Everyone thinks about retiring early. The thought of being able to pull yourself out of the grind, settle down and enjoy yourself is alluring. But for many, retiring early seems impossible, while others question whether it is as good a thing as it seems. Today, we will go over some of the pros and cons of early retirement. We’ll also point out some issues every individual should consider when they think about whether or not to retire early.

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The Pros of Retiring Early

You can probably imagine the simplest and most important pro for most people who want to retire early: freedom from work. Just the thought of never having to show up to work again is enough for many people to decide to retire early. Beyond this, there are a few other benefits most people tend to overlook.

New Career Opportunities

Paradoxically, many who retire find themselves reinvigorated to work and end up pursuing a second career. For some, having a wealth of experience will make them more attractive in the job market and they can find a better position than they had in their former career. For others, the freedom retirement brings allows them to pursue their own business or venture, effectively becoming their own boss.

Travel, Leisure, and Learning Opportunities

A major attraction for many, the opportunity to travel is certainly something that adds allure to early retirement. And as a double benefit, early retirement often means that you are more capable of experiencing everything your destination has to offer.

For some, simply being able to pursue a new hobby is reward enough to retire early. Others take advantage of their relative youth by returning to school and pursuing higher education if they were unable to earlier in life.

Your Health, Your Family, and Your Friends

Early retirement offers you the opportunity to focus on your health without having to deal with work-related stress. It also offers you the option of reconnecting with or strengthening your relationships with your family and friends, creating memories with your children or spouse while you have the time.

The Cons of Retiring Early

There is one primary con to retiring early that encompasses many separate issues. Essentially, retiring early costs you money. For most people, this is the most important consideration when considering whether or not to retire early.

Healthcare Coverage Costs Might Increase

Since Medicare coverage does not activate until you reach 65, ensuring you have proper health insurance during your early retirement is critical, and unfortunately, this can be very expensive. There are ways to continue your previous employers’ coverage for a certain period, but many early retirees will need to purchase private insurance plans or seek other solutions, like taking advantage of their still-working spouse’s coverage.

Decreased Social Security Benefits

If you decide to take out your Social Security benefits early, you will not be able to draw the full amount of your benefits. Additionally, if you wait to withdraw your Social Security benefits until after age 70, every year between age 67 and 70 that you wait to withdraw will increase your monthly benefit.

Reduced Savings from Early Withdrawals

If you have saved for your retirement in a 401(k) or IRA, you may end up facing early withdrawal penalties on your savings. Typically, if you withdraw before you reach 59 ½, you will face a 10% early withdrawal penalty on your 401(k) and can face a withdrawal tax of 10% on distributions in some circumstances.

Early Retirement: Things to Consider

It is important to understand why you want to retire early and whether you think you are in a secure enough position to retire early. Ultimately, this analysis involves more than just a monetary calculation. Here a few things you should ask yourself:

  • What do you want to do with your retirement?
  • Do you plan to continue to work in some degree?
  • Is your financial situation secure enough that forgoing potential benefits to later retirement will not create stress?
  • Are you capable of handling the boredom and potential loneliness that retirement can bring?
  • Do you have your retirement housing secured?

These are just a few considerations. Everyone has specific issues they will need to address before they commit to early retirement.

Consider Reducing Your Workload

You might consider another solution to your desire to work less. Retiring early can be highly desirable but cost prohibitive. If you can arrange a more flexible work schedule or reduction in hours instead, you may be able to experience some of the benefits of early retirement without incurring the full costs. You may also be able to experience some of the less desirable effects of retirement like isolation, and be able to prepare yourself for full-fledged retirement.

Get Financial Help Today

At the Templeton Group of Cornerstone Financial Management, we are experienced financial advisors ready to help you plan and prepare for retirement. Contact us today to request a consultation.

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