Pros and Cons of Early Retirement
Below we'll explore the advantages and disadvantages of early retirement and a few ways to begin planning for that tremendous goal.
The AdvantagesThe advantages of early retirement may seem obvious; these are some benefits to starting that next chapter.
More Time for Loved Ones
You can't put a price tag on time. Especially if you have led a demanding career, the value of having more time with loved ones is invaluable.
Opportunities to Change Careers or Take Up a New Hobby
Having the margin and extra time to do the things you love is a clear advantage to early retirement. This is a good opportunity to take up a new hobby, travel, or even start a new career choice.
Retiring early may even improve your mental health by reducing your stress. If your job has been physically demanding, calling it quits sooner rather than later may increase your physical health and prevent more wear and tear on your body.
The DisadvantagesEven after careful planning for early retirement, these are a few items you may not have considered.
Health Insurance Costs
Individuals often overlook the high cost of health insurance during retirement. Medicare does not go into effect until age 65, so if you plan to retire before then, you will need to budget for private health care until you are eligible for Medicare. Private insurance adds a considerable expense to a budget without employer-sponsored health insurance.
Most retirement plans come with a hefty tax for withdrawing money before age 59 1/2. While there are a few exceptions for certain professions, hardships, and life events, most people will have to pay an additional 10% penalty tax on the money they draw early.
Reduced Social Security Income
Your social security benefits largely depend on your age when you begin utilizing this source of income. Individuals that retire early will receive a reduced social security income. This is certainly something to consider as you are subject to losing as much as 30% of what you have invested due to drawing early.
Outliving Your Savings
Another scenario to consider is outliving your savings. As life expectancies go up, there could be a real fear that you may live longer than your saved money, not leaving enough for the care needed as you age.
Lack of Structure
While the gift of time is considered an advantage, people often don't plan for what they will do with all the extra time they have. Without the structure of a job shaping your day, some people may get overwhelmed into nothingness, becoming less active during retirement leading to health issues, depression, and loneliness. If you cannot afford to do everything you'd planned, you may be forced to live a more sedentary and isolated lifestyle.
Next Steps for Those Considering Retiring Early
It is always wise to consult with a professional early when deciding what age is appropriate for your financial situation to ensure you have saved and planned accordingly to accommodate your retirement goals.
Examining Your Retired Lifestyle
Consider the retirement lifestyle you want to have. If you're going to travel or snowbird, which means owning multiple homes, you'll want to plan and start saving even earlier. You may consider reducing your monthly expenses now to invest and save for your future.
Begin Saving and Investing Early
Examine what you contribute to your IRA or 401K and consider maxing it out. Often, people contribute a small amount and accept their companies match, only to find out later that what they were contributing was not enough to retire early or live the lifestyle they had hoped to achieve during retirement.
Consult a Professional
If you are considering retiring early or have that goal, it is always best to consult with an advisor sooner rather than later. The earlier you can lay out your expectations for retirement, the sooner a professional can help you customize a savings plan to attain your retirement goals.
Contact a Wealth Management by CommunityAmerica advisor or contact your local branch to set up an appointment to talk through your retirement savings plans and goals.