Here's Why You Should Reconsider an Early Retirement



Many people dream of an early retirement at age 50, 40 or even younger. But those who leave behind the office at such a young age might not find retirement fulfilling. The amount in your savings or portfolio may not reflect how enjoyable you’ll find the coming years.

The FIRE movement, which stands for financial independence, retire early, has caught the attention of many workers, but some are quick to say it’s not a surefire solution. “Early retirement is a common ambition among today’s workforce,” says Greg Klingler, director of wealth management at the Government Employees’ Benefit Association in Fort Meade, Maryland. “However, in my experience, few are actually ready for it.”

  • Missing out on retirement contributions.
  • The risk of outliving your savings.
  • Less Social Security income.
  • Pricey health care.
  • Sheer boredom.
  • Limited activities.
  • Well-being risks.

Missing Out on Retirement Contributions

If you have a 401(k) plan through your employer, you’ll be able to put an extra $6,000 into it every year once you turn 50. This is in addition to the standard 401(k) contribution limit of $19,500 in 2020. Some companies offer to match a portion of your contributions every year as well. “By leaving the workforce too early, you will be leaving those options behind, as well as future matching contributions from your employer,” says Michael Morgan, president of TBS Retirement Planning in Bedford, Texas. “Assuming a 7% return, maximizing your contributions for five additional years would add $179,000 to your savings.”

The Risk of Outliving Your Savings

The average lifespan in the U.S. in 2020 is just shy of 80 years. If you retire in your 50s or earlier, your savings may need to last for more than three decades. “You’ve spent many years accumulating your retirement nest egg and when you do retire, you will need a strategy for withdrawing from that nest egg,” Morgan says. “If you retire too early and start drawing down on your savings, you face the possibility of running out of money before life expectancy.”

Less Social Security Income

Social Security benefits are calculated based on 35 years of earnings. If you don’t work for at least 35 years, zeros are averaged in and result in smaller retirement payments.

You can start receiving Social Security benefits at age 62, but payments are reduced unless you wait until your full retirement age to begin benefits. Your full retirement age depends on the year you were born, and is 67 if you were born in 1960 or later.

If you pick up a side gig after you begin collecting Social Security early, you could be limited on how much you can earn before your Social Security benefit is temporarily withheld. Social Security beneficiaries who are younger than their full retirement age can only earn $18,240 a year before Social Security benefits are temporarily reduced. After you turn your full retirement age you can earn any amount without Social Security withholding.

Pricey Health Care

Once you reach age 65, Medicare kicks in for health coverage. However, if you retire early you will need to find health insurance from another source. If your spouse still works he or she may have a plan that will cover you. Otherwise, you may have to purchase a policy through the health insurance marketplace, which could lead to much higher premiums and out-of-pocket costs than you had to pay during your working years. “You should consider whether or not your budget can handle those premiums,” Morgan says.

Sheer Boredom

If you don’t have a plan for how to spend your time, the new hours in your schedule could lead to boredom and loneliness. “Work provides social, mental and physical stimulation,” Klingler says. If you don’t have hobbies lined up and commitments with friends or volunteer organizations in place, it could become difficult to maintain a sense of purpose.

Limited Activities

While trotting the globe, remodeling your home and taking classes to learn more about a topic might sound exciting, they usually come with a cost. “If you plan to travel, you’ll need more cash available,” Klingler says. Redoing a room in your house might not be in your planned budget for the year, and lessons usually have a price tag attached to them. The same is true for other forms of entertainment. More time to spend at restaurants could mean higher food bills. Visiting family frequently might have you purchasing plane tickets more often.

Well-Being Risks

Not reporting to a boss or carrying out job responsibilities on a regular basis could lead to months or years filled with a sense of loss. “Many Americans derive their identity from their work,” says Chip Munn, CEO of Signature Wealth Strategies in Florence, South Carolina, and author of “The Retirement Remix.” Stepping away from a job might involve a feeling of being cast aside or removed from society.

Peers, friends and coworkers who are close to you in age but remain in the workforce could have very different lifestyles. They might also continue to earn more, making it difficult to find common topics to discuss or activities to do together. Eventually you could lose your place in social circles that may have taken years to build up.

Health-related issues can be a concern for early retirees who don’t stay active. “Two primary areas where retirement can have unexpected consequences are in our mental and physical health,” Munn says. An inactive lifestyle can lead to a number of chronic illnesses, including heart disease, high blood pressure, diabetes, depression and anxiety.


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