah, for our listeners comment, let's talk about steps two and three, again, pre-retirement and early retirement. So for pre-retirement, this is often going to be around age 50 when you are about 10 to 15 years from retirement. At this point, hopefully you've been saving for a while and you have some idea of the nest egg that you might be working with during retirement. But this is really when you need to get a detailed picture of your assets and what your expenses might be in retirement and how these final working years will hopefully go for you. And this is why consulting with a financial planner, hopefully a CFP, is really essential at this time.

20:40Sean Pyles:Because a CFP can model different simulations to show you how your retirement might look if you do end up retiring before you initially plan to. And what would happen if you actually maybe aren't able to save as much as you would ideally be able to. Or maybe if you have, on the other side, some kind of sudden windfall that boosts your retirement savings.

20:58Elizabeth Ayoola:Yeah, I have some questions for you, Sean, especially since you are now, you know, having your own firm and working with clients. I feel like on the show, we often tell people to speak with a financial planner. But what kind of questions should they be asking? What should they be discussing? Let's say someone is 10 to 15 years away from retirement. What kind of conversation should they be having with the CFP?

21:17Sean Pyles:The main question that everyone really wants answered is, am I going to be OK? That can cover things like retirement and also just saving for a rainy day. So when it comes to retirement funding, you're going to want to know if you actually have enough to fund what could be 30 years of not working. And so that's where simulating these different outcomes and forecasting forward how you've saved now might be able to fund your life or not is really important because you can begin to have conversations around what changes you would want to make. and working with a financial advisor, they're really going to be your thought partner in this conversation.

21:52Sean Pyles:They're not telling you what to do per se, but they are going to help you walk through different scenarios so you can be the one choosing how you want your finances and your life to be structured as you head toward your retirement.

22:02Elizabeth Ayoola:Yeah, and I see two parts of this, right? It may be the people who are firing, shout out to y 'all, and who are excited about retiring early and have planned for it. And then the people, as we've mentioned, who maybe haven't planned for it. So how can those conversations maybe look very different. And also, as you always say, Sean, you guys are therapists too. So how do you talk people through the nerves of spending or maybe realizing they don't have enough?

22:25Sean Pyles:Well, this gets to conversations around early retirement as well, because this is often a really challenging and scary time for people because you're going from saving, saving, saving, or at least thinking that you should be saving, saving, saving, and then going to spending down this amount of money. And that is a really scary shift that I think everyone has to get through on their own terms. Realize that, look, you are doing what you can with the resources that you have. You will have other ways to get some money, hopefully through Social Security, which we'll talk about in a minute. But just know how you can allocate your funds in the smartest, most tax advantaged way.

23:01Sean Pyles:And that's going to help you have some sort of feeling of security or at least confidence in the knowledge of what your assets are to be able to work through what's going to be a tough transition.

23:11Elizabeth Ayoola:Yeah. And I love that you mentioned tax advantage because I think that's something maybe not enough people think about, especially when they consider early retirement, how to plan your withdrawals from your account so that you're not hit with huge tax bills every year. You have required minimum distributions. But as we're talking about this, I think one of the most important things for people to consider when retiring early is when you can withdraw from your retirement accounts. And most accounts like your 401k, your 403b, you can't withdraw without penalties until 59 and a half.

23:41Sean Pyles:There's one exception to this, which is called in a very exciting technical IRS way, the 72T rule. A different name for the 72T rule is the Substantially Equal Periodic Payments Rule or SEP rule or two Ps at the end there. And this allows you to take equal payments from your tax advantage retirement accounts before you hit 59 and a half without penalty for five years or until you hit 59 and a half, whichever is longer.

24:08Elizabeth Ayoola:I read about it the other day and I was like, what's the catch?

24:12Sean Pyles:The catch is that you have to keep these payments coming until you're 59 and a half or the account is empty. Let me give you a quick example of how this might work. So say that you end up losing your job at 50 and you just say, that's it, I'm going to retire. You want money from your retirement accounts, but you don't want to hit the penalties that you would get from the IRS if you actually took withdrawals from your retirement account. In that case, you can set up the substantially equal periodic payments and begin to get income from your retirement accounts until you hit 59 and a half. And you can do that, again, without the regular penalties associated with doing this.

