Retiring from your profession is something that will happen sooner or later. When your hair becomes too gray, and you can no longer keep up with the amount of work that needs to be done, you will most likely be on your way out of the company, on your way to enjoying your golden years at home, in a retirement community or getting busy with your garden.
Early retirement is a different story, though. It’s not common among today’s professionals, especially in the current economic landscape. There is more than one reason why only a small percentage of the working class retire early, and if you are one of the few people who plan on doing it soon, there might be some things you’re not aware of. That’s why in this post, I’ll explain 12 things you must consider before deciding to retire early.
#1 You need to have enough money to fund your healthcare.
One benefit of working is that your company sometimes covers part or all of your healthcare needs. This is especially helpful if you are on constant medication or have a family member or dependant who relies on one. Even without this benefit, having a stable source of income still provides a way to set aside funds for your healthcare.
Early retirement will strip you of this benefit, and it can be rather costly to shoulder the expenses. In the US, the average person spent $12,100 on healthcare in 2020. The government does provide some help to ease this dilemma, but it will not be available for early retirees until they reach the age of 65.
Depending on the age you plan to retire, this could possibly mean shouldering decades’ worth of health-related expenses, and it will not be light on your pockets. So, you’ll need to do some good planning and have a large enough emergency fund set aside just for those expenses.
#2 It might not be as difficult as it seems to live steadily.
While early retirement is generally seen as expensive in the long term, it may not be the case for everyone. If you have been a prudent worker and have saved enough for your plan to take off, secured alternate sources of income, and considered the impact of inflation, you are more than ready to leave your workspace and settle for good.
Also, retiring does not necessarily mean that you have to let go of any earning opportunity. Nowadays, there are many ways for you to earn passive income while having the time of your life. Investing in stocks, cryptocurrencies, or making a living out of your passion are some things you can do to still have an inflow of resources even after retiring early.
Additionally, you can adopt wise money-saving decisions to help manage your finances, like budgeting, tracking your expenses daily, taking advantage of coupons and promos, and avoiding making impulsive purchases, especially those that are costly.
#3 You must think of ways to pay your mortgage or rent.
Unless your decision to retire early from work is amplified by the fact that you no longer need to make monthly payments for your home, you need to think of ways to cover your mortgage payments. They can get expensive, especially when you no longer have a steady stream of income, and future repairs can also be an additional burden.
You also have to consider property taxes, as they might increase depending on how the economy performs in the following years. It’s much better to expect the worst when it comes to these things, as having inadequate funds can put you in a tough predicament in the future.
#4 Early retirement is only practical if you make a decent passive income.
Even if you have decided to free yourself from the shackles of unreasonable work hours and tedious responsibilities, the world will not stop charging you from living. Expenses will continue to pile up, you will need to eat, pay your bills, and as cliche as it sounds, enjoy yourself and be happy.
All of these things will require money, and the need for money calls for a way to earn it. Unless you have millions, your savings can only get you so far in life, even if you manage them wisely. Therefore, you still technically need to exert some effort to earn money.
But if you’re looking for a leisurely retirement sipping margaritas in a tropical paradise without lifting a finger, that will only happen if you manage to produce passive income. You don’t necessarily need to earn enough to cover 100% of your expenses, but at least enough to lower withdrawals from your savings to help make them last for the rest of your life.
If you don’t make passive income, you’ll have to get back in the saddle. Perhaps a different arrangement, like a remote or work-from-home job you can do part-time, could be enough, or you may even need to go back to full-time. This is why, in many cases, retiring early from work isn’t so much retiring as it is replacing one type of work with another unless you are a son of a billionaire or an heir to generational wealth.
#5 Money will not be your top priority if you retire early.
While it is still a factor you need to consider when planning your retirement, money will not play as big of a role in your journey after leaving work as it did when you were still working a nine-to-five. People who retire early want to be free from being slaves of the corporate world, and that is what they focus on.
It will make no sense to retire early only to live the rest of your life worrying about money, will it? No one tells you this when you’re about to retire, and it will either dawn on you the moment you decide to pass your resignation letter or arrive as a late realization.
However, this may put you in a tricky spot if you don’t plan your retirement adequately because you DO need to worry about money. You don’t want to live a couple of blissful years of happy retirement in complete denial only to be hit by the reality that you no longer have any money and need to get back to work.
#6 You’ll be stronger and healthier and have more time to enjoy the things you like.
