5 Reasons You Don't Want To Retire Early



For many, the goal in life is to make lots of money and retire early and this dream has been accomplished by many people. It’s not totally uncommon to see people retiring in their 30s and 40s and while this seems like a fairytale, it is really? The question everyone working to retire early should ask themselves is if this is truly what they want. Well, here are 5 reasons retiring early may not be all that’s it’s made out to be!

Reason #1: You carry the risk of running out of money

The first reason why you don’t want to retire early is that you may run out of money. I know you have great plans for your retirement years but you still carry the risk of running out of money if you retire early. While it is true that running out of money doesn’t have anything to do with whether you retire at 30 or 70, retiring early will increase your chance of running out of money if you did not save enough while working.

There is no golden rule for a retirement savings figure that will work for everyone. For example, someone whose monthly expenses are low will not need to save much money as someone whose monthly expenses are very high and these financial requirements are dependent on many factors, one one which being where you live. Someone who lives in an urban area where things are more expensive will need to save more money for retirement while someone who lives in a less expensive area doesn’t need to save more money.

However, a rule of thumb that can help your retirement planning efforts is the 4% rule. The best explanation of this rule is that you should save at least 25 times your annual expenses for retirement. Withdrawing this amount at 4% per annum, you will be able to live on your savings for at least 30 years. This rule may not apply if you intend to retire early because you may need to save more money to be able to meet up with your monthly expenses after you retire. If you want to retire at 30 you may need to estimate how long you think you will live after that and save up to that amount for retirement.

One of the reasons why you may run out of money if you retire early is because of unforeseen expenses. For example, you may need serious medical attention that requires a lot of money and that can affect your finances. You may have enough money saved for retirement but the enormous medical bill can affect you greatly. You stand a risk of spending too much and then becoming broke after the treatment.

Another way that people who retire early stand the risk of running out of money is by a dip in their investment fund. There are market risks that can affect the value of one’s investment and make it less valuable such as a recession. They may still have the same amount of money but the value would have reduced making them spend more than they have plans for.


Reason #2: You may have to live a lesser lifestyle than you desire

Another reason why you don’t want to retire early is that you may have to live a lesser lifestyle than you desire. You thought you’d be living the high life in retirement but that’s not always the case. Unfortunately, things may happen that will force you to live a lesser lifestyle than what you dreamt of. You may plan to live on $1,000 per month before you retire but things may change. Living on $1,000 a month now may not be feasible in 20 years time as inflation can devalue your money and can put a strain on your retirement nest egg.

One way to tackle the issue of inflation is to take this economic factor into consideration when planning for retirement. Calculate your monthly expenses and adjust it for inflation so that you will be able to save more money. The inflation rate is about 2% so each year you have to increase your contribution to your retirement account as such.

You may also live a lesser lifestyle than you desire because of unforeseen expenses. You may not need serious medical attention when you are younger. As we age, we tend to be more susceptible to health complications and if you do not integrate this potential cost into your retirement planning then you may end up with insufficient funds in retirement. As a result, you will be forced to live a lesser lifestyle than what you dreamt of.

Other unforeseen expenses may force you to live a lifestyle lesser than what you desire. You may not take into consideration your kids pursuing extended education that you may be on the hook to pay and those tens of thousands of dollars can reduce your retirement nest egg if you are their educational financier.


Reason #3: You lose out on future investing gains

Another reason you may not want to retire early is that you lose out on future investing gains. When you retire early, you stop making money and you have to rely on your investments to pay your bills. What this means is that you stop adding more money into your investment but you start withdrawing instead. This will reduce the amount of interest you could have invested by working and investing from your savings. In short, you are giving up more compounding returns.

Compound interest has a very powerful effect and can influence how much interest you will have. However, it takes time for you to see the effect of compound interest. That means someone who retires earlier and starts spending their money will have a lesser amount as interest than someone who retires later. Let’s look at an example for you to understand the effect of compound interest better. Assuming two people started working at age 25 and they both invest $10,000 per annum. If the first person works for just 20 years and decided to retire at age 45 with a 20% interest rate, this person would have just about $630, 000. If the other person works for 45 years and retires at age 69, the other person would have amassed a total of $7.9 million.

If you just want to live a modest life and don’t care about having a ridiculous net worth, then you can retire early without considering the foregone compound interest. In reality, it’s possible to be happy without being rich. You should also know that having financial freedom does not mean that you have to automatically quit your job. Sometimes, a career change will reinvigorate your passion for work and will prompt you to continue working, saving and investing while reaping these compounding returns but if working is no longer for you then you must acknowledge the financial gain you are giving up.


Reason #4: You push off being happy to the future

When some people learn about the possibility of retiring early, they become excited and they are often willing to do anything to see it become a reality. However, they soon realize that they have to sacrifice a lot of things to see this happen. This becomes an issue when they suddenly feel bad about what they thought would make them happy. The more they save, the more they realize that is not the type of life that they want. If you find yourself in such a situation, it may be a sign that you are pushing your happiness to the future and you shouldn’t retire early.

The goal of retiring very early can make you forgo your happiness in the present for a future you are not certain of. Anything can happen. People have saved for the future but they never saw it. That is why it is important to live in the present while making plans for the future. There is a thin line between living a frugal life and putting yourself under undue pressure just because you want to retire early. If this describes your situation, you need to reevaluate your goals. Focus on attaining financial freedom and learn to live in the present while you still have high expectations for the future.

Some people even sacrifice their health just because they want to retire early. They work multiple jobs and they work every day to make more money without resting. There is no point saving more money for the future if you do not have good health to enjoy it. Learn to give yourself a rest and take things easy with yourself.

To save more money does not mean living like a beggar. It takes some sacrifice but your happiness should not be one of the things that you will have to sacrifice. Your happiness is more important than money. If living a frugal life makes you feel bad, then early retirement is not for you. The essence of early retirement is freedom and this freedom can only be gotten when you make proper plans and prioritization. This may mean spending more money on the things that you enjoy occasionally. Finally, you have to understand that living a frugal life does not mean living your life under pressure. It simply means that you are living below your means.


Reason #5: You may be bored without work

You hate your 9 to 5 job such that you can’t wait to get out of work every day. You dream of having ultimate freedom, maybe traveling to a different part of the world and enjoying yourself while you never have to worry about money again. Early retirement may sound like a good idea for you to escape your job but you have to think twice before you conclude that it is the best thing for you. You may hate retirement if you retire too early without considering if that is the right thing for you to do.

Staying at home all day without any work to do can easily make you bored and make you lose a sense of purpose. Your work provides you with a structure that allows for socializing with others. Without a job, you may realize how lonely your days become. You will realize that you miss doing the job you were running away from in the first place. The workplace accounts for most of the social interactions that you will have with others and retiring early means that you will have to give all of that up.

If you make enough money today and you quit working, it only shows that you were working for money and not for purpose. Your work is not only for making money, it should also help you discover and fulfill your purpose. Having enough money should not make you stop working but rather give you the freedom to work anywhere. That means you can quit the job that you do not like and volunteer to work at a place that helps you fulfill your passion even if it means you will receive a lesser pay.

You may lose your sense of purpose if you retire too early. For example, your first purpose as a doctor is to save lives before making money. If you make money your priority, you may forget the main reason why you wanted to become a doctor. Your first purpose as a teacher is to impact life. Making money the primary focus may make you lose a sense of purpose. As you can see, retiring early may not be all your envisioned it to be therefore tread carefully before taking on this financial endeavour!