24:44Sean Pyles:Although note that this income is considered taxable income by the IRS. So you keep getting these payments for these many years, nine and a half years, if you start taking it at 50, until you hit that age or your account is empty.

24:57Elizabeth Ayoola:I know we typically, I don't want to say advice, Let's suggest that people don't take early withdrawals from their account, which means before the age of 59 and a half if they don't have to. So when is it ideal to use this SEP, S-E-P-P, rule?

25:12Sean Pyles:A lot of people are going to be taking this because they don't have other better options. And that might be taking money from a taxable brokerage account. Because think about it. You can't take your Social Security retirement benefits until you're 62. So if you have this gap of years between when you need money coming in and when you can get Social Security benefits, this might be your only option. And this is actually a pretty handy tool for a lot of people that I don't think folks are really aware of. It's just a nice way to access the money you have been saving for as long as you have been without the typical penalties.

25:44Elizabeth Ayoola:That's right. And then now this makes me think of another income source that some people, I don't want to say rely solely on, but think is going to fund their most of their retirement, which is Social Security. So when is it a good time to start taking that?

25:57Sean Pyles:The average retirement age is 62, which is earlier than what the IRS and Social Security considers your full retirement age of 65. So if you take your benefit before that full retirement age, which is between 66 and 67, depending on when you're born, that benefit is going to be reduced. Now, if you take your benefit at 62, which is the earliest you're eligible to do it, and your full retirement age is 67, the amount of your benefit is going to be reduced by 25%. So say you're getting a monthly benefit of$1 ,000, you would just be getting$750. Although, again, sometimes you don't have any other options.

26:36Sean Pyles:You just need this money coming in.

26:37Elizabeth Ayoola:You can delay your Social Security benefit until 70, correct? And then also get maybe an even more robust benefit?

26:44Sean Pyles:Yes, exactly. If you delay your benefit beyond your full retirement age, you can actually get an additional kind of surplus benefit that would be beyond your standard benefit, which can be a nice thing for people to get. But you also have to think about how long you're going to be getting this benefit for. And that gets to knowing your break even point for your retirement benefits. And that's when the amount that you would receive by delaying this benefit surpasses the amount you'd receive by taking it early. So kind of confusing to think about, but basically think about when the amount you'd be getting is worth waiting for.

27:17Sean Pyles:So for those who delay their benefit until full retirement age, it can take about a decade to hit that point. So you would be around 80 for this to work out. You have to, again, think about how long you're going to be living here. I hope to live until 100, 150. We'll see how the future goes.

27:32Elizabeth Ayoola:I was just going to ask you how long do you want to live, but I should know that already, Sean. No, no, no. We have to have a side quest conversation about that because I don't understand what you want to do on this earth for 150 years. What? What do you want to do?

27:45Sean Pyles:I could garden for the rest of my life because it takes a long time to get these plants to grow just how you want them to. And the work is never done and it's always beautiful. I'm going to be tilling away in my yard until I can't do it any longer.

27:56Elizabeth Ayoola:OK, well, we'll see. I'm going to tell you I'm not living to 150, so maybe I won't see what you'll be doing at that age. All right. But getting back on topic, Sean, I want you to expand on this break even because it might be a bit of a head spin for some people.

28:08Sean Pyles:Knowing your exact break even point can be a little finicky because it does require math. So again, I would recommend speaking to a financial advisor or you can check the article that we have in our show notes from Thrivent, which actually gives you the calculation how to do this yourself. If you feel like a math lesson, you want to go above and beyond, check that out.

28:26Elizabeth Ayoola:And also, as you're talking about Social Security, I'm thinking that, you know, for people who are thinking, wow, I would love to delay my benefit so that I can get that extra money. And maybe they also want to live to 150, so have enough time to spend it. Sometimes it's most ideal for people who have enough money saved in other avenues, whether that's your brokerage account, your Roth IRA, because you don't necessarily need to get that money early. But I remember having a conversation with my dad because one of the perks of working in finance is you're like, oh, wait, I know this. and maybe I can give information to my family members.