One drawback of retiring at an old age is while you do have all the time and freedom in the world, your age will simply hinder you from enjoying that freedom. If you retire early, you will have the best of both worlds as you’ll have both the time and the energy to do anything you want and more.
Retiring in your twenties or thirties means you’ll actually be able to tick off all the things on your bucket list–travel to Greece, get a dog, visit a museum, write a book, or finish reading all the books that have been collecting dust in your room. Before you know it, you’ll be out of things to do, so make sure to write a long bucket list.
#7 You’ll have to pay hefty fees to access your retirement fund.
Retirement funds are intended for people retiring at the normal retirement age, not for early retirement. Depending on the investment vehicle you chose when you started saving and how mature your retirement fund is when you actually retire, you’ll probably have to pay early withdrawal fees.
For example, if you purchased a 10 or 20 years deferred annuity but want to make a withdrawal within the growth period, most insurers will charge a strong fee that becomes lower the more you wait.
Additionally, if you paid for your annuity with money from a 401(k) and plan to withdraw before turning 59½, you’ll have to pay an early withdrawal penalty fee of 10% on your withdrawal to the IRS.
So, retiring early can be quite expensive if not done right.
#8 It will take time for you to adjust to your new retirement life.
One of the reasons for retiring early is to be free of the routine lifestyle when you were still clocking a nine to five. This will obviously change once you retire, and adjusting can be challenging. It varies with every person—for some, it might only take a couple of days; for others, it could be a couple of months, maybe even a year.
You mustn’t feel pressure to adjust, though, because you have all the time in the world to change your routine or even abandon the thought of having one. Allow yourself to make the transition no matter how long it takes because deadlines are but a thing of the past when you retire early from work.
#9 Your definition of “early” retirement depends entirely on you.
Unlike the normal retirement at a qualifying age—usually 60 years and older—early retirement depends entirely on your own timeline. This means that you do not have to give in to any external pressures and make the call when you feel you can finally afford it.
If early retirement for you is not having to work by the time you turn 30, then you can do so when you reach that age. You just have to make sure that you have planned your whole life ahead, not just in terms of money, but in terms of the things you want to do.
That’s also your call to make; you are the only one to blame if everything goes awry and retiring early does not work out for you. It is a double-edged sword, but for the most part, it’s the first manifestation of your freedom.
#10 Early retirement doesn’t always work.
Pun aside, early retirement is not everyone’s cup of tea, and even if it were, it might not be the best option for everyone. At a superficial level, leaving your work while you’re still young sounds like a promising dream for everyone. However, it may entail long-term consequences that might not sit well with some. Aside from the financial problems that may arise, there’s also the possibility of losing control over your life.
Early retirement does have its perks. You can give attention to things you had not paid any mind to when you were still working; take the time to rest; enjoy your favorite hobbies when you’re young instead of delaying them until you can’t enjoy them anymore, and you can have fun in general.
But if you have all these things checked and you’re still asking yourself, “what’s left for me to do?” it might be a sign that retiring early might not have been the best decision to make.
This is a consequence of our needs and priorities, which are summarized in Abraham Maslow’s pyramid. Retiring early can eliminate an important source of satisfaction of our “belongingness” needs because when working in any organization, we feel we belong to something bigger.
It can also hinder our ability to grow and find self-fulfillment, which can leave us in a state of disappointment when we reach the end of our lives.
#11 Early retirement gives you a go signal for a fresh start.
Just as there is no right time to retire early from work, there is also no limit as to when you wish to do a start-over with your life. One of the best things about retiring early is you can restart everything and live life with a clean slate. This time, you have both the control and resources you need to make your life what you want it to be.
In addition, you also get to decide what path you will take after retirement — do you want to go back to school? Set up an art studio? Focus on your passion for baking? You can do any or all of these things when you retire early. You don’t have to explain why, and all you need to do is live your life the way you want to live it.
#12 You will have to weigh out your options.
While you think that you virtually have full control over your life, early retirement will still compel you to weigh your options and make wise decisions to make sense of your retirement. You’ll have to let go of some opportunities to utilize others, and the choice of prioritizing your happiness will also sometimes require you to trade off some other form of convenience.
The bottom line
Early retirement is a decision that is yours and yours to make, and if you have no idea of what is in store for you when you decide to do it, then the things discussed above will give you a glimpse of the reality that it entails.
Like many other things in the world, retiring from work at an early age comes with certain perks and drawbacks, and you must consider them both before making your decision. It is up to you to decide the terms and date of your retirement, but how it plays out will ultimately depend on your choices once you take that leap of faith.