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For most people, it sounds like a dream come true: Early retirement!
How great would it be to never have to go back to your job, sleep in every day, and do absolutely whatever you want with your free time? These are the rewards that a high level of saving and frugal lifestyle can deliver, and why there are so many people infatuated with the F.I.R.E. movement.
Well, just like the old saying goes, be careful what you wish for. While the idea of achieving financial freedom and possibly shedding a decade or more off of your work schedule may be enticing, the reality is that there’s a dark side to retiring early that’s not as well understood.
Unfortunately, some chase this dream without a plan of what they will do when they get there and are finding out that it may not be the paradise they had imagined. Here are some of the potential disadvantages you should be aware of before you decide to pursue early retirement.
Boredom
What happens when you’re no longer required to clock in for 40 hours or more each week at a job? While the thought of playing golf every day or doing all the activities that you never had time to do might keep you busy for about the first month or so, the truth is that eventually: You’re going to get bored.
Don’t take my word for it. Just look at the posts from forums like Reddit and early retirement blogs and you’ll quickly notice that boredom is a huge challenge for newly minted retirees, especially within the first year. The switch from having a job full of tasks and responsibilities every day to a life with virtually no demands whatsoever is a lifestyle transition that not a lot of people are mentally prepared to make.
Worries About Running Out of Money
According to the 4 percent rule for retirement withdrawals, a traditional retiree should be able to safely take 4 percent of their nest egg out every year to cover living expenses for at least the next 30 years. That means if you’ve got $1,000,000 saved, then you could withdraw $40,000 every year.
However, if you’re retiring in your 50s, 40s, or even younger then you’re going to need to make your money last much longer than 30 years. To do this, you’d have to drop down to a much more conservative withdrawal rate such as 3 percent. That means now your nest egg would only yield $30,000 each year.
To make matters worse, turbulence in the markets can also have a significant impact on the size of your nest egg. For example, between February 11 and March 12, 2020, the Dow fell about 28% over the Coronavirus crisis. Just 12 years earlier, the markets fell by 49% during the Great Recession and it lasted for almost 6 months. That means a person who just retired the year before would have seen their nest egg literally cut in half. That’s enough to keep you up at night!
Finding Affordable Healthcare
Most people don’t realize this, but their employer flips a huge portion of the bill for your health insurance. For example, while you might be paying $100 per month, your employer could be paying as much as $1,000, or even more.
So guess what happens when you separate from your employer? It's now up to you alone to pay for private health insurance. On average, you might expect to pay $403 per month. And that’s not even for a “platinum” level plan. Coverage in this price range unfortunately will only provide for a limited number of services and still require relatively high deductibles, copays, and coinsurance.
Loss of Your Social Life
For many adults, work is the place where their social life flourishes. They make friendships with coworkers, form bonds while working together on projects, and even challenge each other in friendly rivalship.
However, when you retire early, unless you’ve already got a strong social network outside of work, all of that comes to a halt. In fact, social isolation can easily creep in if the retiree doesn’t actively make efforts to connect with other people or involve themselves with outside groups and activities.
Risks to Your Health
It's all too easy to slip into a sedentary lifestyle in early retirement. While there are plenty of days most of us would love to sleep in and watch Netflix until it's dark out, it would be terrible for your health if this truly was your everyday routine.
Unless you already lead quite an active lifestyle, you might have little to no motivation to exercise, stay in shape, or do things that require physical effort. Plus, since you’ll be at home most of the time, you’ll have access to more food and snacks than you ever had before. These two factors combined could be devastating for both your waistline and your overall well-being.
Plus, if your health plan benefits have been reduced due to the switch to private insurance, you might decide to forgo or even prolong medical checkups or even procedures to avoid those high fees. This could cause health issues to compound further and become even worse the longer you ignore them.
Lack of Purpose
With all of that extra time on your hands and nothing there to fill it, it’s not uncommon for people who retire early to suddenly feel lost or without value. They just go from day to day repeating the same activities without a sense of being constructive or helpful to others.
Say you want about your job, but it does give you a purpose. Even if it's activities like delivering packages, filing papers, or sitting in meetings all day, you were hired to do something. Someone else is paying you to do a function that needs to be done. That’s a purpose.
Unfortunately, when we separate from our jobs, we also separate from whatever it was that we were responsible for. Unless you’ve got another project or job lined up, this is again another void that will need to be filled.
Depression
In some extreme instances, early retirement can ultimately lead to bouts of depression. When you combine the removal of social interaction, loss of purpose, and financial stress of trying to make your money last for the rest of your lifetime, for some people the pressure can start to feel overwhelming. They might feel they’ve made a terrible decision and that their situation is now hopeless.
Plan for Your Early Retirement
The good news about early retirement is that it doesn’t have to be all gloom and doom. You can use your new-found freedom as a launchpad to some of the most creative, productive, and exciting times of your life. However, these goals won’t just come to you naturally. You’re going to have to work for them.
Behind every successful early retirement story I’ve ever read, there was always an element of planning involved before they quit their job. No one ever said: I’m going to become dormant after I quit. No, they made lists of places to travel to, books they wanted to write, community events they wanted to plan, and even second careers to pursue.
If you’re having second thoughts about early retirement, remember that no one ever said you have to. Don’t quit your job just because you can. Work as long as you want to and leverage your career to make as many friends and share in new experiences as possible.
But if you do plan on retiring early, plan ahead. Know what type of lifestyle you want to live, and how much it’s going to cost, before you make the decision to kick back years before you are of retirement age. An early retirement isn’t for everyone, but planning now will cut down on some risks and disadvantages later on down the road.
Contributor’s opinions are their own. Always do your own due diligence before investing.
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