Prosperity Lost from Early Retirement

The light of deep regret
Let me see what I don't get
--Hipsway

Previously we offered that early retirement reduces overall prosperity because able-bodied workers are not producing goods and services that society can benefit from. That lost production could have been added to the stock of wealth that increases standard of living. But it doesn't because early retirees leave the work force prematurely.

To gain a sense of the material impact of early retirement, suppose the following. A person enters the workforce at 21 years of age making $50,000. That $50K is the monetary reflection of the individual's take-home production. Suppose also that this individual's productivity increases 2% annually (in-line with the average national real non-farm business productivity improvement reported by the BLS) until age 55. After that, productivity (and wages) don't increase annually (a conservative estimate to be sure). Assume also that the person is no longer productive at age 65 (also a conservative assumption) at which time he/she retires.

The cumulative wages (production) of that person would be as follows:

21: $50,000
25: $260,262
30: $547,486
35: $864,671
40: $1,214,868
45: $1,601,515
50: $2,028,404
55: $2,499,724
60: $2,989,893
65: $3,480,062

Now, what if the person retires at age 55--ten years before their productive capacity terminates? That person would have foregone $980,338 worth of production--about 28% of the individual's lifetime production potential. The loss is especially high because of the increase in productive capacity accumulated over time through experience and learning.

Even if individuals catch FIRE and save enough early in life to 'afford' to retiree early (most, of course, will still need to draw from the incomes of others to do so), the foregone opportunity to further enrich both themselves and others that occurs when they step away from some of their most productive years represents a high cost to society.