Q: I’m hearing lots of talk about early retirement and I’ve been wondering about this concept for a while. I love my job, so I don’t really see early retirement as a goal. To me, life without work while I’m still in my physical prime is boring and meaningless. But how can so many popular influencers be wrong?
A: While it sounds like a dream to be able to retire before you hit 40 and to be financially secure enough to walk away from your job without worrying about paying the bills, early retirement is not all sunshine and butterflies. There are many challenges and pitfalls associated with early retirement that you won’t read about in the romanticized accounts of popular bloggers who have achieved their goal of FIRE (Financially Independent, Retire Early).
Also, as you correctly assume, early retirement is not for everyone. Here’s why:
1. Boredom breeds discontent
There are some personality types that loathe the corporate world and a typical 9-5 job. These people hate being told what to do and feel stifled or constricted by a traditional work setting. They have loads of outside interests and hobbies they’d pursue, if only the majority of their waking hours weren’t spent at the office. For these employees, a responsible early retirement can indeed be a path that leads to fulfillment and happiness.
Lots of people, though, are perfectly content with their day jobs and feel fulfilled and productive when engaged in their work. For these employees, leaving the structure and social configuration of the workplace while they are still in their productive prime can lead to depression and a physical decline well before old age sets in.
Where do you stand? An early retirement might be an interesting idea if you’re a highly creative and independent sort who feels stifled at work. Similarly, if you have dozens of interests you would pursue without the structure of a typical workday, early retirement may be an attractive path. But, if you know you’d be bored after a few months of retirement, you’d be best sticking around your job as long as you can.
2. You’ll miss your years of peak earning potential
Why bail out of your career just when you’re hitting your peak earning potential?
Using data from the Integrated Public Use Microdata Series business and investing website, Visual Capitalist found that the biggest jump in salary across all levels of income earners happens between ages 30 and 40, with those who are pulling in higher salaries seeing the greatest increase closer to age 40. If you pull out of the workforce in your early 30s, you stand to miss out on the years in which you reach your peak earning potential. Also, even if you retire at age 40 or 50, each year you are out of the workplace means a higher loss since you’ll likely have reached your highest income level during that time. And, if your employer has a 401K match, that means missing out on a lot of free money.
Where do you stand? If you’ve already hit your peak earning potential, and you have enough stashed away to keep you going, this may not concern you. However, if you feel you haven’t yet hit your best earning years, you may want to stick around the workplace for a while longer.
3. You likely don’t have enough money to retire early
Some financial bloggers like to boast about their frugal post-retirement lifestyle, but how many of us can honestly look forward to off-the-grid living for more than a few years, or even a few months? If you can’t hack the super-cheap life for long, can you really afford to retire early?
Consider these numbers: According to the Bureau of Labor Statistics, the average person spends nearly $46,000 a year post-retirement. A survey by GOBankingRates found that 42 percent of Americans have less than $10,000 saved for retirement, and 14 percent have nothing saved at all. Even if you have a handsome retirement fund, it may not be enough to keep you going for half a century or more.
Keep these two factors in mind when you crunch the numbers:
- You won’t be eligible for Medicare until you turn 65. Walking away from your job can mean losing out on your health coverage. If you get hit with a sizable medical expense before you find adequate coverage, you may be forced to drain your retirement savings to cover it.
- You may have to pay an early withdrawal fee on your retirement funds. If you take out funds from your 401K, traditional IRA or Roth IRA before age 59 1/2, prepare to pay a 10% penalty.
Lots of early retirees still pull in an income through a money-making hobby they enjoy, such as blogging, selling on Etsy or YouTubing. This can be a great way to keep those retirement funds from running dry.
Where do you stand? If you’ve worked out the numbers and you know you’re financially secure enough to retire early, you can keep the option on the table. However, if you’re not sure you’ve put away enough money for retirement, you may want to push it off until you can afford to retire comfortably. Once you leave the workforce, it will be that much harder to re-enter.
4. You won’t be contributing to society
Life is most meaningful when we’re working to make the world a better place. Whether you’re a heart surgeon, an estate lawyer, a florist or an electrician, your job is likely helping to change people’s lives for the better. Once you bow out of the workforce and spend your days chasing endless thrills or pursuing the ultimate in relaxation, you’re no longer impacting the same way. Like boredom, living selfishly can ultimately lead to dissatisfaction and unhappiness.
Where do you stand? If you have a plan in place for volunteer work, or for contributing to your community in a meaningful way once you’ve retired, this may not affect you. However, if you plan to indulge in years of pure pleasure and relaxation, you may come to regret an early retirement.