For decades, 65 was considered the standard age to transition to retirement. But in recent years, the Social Security Administration has pushed back the full retirement age. In addition, some workers are finding they need more years of earning income before they can quit their jobs.
At the same time, for those with more savings, the idea of stepping away from the workforce earlier is appealing. Some have gravitated toward the FIRE movement, which stands for “financial independence, retire early.” Others are considering early retirement amid company downsizing.
If you’re thinking about retiring early in your 40s or 50s, you’ll want to carefully weigh this life-changing decision. Leaving behind a job you don’t love may sound enticing, but there are plenty of financial and social considerations.
Evaluate the advantages and disadvantages of early retirement, and then lay out a strategy that’s best for you.
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Pros of Early Retirement
If you’ve had the same commute or work schedule for years, it might be exhilarating to think of breaking free. Before doing so, you’ll need to ensure you have enough money set aside. This could require saving a significant percentage of your paycheck, even up to 50% or more. The arrangement often calls for cost-cutting and careful planning.
When you retire, some of the perks can include:
— Freedom from office and work schedule constraints.
— Time to pursue passions.
— An improvement in well-being.
— The chance to choose additional work.
Freedom From Office and Work Schedule Constraints
You won’t have to report to an office or a boss, and you can use your time your way. “Many early retirees embrace the nomadic lifestyle and use their newfound freedom to travel, explore and see the world,” says Ray Prospero, a partner advisor at AdvicePeriod in the Los Angeles area.
Time to Pursue Passions
If you’ve been waiting for the chance to contribute to your community or volunteer, early retirement presents the opportunity to do so. “Many retirees I have worked with say they are busier in retirement — with personal and philanthropic work — than they were before they retired,” says Jonathan DeYoe, senior vice president and partner at EP Wealth Advisors in Berkeley, California, and author of “Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing Your Happiness Dividend.”
An Improvement in Well-Being
Exercise and eating healthy can be challenging during working years. A shift to early retirement allows you to focus on your quality of life and activity levels. “Sleeping more, stressing less and getting out in fresh air more can be advantageous to your health,” says Danielle Miura, a certified financial planner and founder of Spark Financials in Ripon, California.
The Chance to Choose Additional Work
Perhaps you are looking to say goodbye to a high-stress career and move into a part-time, flexible job. “If you want to work, you can still work, but on your own schedule,” says Brendan Sheehan, managing director of Waymark Wealth Management in Marlborough, Massachusetts. Your unique skills and experience could gain the attention of a new company. “If a potential employer wants you, you may earn even more than you had when you were working,” Sheehan says.
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Cons of Early Retirement
Even if you save enough to retire early, there’s no guarantee that bidding farewell to the workplace will bring you happiness. Early retirement can even lead to a sense of anxiety or a desire to go back to work.
The cons of early retirement include:
— Years of no income.
— A potential health insurance crunch.
— A loss of meaning.
— Feelings of loneliness.
Years of No Income
Leaving the workforce early likely means you’ll have to support yourself until you’re eligible for Social Security benefits. “With a longer period of time comes more variables and opportunities for a financial plan to go sideways,” Prospero says. Social Security benefits typically aren’t available until you reach age 62. The full retirement age is 66 for those born between 1943 and 1954. It increases by months for individuals born from 1955 to 1960; for anyone born in 1960 or later, the full retirement age is 67. There could also betax penalties if you withdraw from certain retirement accounts before age 59 1/2.
A Potential Health Insurance Crunch
When you reach age 65, Medicare kicks in for health insurance. Before then, you may be on your own. “Depending on your age and income, marketplace insurance policies can be very expensive,” Miura says.
A Loss of Meaning
Some people consider their careers a large part of their identity and may experience feelings of emptiness when they step away from the workforce. Retirees “often experience an identity crisis,” Sheehan says. If you don’t have a new chapter planned, it may be challenging to find contentment in your nonworking years.
It may be challenging for others to understand and support your lifestyle, especially if your peers are still deep in their careers. “Retiring early may be perceived by others as being lazy or unmotivated,” Miura says. In addition, office environments tend to create a natural setting for social engagement. If you don’t schedule activities that involve others, you could soon feel bored, lonely or disengaged with your community.
To get more perspectives, consider talking to retired family members and friends before making a decision. It’s also smart to consult a financial advisor to see if you saved enough money to retire early. The best path will be one that fits your preferences and includes a financial cushion to help you weather the ups and downs of life.
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Update 08/04/23: This story was published at an earlier date and has been updated with new information.