Should You Retire Early? When to Consider Speeding Up Your Retirement

Planning your retirement is a balancing act – you want to make sure you’ve had enough time to build up your nest egg but don’t want to work longer than necessary. Here are some pros and cons of retiring early. 

Common Reasons to Retire Early

That retirement goal continually moves closer, but some people find that it is approaching too slowly for their liking. Here are some common reasons people opt for early retirement:

• Financial independence: Some people reach financial independence sooner than they expected, opening the door to retire early.
• Health reasons: A personal health scare or medical issues a loved one is experiencing may move up someone’s retirement date, whether for healthcare reasons or in realization that life is too short to spend more years working. 
• Job dissatisfaction: Being unhappy at work may trigger an earlier-than-anticipated retirement, perhaps giving time to start a business.
• Early retirement incentives: Employers regularly offer early retirement packages to help alleviate their salary budgets and allow for movement within the company; this could provide a great opportunity for someone to retire early with some extra cash in their pocket. 
• Lifestyle changes: Changes in home life, such as a move or a new grandchild, may trigger some people to retire early. 

There are many benefits to retiring early. You’ll have more opportunities to travel and more work-free seasons to spend with your loved ones. You’ll have more time to spend doing things you enjoy, and more years of good health to do them. Speaking of health, retiring early provides more time to develop healthy habits and less time in a stressful environment. 

Risks of Early Retirement

While an early retirement can bring great joy, there are also cons to retiring early. The first and most obvious early retirement risk is the loss of income; having a tighter financial situation in retirement can put you in a hard place when you consider the impact of inflation on retirement expenses. Not only will you risk losing out on those years of saving, but you’ll also have to pay for more years of retirement. It’s almost a double loss.

Additionally, early retirees may be faced with early retirement penalties and reductions if they haven’t reached full retirement age. Your Social Security retirement benefits can be permanently impacted, and you may have to pay penalties or taxes to access other accounts. 

If a strained financial situation (or a lack of adjusting as your retirement timeline changed) can mean that a high percentage of your savings is in higher-risk investments, you also may be more vulnerable to market volatility.

Finally, finding healthcare may be difficult if you’re considering an early retirement. Medicare eligibility doesn’t begin until age 65, so you’d be responsible for insurance premiums that can be significantly higher than what you were paying when your employer was also contributing. Plus, healthcare costs increase as you age, so you could be looking at a significant impact to your savings. 

How to Decide If Retiring Early Is Worth It

Let’s look at what factors might go on the scale as you weigh your options. 

Financial Considerations

Running out of money during retirement is a significant worry for many Americans, so thinking through the possible financial impacts of an early retirement is crucial. The best course of action is to talk with a professional financial planner about your retirement timeline. They can help you look at your retirement accounts, consider how inflation and cost of living increases affect your financial needs and share their professional opinion on early retirement. Here are some things you and your financial advisor will discuss:

• What do your retirement savings accounts look like? Will they keep pace with a longer retirement period?
• How much debt do you have? How long until you can pay it off?
• What are your current expenses? How do you anticipate them changing?

Remember: many people anticipate they will spend less during retirement, but that isn’t always the case. When you have more time to fill with travel, entertainment, shopping and even just being out-and-about in your community, you’ll be surprised at how quickly you spend money. 

There are a variety of steps you can take to help prepare yourself financially for retirement. In the end, you’ll need to evaluate your finances and balance that against the benefits of retiring early to determine if it is financially feasible and worthwhile. 

Personal Factors

How do you plan to spend your retirement? It’s much harder to quantify personal factors to determine if retiring early is the right choice, but consider reflecting on your goals and what’s important to you. 

You’ll need a financial foundation to support yourselves and anyone who relies on you, but consider additional income versus your lifestyle. Would you prefer to work or care for aging parents? Would you spend your early retirement years traveling and being active in a way you won’t always be able to? Do you have grandchildren you want to provide childcare for?

Perhaps a way to take a step back and quantify these factors in your decision-making process is to assign a value to each factor. How much would you pay for the privilege of doing the things you enjoy? Does that outweigh your income?

Your Employment Situation

Consider your current employment situation: you receive many benefits as a full-time employee, such as healthcare, Social Security benefits and contributions to your employer-sponsored retirement accounts. How will giving up those benefits impact you? Are there negative aspects to your employment – such as stress or physical exertion – that might go on the “retire early” side of the scale?  

Also keep in mind that depending on your goals, health and financial situation, you can choose to work after retirement – perhaps in a new employment situation or part-time at your current employer. 

Health and Lifestyle Considerations

Are you or a loved one experiencing health issues that might push you toward an early retirement? Perhaps you’re not able to comfortably stand as long as required, or maybe you’d like to retire early to act as a caregiver for a loved one. 

Being retired can impact your health in two very different ways. On one hand, you’ll have more time to devote to healthy pursuits, such as spending time outside, moving, cooking healthier meals and getting enough sleep. On the other hand, some people lose their drive and sense of purpose when they no longer have a regular job. You might also be impacted by higher health insurance costs. 

An Unbiased Opinion

A Farm Bureau agent or financial advisor can talk with you about your retirement timeline and savings. They can serve as an unbiased professional to walk you through the potential impacts of each of your options so you can feel confident knowing you’re making the retirement choice that works for you.