Is It Possible To Retire Too Early?
If you’re unfamiliar, the Financial Independence, Retire Early movement, also known by its spicy acronym FIRE, has been gaining more and more traction among Millennials and Gen-X. There are a host of websites and calculators that define it, but the bare minimum is this: if you live very modestly (think 30% of your income paying expenses vs. the 90% the average American spends) and sock the rest of your income away in low-cost, passively managed index funds, you’ll cut your retirement horizon in half.
But The Motley Fool published an interesting piece that talks about some of the drawbacks of retiring early. Among them:
- The Lifestyle Change: The primary reason this path isn’t pursued by most people is that it’s very difficult. Living off 30% of your income could mean cutting out many vacations, meals out, paid entertainment, and the other enjoyable activities of modernity.
- Health Insurance: If you do save and meet your early retirement goal, you’ll be responsible for funding your own health insurance from the time you retire until the time you’re eligible for Medicare. Instead of just a few years, this could be 25 years or more, greatly increasing your overall healthcare costs, especially as you age and become, in general, a higher consumer of healthcare.
- Your Retirement Accounts Are “On Ice”: If you retire early, you can’t access any of your IRA or 401k money until you’re 59 ½ without risking a penalty and/or taxes. Additionally, you can’t claim Social Security until 62, at which point your payout is much lower than at your full retirement age. In theory, this is accounted for by the general withdrawal rate you factor into your initial retirement calculations, but if returns are below average, this money is a nice buffer against having to re-enter the workforce.
On top of the above, we’ve also talked about the non-financial benefits associated with work, so there is a case to be made against early retirement, but does it outweigh the benefits of being able to engage in your passions, take up work you care about regardless of the pay, and live in a more self-directed way? Click through to The Motley Fool to read the full article and let us know in the comments: is there such a thing as retiring TOO early?