There is a certain allure to the thought of retiring early. Many Americans are tired of their soul-sucking jobs and daydream at the thought of living out the remainder of their years on their own terms. Who wouldn’t want that? Having a reason behind your retirement savings is key to staying the course when times get tough.
If you want to retire early, the most important thing to have from both a financial and personal perspective is this: options. Amassing enough wealth in order to retire early, or retire at all for that matter, is no small feat. When retiring early, additional considerations need to be given to the unique situation you will find yourself in when living life against the norm.
On the financial side of things, the U.S. retirement system is setup for retiring at age 59 ½ or later. The funds within traditional retirement savings accounts generally aren’t available (penalty-free) until age 59 ½. They can be accessed early, but with special rules attached.
Social Security benefits aren’t available until at least age 62 and typically should be delayed until the individual’s Full Retirement Age or even until age 70. Social Security planning is very specific to each individual and should be looked at carefully.
One of the biggest concerns of retirees is high medical costs. Medicare coverage doesn’t begin until age 65 and still comes with high out-of-pocket expenses throughout retirement years. For an early retiree age 50+, purchasing health insurance on the marketplace is typically very expensive and can hinder even the best of retirement plans.
Considering these factors, it is even more important for early retirees to have various investment accounts and income sources in place. Having investments in taxable, tax-deferred, and tax-free vehicles creates more opportunities to access these funds before the traditional retirement ages. Additional income sources outside a primary job/salary will help ease the transition once retirement has begun.
If so many people are sick of their jobs, doesn’t it make sense to save aggressively for an early retirement? On one hand - yes, it makes perfect sense. On the other hand - no, it may be the wrong direction entirely.
Human beings are wired to stay active in one way or another. If it’s not by working, then what activity will help fill that void of consuming our time? Instead of retiring completely (cold-turkey), one could consider the opportunity to fill their time with a freelance job they love, like consulting in their field of expertise. Other options can be working for a non-profit they have always loved, instead of just volunteering their time there. A semi-retirement with reduced work hours, yet in a job they love, could bring all the happiness one ever hoped for.
Regardless of whether the retirement will take place at a “normal” age or years earlier, a plan needs to be in place with how to fill the void of reduced productivity. It’s not uncommon to hear of retirees that go back to work within a year or two, simply due to a desire to fill their time.
It’s Okay To Retire With Everyone Else
Although early retirement is a worthy accomplishment, it needn't be the end goal. There are great habits that form on the pursuit to an early retirement that are at the core of living a financially successful life. These include living within your means, saving a high percentage of your earned income, and investing in tax-efficient accounts.
Once financial independence has been “achieved”, the options become clear: to retire early, transition to a passion-project or find work you love to do, or simply waiting until a more traditional retirement age. There is no wrong answer and the beautiful opportunity is in living an intentional life.