Is retiring early worth it for you? In this article we will discuss the things you need to know about early retirement to help you make a great decision!
Understanding Early Retirement
Early retirement usually means the decision to stop working before a traditional retirement age, such as age 65. Age 65 is significant because it marks the beginning of Medicare eligibility, potentially making retirement health insurance more affordable. The decision to retire before age 65 is often motivated by a strong desire to escape a stressful job or pursue fun activities including more frequent travel.
The concept of retiring early has gained popularity in recent years, especially with the rise of the FIRE (Financial Independence, Retire Early) movement. This movement emphasizes aggressive saving and investing strategies to achieve financial independence and retire as early as possible.
Why Do People Want to Retire Early?
Dissatisfaction with Their Job
If you’ve been employed for over 10-15 years, you can probably relate to the idea of escaping your stressful job and enjoying a more relaxed lifestyle as quickly as possible. Work dissatisfaction can build over time and often stems from a few different places, including the lack of career fulfillment or upward mobility, a toxic work environment including negative colleagues or coworkers, or the pull from personal hobbies and interests that become seemingly more important than achievement in the workplace.
Desire for More Personal Time & Travel
Early retirement can be really attractive when thinking about the ability to completely control your schedule. Imagine knowing that you don’t have to get up early Monday morning and that you can spend your week doing whatever you want.
If you love to travel, early retirement can provide the opportunity to visit new places, experience different cultures, and create lasting memories while your health is still strong. Your flexibility to travel during off-peak times and avoid the constraints of limited vacation days can be another appealing aspect of early retirement.
Health Concerns
You may choose early retirement to focus on your health or to have lifestyle freedom while your health is still in a great place. If your job is demanding, stress can take a toll, making early retirement an attractive option. The flipside of this is that your physical and mental health can deteriorate quickly in retirement if you don’t have a plan to be active, exercise, and socialize regularly.
5 Factors You Should Consider for Retiring Early
Here are some important things to evaluate before making the leap to early retirement:
How Much You Enjoy Your Work
If you love what you do, the idea of retiring early might not be appealing. Your job might provide you with a sense of purpose, fulfillment, and social interaction that can be difficult to replace.
Consider whether your work brings you joy and satisfaction or if it’s merely a means to an end at this point in your life. If you find deep fulfillment in your career, continuing to work might be more rewarding than retiring early.
How Prepared You Are Financially
Financial readiness is crucial for early retirement. You should have sufficient savings, investments, and a solid retirement plan to ensure you can maintain your desired lifestyle without running out of money.
Evaluate your cash savings, retirement and investment accounts, and potential sources of retirement income. Consider consulting with a financial planner to assess your financial situation and create a comprehensive retirement plan.
Key concepts to consider in your retirement plan:
- Retirement savings: Ensure you have enough savings to cover your expenses throughout retirement. Don’t forget to include inflation and rising expenses over the course of your retirement!
- Investment strategy: Your investment portfolio should be designed to provide potentially steady income and growth over time and should have a built in strategy to handle income in down markets.
- Income taxes: Understand the tax implications of withdrawing from your retirement accounts and other savings. You should have a game plan for which accounts to use in the optimal order to avoid unnecessary taxes and Medicare premium costs.
- Health insurance: Plan for healthcare costs, as retiring early may require purchasing private health insurance until you qualify for Medicare. This can be a far greater cost than you might expect. Evaluate your budget carefully and be sure to examine if you have a Health Savings Account that you can draw on.
- Social Security benefits: Determine how retiring early will impact your Social Security benefits. Your current Social Security statement is projecting an income benefit that assumes you continue to earn your current salary. If you retire early, you might be surprised that your Social Security benefits are lower than you had hoped.
Your Health and Longevity
Retiring early might be beneficial if it allows you to enjoy life while you are still healthy and active and reduce your regular stress level. However, ensure you have a plan for potentially higher healthcare costs before you become eligible for Medicare as well as a plan to stay active so that your health doesn’t deteriorate due to a lack of physical or mental activity.
Retirement Lifestyle Vision
Visualize what your life will look like in retirement. Will you travel, volunteer, or pursue hobbies? Do you already engage in these activities or do you imagine you will suddenly start them when work ends? Consider creating a detailed retirement plan that outlines your goals, activities, and potential daily routine.
You might also consider beginning the activities you want to fill your time with in retirement before you pull the trigger to build some momentum. For example, you might volunteer a few days per month to see if you actually enjoy volunteering or if it just sounds good in your head.
Social Connections and Support Systems
One aspect of work that is easy to overlook is that work often provides a social network and a sense of community. Consider how retiring early might affect your social life and what steps you can take to maintain or build new relationships.
During retirement, it’s important to stay engaged and connected with others to avoid feelings of isolation and loneliness. Joining clubs, volunteering, and participating in community activities can help you build a strong support system in retirement.
Discover If Early Retirement Is Right for You with Stage Ready Financial Planning
At Stage Ready Financial Planning, we specialize in helping individuals and couples over age 50 in Dayton & Southwest, Ohio to bridge the gap between their retirement dreams and reality. Our fee-only financial planning services are designed to provide you with objective guidance and an easy to understand plan for achieving your retirement goals.
We believe in a holistic approach to financial planning. Our services include retirement planning, income planning, tax planning, investment management, and Social Security and Medicare planning. and more!
We work closely with our clients to develop personalized strategies that align with their unique needs and goals.
As CERTIFIED FINANCIAL PLANNER™ professionals, we are committed to acting in your best interest, providing transparent pricing, and never accepting commissions.
To learn more about how Stage Ready Financial Planning can help you achieve your retirement goals, visit our website or reach out today.
FAQs
Is there a downside to retiring early?
There can be! Potential downsides include financial strain, health insurance costs, the risk of outliving your savings, and the lack of fulfilling activities and social engagement.
Retiring early means your retirement savings have to last longer, and you may face penalties for early withdrawals from retirement accounts if you don’t have a great strategy for retirement income. Additionally, you may have to cover your own health insurance until you qualify for Medicare, which can be costly.
Does anyone regret retiring early?
Some people do regret retiring early due to financial pressure or lack of fulfillment without work. It’s important that you have a clear plan and understand the potential challenges of early retirement. Consulting with a financial planner and keeping open minded to the idea of part-time work or other income-generating activities can help mitigate some of the risks.
What is the best age to retire?
The best age to retire is different for everyone, depending on their financial situation, health, and personal goals. For some people, retiring early in their 50s might be ideal, while others may prefer to work longer to maximize their retirement savings and Social Security benefits. Ultimately, the best age to retire is when you feel financially prepared, mentally fulfilled, and ready to embrace the next chapter of your life!