Early Retirement Blog

American families experienced a record decline in their net worth during the fourth quarter, wiping out $5 trillion dollars of net worth, mainly due to the crashing stock market.  American households have lost 20% of their net worth, over $15 trillion in total, since June 2007.

In response, Americans are saving more of their income, and delaying their retirements.  While saving more is always a good idea, delaying retirement to make-up for losses, may not be the wisest choice.  It may be smarter financially to retire now.  You may actually end up with more money by retiring than by increasing your savings.    Read the article I wrote on Why you should retire in a recession.

The latest report on American household net worth, convinces me more than before, that Americans should not delay their retirements.   If the last eight years of net worth growth was created by a credit bubble, then American net worth could drop another 20%, to the year 2002 level of $40 trillion.  If this economic crisis gets worse, then American net worth could decline even further.  See the chart above.  Morgan Stanley is predicting a 25% decline for the S&P 500 in the next few months.

In the fall of 2007, when I started Green Retirement planning, the first article I wrote was “Retire Now or Never“.  It warned people that they should retire, even earlier than they planned to, in order not to lose their retirement savings.  I wrote about “opportunity cost”, about the cost of delaying retirement, the lost opportunity to retire.  I repeat the same advice still, even after the stock market crash, and the housing decline.  Here is a quote from the article:

Your net worth at retirement, will determine how much you can spend in retirement, for the rest of your life. Even with additional savings, a declining home and stock market, may leave you with less money when your retirement date arrives. You may be wealthier now, than at any point within the next five years, or perhaps ever again.

The way to manage a net worth decline is simple, if your net worth has declined by 20%, simply reduce your retirement budget by 20% and retire anyway.  If you had planned on a $3,000 per month retirement budget, reduce your budget to $2,400 per month, and go ahead with your retirement plans.

Also, find out how much you really need to retire, Wall Street over-estimates your retirement savings needs.  Use our Free Retirement Calculator, and read our Free How To Plan Your Own Retirement guide.  It’s really upsetting writing the same message every year, please check out Green Retirement Planning, and learn how to retire early by going green.