USA Today recently published an article on the drawbacks of retiring early. The article’s criticisms of the idea of retiring early boiled down to three key points:
- If you retire early, your savings have to support you longer. This is an obvious point. If you retire when you’re 55 instead of when you’re 70, you must have the savings in place to take care of your living expenses for those extra 15 years.
- Early retirement makes it very tempting to claim Social Security early, thus lowering your benefits. There’s also a concern that by walking away from your career early, you miss out on your highest years of income, which reduces your Social Security benefits no matter when you claim them.
- You have to cover your health insurance between your retirement and the start of your Medicare eligibility. During those years, you either have to find your policy or stay in your previous employer’s policy via COBRA, both of which are expensive options.
Clearly, there are financial reasons not to retire early, particularly when you consider the gap years between when you retire and when full Social Security benefits and Medicare are available to you at age 67. During that time, you’ll be covering all of your living expenses and your medical insurance out of your pocket.
There are other arguments against early retirement such as how some lose their sense of purpose without a career and how your lifestyle will be very lean both when you retire and as you’re saving for it.
If early retirement is simply a race to financial and personal misery, why would anyone want to do it?
Why early retirement is still a good idea
It’s easy to save for retirement if you live below your means.
As your income and earning power increase over the course of your career, it helps to keep your lifestyle and means of living low. Even if you get a promotion and raise, you should stay in your current apartment instead of upgrading or keep driving your paid-off car, even if it’s not the sleekest of vehicles.
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With your increase of income and steady spending, you can use the extra cash to save for retirement. Put it in a Roth IRA or increase your contributions to your employer-sponsored 401(k).
Retiring early doesn’t mean you can never again work for income if you need it.
Let’s say you retire early and realize it’s not working out financially, or that for some reason you simply miss the daily grind of work. There’s no reason why you can’t return to work at that point. Early retirement does not mean that you have to stay away from all working situations.
Early retirement gives you the power to make that choice for yourself. If you decide that you want to work, you can choose to work; not only that, you can choose meaningful work since you won’t have nearly as strong of a financial need to do so.
There are many financial tools that can be leveraged in early retirement.
The idea that you have to wait until at least age 60 — and probably later — to access any of the money you’ve saved for retirement simply isn’t true.
Most articles about early retirement focus on the things you can’t access early, like Social Security and Medicare and normal 401(k) and IRA distributions. Those same articles overlook the tools you have available that you can access early.
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For example, you can simply save a portion of your retirement savings in a normal taxable investment account, which you can withdraw from as you please. You can put it in a Roth IRA, which allows you to withdraw your contributions (but not your gains) without penalty before age 59 1/2. There are also strategies for 401(k) and 403(b) accounts that center around rolling them over into an IRA and using rule 72(t) to start withdrawing early.
You might also consider tools like annuities, particularly if retirement means selling off a business and generating a lump sum of money; buying an annuity guarantees a monthly check for the rest of your life.
Early retirement gives you time to enjoy life’s simple pleasures.
Working has a major opportunity cost: the time it takes up. You miss out on countless opportunities because you have to devote so much time to work. Early retirement gives you those opportunities back during a period in your life where you have the health and energy to tackle those opportunities.
For almost everyone, working life means a heavy time commitment, often filling up days and evenings and sometimes weekends. Those commitments reduce your ability to do other things in life. For example, every time we want to have friends over for dinner, there’s a game of “calendar hopscotch” that has to be played to find a date and time that works for everyone.
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Early retirement makes all of that easier. It becomes much easier to find compatible times for dinner parties. It becomes much easier to find time to volunteer. These things and countless others become so much easier to achieve, which opens the door to a life that’s much more fulfilling because it’s got many more opportunities in it.
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