Discussions I have with people are typically how to structure their life and position their finances such that they can someday retire. After all, no one wants to work until 80, right? With proper planning we devise a path for people to get the pieces in place for the goal of retirement. The so-called average retirement age is approximately 65-68.
Perhaps you are wanting to retire before that. In fact according to one survey more than one-third of people plan to retire BEFORE age 65. So, you wouldn’t be alone.
Taking it a step further, there is a subsection of society who wants to retire A.S.A.P – as in their 40s and 50s – or sooner if possible. Their thought being “why work if I can retire and travel the world”; perhaps you know people with this mindset. I have talked about this before as well, specifically about the F.I.R.E. movement – financially independent retire early. People in this camp save aggressively, live frugally, and sacrifice their early lifestyle so that they can retire early and “live the dream”.
Well, the downside to retiring early is not frequently discussed. Like most things in life, there are pros and cons to early retirement. While most people may know what the pros are, there are plenty of negatives that no one likes to talk about. I believe these are worth mentioning:
Loss of income/power/influence – How about the years of education, sweat & tears, and climbing the corporate ladder – only to wave it all goodbye? Do you miss that title that you earned? You might have been in your prime money-making years too! Imagine yourself working towards a goal for 20+ years and achieving it, then walking away. Might be easy, might not. And if you want to get back in the workforce after 10 years because you miss it…don’t count on it. After being out of the work force you may have fallen behind the learning curve to someone who is probably younger and/or smarter. What may make things worse if you truly enjoyed what you did for a living. That is a lot to give up.
Mental Decline – This is the one that would probably worry me the most. I won’t dive deep into it here but studies have shown, as you can imagine, if you stop using your brain you will start to lose it! An early retiree would probably have to work hard to stay on top of brain-enhancing activities and make constant efforts to keep themselves sharp. I am thinking of community activities like chess and cards groups. There are numerous tablet apps that can be used to enhance your mental capacity such as puzzles and word games, as well as other ways to continue reading and learning. The bottom line is implementing these mind games will be imperative to staying sharp and mindful. Sitting around watching movies or golf on TV – not so much.
Lack of challenge – I hear from people all the time, that one of the things they like about “working” is the challenge. It might not always be fun, but your job may be challenging and provide a means to work towards goals that needs to be obtained. If not, maybe you have the wrong job! But what will challenge you in retirement? What will get you motivated and out of bed in the morning? This is definitely something to think about…everyone can use a little bit of motivation to get them through the day.
Lack of social interactions – One aspect to this is while you are retired, most of your friends or family are probably still working and unable to do things when you want them to. You might even get lonely because no one is around to go play tennis or cards with. Will boredom creep in? Probably. At least a little bit.
The other social aspect of this is people tend to classify others by what they do for a living. You may get annoyed (as do I) when the first question people ask is “so, what do you do”? If you are not working, you may not get the same respect or attention as others. Even if your friends know you are retired, they might think you are out traveling the world – living the good life. They might not want to hear how great your life is, while they are battling traffic every day to get to/from their 60 hour a workweek job. Don’t be surprised if you stop getting invited to the annual neighborhood Superbowl party.
Potentially living a limited life – Although it’s possible, I wouldn’t assume expenses in retirement will drop (hello – healthcare?). Unforeseen medical expenses will most certainly pop up. Medicare does not start until age 65. You can’t tap into your retirement accounts until age 59.5. Cost of health insurance, which is a wildcard, certainly won’t be cheap nor offset by an employer. In other words, there is no guarantee that you will have long-term security. This is a concern when retiring early.
Perhaps your plan was to simplify your life and downsize your home (who needs all that space anyways, right?). Are you thinking the smaller place won’t need renovations in 20 years from now? How about appliances, plumbing, new roof? You might be OK with the same kitchen for the next few decades, but will you need new bedroom furniture? Complicating things is the fact that you may very well live past age 100, and most retirement projections will tell you that actuarily you’ll be lucky to make 90. Regardless, you’ve got to make your money stretch for many, many years. Outliving your money is a real risk, and probably the biggest risk of them all.
So there you have it, a half dozen reasons that I gathered from my years in the profession and my personal experiences gathered from real people. To be clear, I am not here to talk anyone out of retiring early. In fact, I hope more people are in a position to do just that! Perhaps you even work part time (aka semi-retire) doing something you enjoy as opposed to stopping work cold turkey.
But it is imperative that you HAVE A PLAN and ideally saved enough to cover any unforeseen expenses or longevity risk. I am always available to discuss with clients the positives, but also the risks & potential downsides, of retiring early.