28:59Elizabeth Ayoola:And he is at retirement age. So I asked him, what age did he retire? And he actually retired around the age of 62, which means that his benefit is permanently reduced. But he didn't really have an option because he didn't have enough retirement savings to say, hey, I'm going to wait until the full retirement age.

29:14Sean Pyles:And that's the case for a lot of people. If you look at the average amount that people have saved for retirement, it's not nearly enough to fund 30 plus years of being retired. So folks often have no other choice but to take the retirement benefit around 62. No judgment here. You need to do what you need to do to survive.

29:31Elizabeth Ayoola:So just to point out, people shouldn't feel terrible if they do retire earlier than they expected, and that's their only means of income or survival.

29:38Sean Pyles:Right. And another way that people can begin to survive or thrive if they do retire before they want to is rethinking what retirement might look like for them. Because we do have this idea, at least for me, I'm going to be working away in my garden. Elizabeth is going to be ziplining well into her 80s. How did you know? And while that's the ideal, that might not always be the case of what happens when you do retire.

30:02Elizabeth Ayoola:That's right. And Sean, you just made me think about a lady on Instagram who was my hero named Batty Winkle. Oh, yes. And you didn't have to. R.I.P. Batty Winkle. R.I.P. Batty Winkle.

30:13Sean Pyles:For people who don't know, this was an elderly lady who had incredible style. She passed away, I think, last year or the year before. She just lived the ideal retirement of just being a very glamorous older lady. And that's kind of what I want, too.

30:26Elizabeth Ayoola:Me, too. See, we have that in common. So she's my retirement inspiration. So in addition to ziplining, I will be ziplining in something very fabulous. You know, I'm going to be stylish, too.

30:35Sean Pyles:Like vibrant purple feather coat. Just going down the zipline. Like some tropical bird.

30:41Elizabeth Ayoola:I love it. You sure know how to paint a picture, Sean. That's exactly what I'm going to be doing. Okay.

30:45Sean Pyles:So, Elizabeth, if people aren't able to have their feather coat ziplining dreams in retirement, how can they sort of rethink what retirement might look like for them if they don't have as much money as it would take to afford such a fabulous coat?

30:57Elizabeth Ayoola:Maybe it looks like working part time. So maybe let's say you had to retire early because you lost your dream job or the career that you've been working in for decades now. You can go to a lower stress paid job. And one of the things that that can do is give you health insurance. So that's one of the benefits. Health insurance is a big thing that people who retire early have to think about. So there is nothing wrong with going back to work just to supplement your income and take some of that financial stress away.

31:23Sean Pyles:One caveat I'll add to that is that your retirement benefit could be reduced if you're taking it before full retirement age and earning income. This only applies until you hit that full retirement age, but it's something to be aware of.

31:36Elizabeth Ayoola:Yeah, that's also something as I was having a conversation with my dad that he has struggled with. And I just wish I wish I knew this information earlier so that I could have maybe given him some tips. And I'm just so thankful we're on the podcast talking about it so we can help people before they're in these situations.

31:52Sean Pyles:People could also reimagine what their lifestyle might be like. I think we talked a couple episodes back on the podcast about having a little golden girls situation where you move in with some people around your age. Ideally, you would have people that you like to live with, but just finding a way to cut your expenses can be really important. And that might mean rethinking where and how you're living.

32:14Elizabeth Ayoola:It can. And that reminds me of an article that I read some time ago about people rethinking, because we do live in a very individualistic society and sometimes it's just you and your nuclear family. But expanding that out to having parents come live with you again and living with siblings and just kind of having this communal living in order to reduce expenses. Not going to lie, that sounds like a bit of a nightmare for me, but I am warming up to the idea of it because, you know, I don't want to put my parents. They're both still able-bodied and able to work and things now, but I don't want to put them in a home.

32:50Elizabeth Ayoola:But I also don't know, I love you parents, if I want them living in my home either. So we'll see.

