8 Things No One Tells You About Early Retirement

You’ve done everything you were told to do in order to retire in a manner that will meet your goals, needs and overall retirement vision. In fact, you’d done so well that you can actually consider retiring early.

Alternatively, a life event, such as a sick spouse, job issue or the fact you simply can’t see yourself holding out another year (let alone five or 10 years) to retire might be driving the major decision to move on in your life sooner rather than later.

Whatever the reason for contemplating retiring early, you should at least be informed of key considerations and issues that you often won’t hear about from others that might definitely impact your retirement – quite possibly in a negative manner.

This article focuses on some key issues that no one tells you about early retirement. It’s not meant to dissuade you from retiring early, but is instead meant to spur you to careful consideration so that you are as prepared as possible and ultimately avoid potential pitfalls.

Introduction

Retiring early sounds wonderful. Like you won the jackpot three times in a row. How’d you get so lucky?

Could be many reasons, ranging from an illness or needing to care for another (spouse, adult child, grandkids or other family members) to extreme career burnout, and even the fact you were able to save and/or earn more than anticipated all those years ago when you started to think about one day retiring.

Whatever the reason, you’re now serious about early retirement. With that, you need to do yourself a favor and take time to consider some of the very real issues that are likely to arise – that you’ll be forced to deal with when you do make the big move.

One point right at the top is how early you plan to retire. Retiring a year or two earlier than you planned will have some affect, but doing so shouldn’t put your long-term retirement plans at risk.

But retiring at 50, 55 or even 60, when you hadn’t originally planned to do so, can start to introduce serious risks.

By no means are we telling you that early retirement is something you shouldn’t do. That is a decision unique to each person or couple. Our suggestion is to proceed cautiously.

Here are 8 important consideration you may not have heard from others:

You Will Spend More Than You Envision

You may be the type that is able to budget down to the Nth degree and always operate within your budget. If so, this issue shouldn’t be tough.

But for the other 95-percent of people (maybe even higher), the unpredictable nature of life makes it very tough to hold the line when it comes to maintaining your budget. Those curveballs will inevitably cost you and wreak havoc on your budget and overall retirement savings over time.

This simple truth will be exacerbated the longer you live in retirement. That extra spending, no matter how much you try to keep it in check, can and likely will have a huge impact on what you have to spend in your retirement.

An additional note regarding spending more than anticipated is that of inflation. Your dollar will go less far going forward as prices are guaranteed to go up during the many years you may spend in retirement. A very nasty truth!

Necessity May Force You to Go Back to Work

Piggy backing the aforementioned issue of spending more than anticipated is the fact that inflation, unexpected events, market turndowns and myriad other issues may put you in a position where you don’t have enough for your retirement and might find yourself forced to go back to work.

Working in retirement can be a good thing for many people, beyond that of simply supplementing their income. But having to do so out of necessity at age 65 when you originally retired at age 56 can be hard to swallow.

Moreover, going back to work after such a time gap, and given that you’ll be older, can prove difficult for many people. You may find limited options at that point versus where you are now in terms of your career and opportunities.

More Time With Partner

You may scratch your head at this, or laugh…or even be offended. Truth is you and your significant other probably have spent a fair amount of time apart most days due to work and other issues or activities during your pre-retirement years.

Unless you plan ways to each have “me” time or doing things separately on a regular basis after you retire, you are going to be doing a lot of “us” time…maybe more than is healthy or that either of you has thought about.

That added time – think 24-7 or thereabouts – could definitely test the bonds of being a couple over time.

The U.S. Census Bureau estimates that the divorce rate for people over 50 has doubled since 1990. In 2021, they estimate that 34.9-percent of all Americans who got divorced were aged 55 or older. For people aged 55 to 64 the rate was 43-percent, while those 65 to 74 remained elevated at 39-percent.

While it cuts against our romantic notion of couples happily venturing into their golden years together, divorce is a major issue for retirees. And it gets more pronounced as an issue as we age.

Avoiding the burnout that can come with being together too much will require work. Retiring early can actually accelerate and amplify the issue, so you have to go into early retirement with a plan for building in “time apart” for each person in order to avoid becoming such a sad statistic.

You Could Easily Live Decades in Retirement – Which Gets Expensive

When it comes to considering longevity, when we are younger we feel invincible and view ourselves living forever.

As we age up, we do the opposite when it comes to retirement. We think we want to live as long as we are having fun and enjoying quality of life, but not beyond that point. Living till we are 95 and bedridden is not something many people actually like to picture.

But the truth is that people are living longer than in the past. And if you retire early, that can equate to even more years in retirement. If you plan to retire at 55 you have a decent chance of living into your 90s, so you better consider up to 40 years in retirement.

While you have to plan on the long end in terms of life expectancy, the statistics do say you’ll likely live less years in retirement.

The Center for Disease Control and Prevention (CDC) reports that life expectancy declined for Americans recently, to 76.1 in 2021 from 77 in 2020. For females the average life expectancy in the U.S. as of 2021 is 79.1 years, while that of males is 73.2.

