Retiring Early: What's the Best Plan for a Too-Small Nest Egg?

Carrie Schwab Pomerantz
Posted: Feb 02, 2012 12:01 AM

Dear Carrie: I only have about $21,000 saved and I am headed into a way-too-early retirement. Should I be investing aggressively to make up for lost time? --A Reader

Dear Reader: In the financial world, we often talk about the importance of aggressive investing for long-term growth. But for lots of investors in lots of situations, aggressive investing is not the right strategy. And I must say, it certainly seems that you fall into that category.

I realize you're in a tough spot, facing an early retirement with very modest savings. And your instinct -- to grow that money -- is understandable. But I don't think you should risk even a small portion of your $21,000 in an aggressive investment.

People like to say things like "risk and reward go hand in hand," which is true. But it's also true that risk and (SET ITAL) loss (END ITAL) go hand in hand. Investing in stocks can be a good risk for people who either have a long-term time horizon (at least five years, preferably more) or who can afford to take a loss. But that's not you.

So my advice is to think of your $21,000 as a life raft -- for emergency use only. Keep it safe. Put it in an insured checking, savings or money market account, or invest it in some short-term certificates of deposit. Don't put it at risk in the markets.


Having a nest egg should be comforting, and ensuring it is protected even more so ("I know I've got $21,000 in reserve"). But that does not address the issue of how you'll make ends meet as you head into "a way-too-early retirement."

So what to do? Obviously, if at all possible, you should postpone your retirement, even if it means taking a lower-paid or part-time job. Some income is clearly better than none and could well postpone the day you might need to tap your emergency fund. A job with health benefits is a huge plus. And if your income allows it, contribute as much as possible to a retirement plan like an IRA or a 401(k), but until you have a lot more assets and a clear sense of what your time horizon might be, don't invest in anything risky.

Now would also be a good time to investigate what kind of government benefits you qualify for. Your "way-too-early" comment led me to wonder if you're not yet eligible for Social Security benefits. As you probably know, most workers can receive Social Security benefits at age 62, but benefits are significantly greater for those who can wait until they reach what the Social Security Administration calls "full retirement age"-- 67 -- assuming you were born in 1960 or later. Are you eligible for Medicare or Medicaid or other state or federal programs? For help in understanding public benefit programs, check out AARP Benefits QuickLINK,, a website maintained by the AARP Foundation, an outreach program sponsored by the American Association of Retired Persons.

I'm sure you've already thought about reducing expenses. Careful, rigorous budgeting should be an essential part of your strategy for this stage in your life. Most people can find lots of ways to cut down, but I suggest expending the most energy on finding big opportunities to save (downsizing your living quarters or taking a roommate, for example, can stretch your income more dramatically than cutting back on groceries). One place you probably shouldn't cut back is health insurance; your nest egg could disappear quickly if you were injured or became seriously sick and were uninsured.


I recognize that this is a very difficult situation, but I urge you not to give in to despair. Do what ever you can to stay connected to family and friends. Their emotional support is essential as you figure out your next steps and decide how best to manage your retirement. Best of luck!

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can e-mail Carrie at This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at