32:55Sean Pyles:I feel that. Yeah. It strikes me, too, that we talked earlier about pre-retirement and this financial exercise of kind of knowing what your nest egg is and what your expenses might be. I think that there's also a social element and a lifestyle element of establishing and thinking about your pre-retirement that's really important, too. So would you want to live with your kids, maybe? Do you have kids that you could even live with? Or do you want to move into some sort of broader retirement community? Just begin to imagine how your life is going to be different in these retirement years.

33:25Elizabeth Ayoola:That's right. Now I think we can quickly round up some other tips because we've covered so much ground here for how people can prepare now for early retirement, whether you're trying to retire or you just want to have yourself a safety net. One of the things that comes to mind, oh my gosh, Sean, I have a wonderful side quest story that I'm not going to bore you with. Well, no, it's actually very exciting. Okay, go on, go on. During this episode. But I was talking to a stranger who I let in my house the other day. Excuse me? I know, I know. You were talking to a stranger that you let into your house.

33:56Elizabeth Ayoola:I was talking to a stranger. You know what? She used to live here. She used to live here and she knocks on my door with her son. I know, right?

34:03Sean Pyles:The person comes to your door and says, I used to live in your house. Let me in. And you said, sure.

34:07Elizabeth Ayoola:And I said, yes, I let her into my house. But that's not the point. We'll talk about that in another episode. The point is she was telling me about debt and bringing it back to the conversation. You know, debt is something that you want to try to get rid of. I know everyone's financial situation is different. But if you can, you want to try to get rid of as much debt as possible. Because, you know, having to lose your job earlier, retire early, and also having debt that is compounding and snowballing can make retirement very stressful. So the less debt that you have, the better. So now can be a good time to tackle that.

34:41Sean Pyles:And I would say simplifying your finances in general, including shutting things like that, can be really smart. So if you have eight to ten bank accounts like some people like me, maybe go down to fewer bank accounts just so that you don't have as many things to manage. So you know what you're doing with your money. Just find ways so that it's easier to juggle for you.

35:00Elizabeth Ayoola:And another thing during retirement that people don't think about and a reason that people would end up retiring early is your health may end up deteriorating. You could develop a health care condition. So it's also important to plan for health care expenses and start thinking about that now. I personally have a health savings account for this reason. And even if you do not have a health condition during that time where you retire, assuming that it's before your Medicare kicks in, you have that gap in coverage. Having a health savings account can be very helpful during that time.

35:28Sean Pyles:Medicare and Medicaid is its own rabbit hole that we haven't quite gone down. I don't think we're fully going to this episode because we have covered it elsewhere. But it's also important to know how you can get access to health care if you don't have the funds to cover it through something like an HSA. OK, well, you know, returning to our listener Lisa's comment, all of what we've talked about so far can really help folks answer that question that if they did lose their source of income today, how would they be able to survive or thrive on their current resources? This is such a personal question that's not going to be easy to answer, but it's important that you start thinking about it and beginning to answer that question gradually over time.

36:06Elizabeth Ayoola:And please don't stress about it because we have lots of wonderful listeners who are thoughtful about their finances and they may start stressing about it. The key here is just to plan ahead because we don't know what's going to happen in the future, but we do know what we can do now to help.

36:21Sean Pyles:Exactly. Okay. Well, I think that's all we have for this episode. I'm going to pull in our producer Tess to read us out. Tess, hi. All right. Well, hey, you guys. Nice to join you from in front of the mic every once in a while. So that is all we have, as Sean just mentioned. Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. And someday I will memorize that because I hear it every day. Yes, beautifully done, Tess. Thank you so much. Also, if folks want to, they can leave us a comment on Spotify or YouTube with their financial questions.

37:03Elizabeth Ayoola:We want you to pull up on us. That means join us next time to hear all about tax season 2026. And that includes what changes you need to be aware of as you file your taxes. Follow Smart Money on your favorite podcast app. We don't mind which one that is. It could be Spotify, Apple Podcasts, or iHeartRadio to automatically download new episodes.

37:23Sean Pyles:Here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

37:34Elizabeth Ayoola:This episode is produced by Tess. Hilary Georgie helped with editing. Nick Karisamy and Eve Krogman help our audio and video production. And a big thank you to NerdWallets editors for their help.

37:45Sean Pyles:And with that said, until next time, turn to the nerds.

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