While you can’t know how long you will live, what is a sure bet is the fact you’ll need more money to survive and enjoy the retirement you envision for yourself the longer you live.

That being the case, you have to be certain you have the assets in place, including tools that can help ensure you don’t outlive your money, which is a nightmare scenario.

Be Aware of Increased Healthcare Costs

Healthcare is an issue that often presents a quandary for those contemplating early retirement.

First, if you do retire early, there is a good chance you will lose coverage from your employer-sponsored plan, thus increasing your monthly expenses. Again, not a big deal if you are talking a year or so, but quite a big deal if you are talking five to 10 years earlier than you might have planned.

And, given that Medicare doesn’t kick in for most until age 65, you will need to cover the cost of your healthcare out of pocket until that age, including insurance or medical expenses. Those costs are going to present some very major sticker shock to the average person, let alone a person retiring early who has to cover their healthcare costs for a decade before Medicare kicks in.

A recent healthcare study by HealthView Services estimated that the average monthly cost of insurance in addition to Medicare for a healthy couple (age 65) would be approximately $1,023, not including LTC, and continue to rise over their lifetime.

Lose One of the Most Important Benefits of Saving – Compound Interest

Whether you decide to retire earlier than planned, or for some reason are forced to do so, there is a major benefit you could lose if you stop investing – compound interest.

Saving diligently over the years is a good habit, but the biggest benefit to do so comes from the effect of earning interest on top of your savings and allowing that to grow and accumulate over years.

Qualified retirement accounts exist for this very reason – they allow you to take advantage of the principle of compound interest (tax deferred) over many years.

Early retirement can definitely impact your ability to continue to grow your savings. For example, if you have $500k in savings and retire, and were you to pull all money out of your accounts (never advisable), you’d have the $500k.

Using the Oak Harvest Nest Egg Calculator to run the math, if instead you let your money continue to grow for five years earning 5.5% interest, without investing another dollar (and assuming you didn’t tap into that money in your retirement), at age 60 your savings would have grown to nearly $695,000.

If you elected to hold off on early retirement and decided you could continue to afford a monthly investment of $1,000, at age 60 your $500k nest egg would have grown to $780k, or approximately 56-percent during that period

Granted, you can and should continue to allow your assets to grow, even if you retire early, but being able to avoid tapping into your savings provides a big benefit. Being able to avoid tapping into those savings and continuing to invest a monthly amount and earning the compounding interest for just five years more (because you continue to work) can make a huge difference in your retirement.

Too Much Time on Your Hands

Contemplating and then actually pulling the trigger to retire can be a lot of fun, especially if you have your health. Oh, the plans you might have…playing golf, travel, hiking, ticking off your bucket list items, etc.

And then after a year or two you start to feel a little bored. Unless you are dang good at it, playing golf daily loses its alure. Same for most other things you thought about when you retired early.

Truth is it takes a lot of planning to determine how you are going to be happy and fulfilled in retirement. If you retire early, it takes even more planning, as you will be retired for more years.

In order to find the fulfillment you want and anticipate in your retirement, you will need to take time to decide what it is you want long term and what it will take to make it happen.

Staying busy and engaged are big factors, as well as finding balance. Sports, volunteering, travel, mentoring, going back to school, engaging in passions and hobbies, and much more.

Boredom is definitely not something people will tell you about when it comes to early retirement, but it is a real issue, which can and will impact your physical and mental health, as well as overall outlook on life.

Just as a retirement plan is important in terms of meeting your retirement goals, creating a plan for what you want to do in retirement is equally important.

Don’t Tap Into Savings Too Early

If you decide you want to retire early you’ll definitely want to be aware of the potential ramifications of tapping into your retirement savings. In particular, taking withdrawals from retirement savings before the age of 59 ½ can cause you some serious heartache in terms of taxes and penalty.

In addition to the taxes that would be owed, with a few exceptions, you will be likely be hit with the IRS 10% early withdrawal penalty.

For context, if you are in the 24% tax bracket and withdrew $30k from your IRA or a 401(k) at age 55, you would have to pay taxes ($7,200) and the penalty ($3,000), leaving you will just $19,800 from the $30k withdraw – a major hit.

Conclusion

Retiring early can be an option that must sometimes be considered, especially if it is related to health and/or the wellbeing of yourself or others close to you.

If instead you find yourself in a place where you can retire early, then well done for having saved and put yourself in the position to do so.

Whatever the case, you want to be aware of the potential issues and ramifications that can come with early retirement – an assortment of things that nobody tells you about. By examining these issues in advance, hopefully you can adjust to avoid the potential pitfalls and ensure your retirement is a success.

We can help you look at these issues, and more, to help you determine whether you are in a good place and on track in order to take advantage of an early retirement. And we can help guide and advise you as you navigate retirement.

Our overall approach is to incorporate a holistic model that considers all your assets, tools and accounts, with a goal of providing a comprehensive plan built specific to your needs and goals in retirement.

If you’re ready to take the next step and talk to a team of financial advisors and retirement planners who put your interests first, Schedule a call today!