The Downside To Early Retirement

For many people, retirement seems a long way off while early retirement is a pleasant pipedream. However, people are increasingly considering early retirement and achieving the level of financial independence by age 40 or even younger to make it happen.

For some, the fantasy of sipping drinks on the beach all day at age 35 sounds amazing. While there are indeed many fabulous and awesome aspects those retiring early will discover about their newfound lifestyle, there is almost inevitably a downside.

The issues those financially savvy enough to retiree early find themselves wrestling with include financial issues, status and identity-related issues and problems with boredom and relationships.

Here are five of the most frequently cited downsides of opting to retire early.

1. Abruptly Declining Income Levels

Ok, the main reason most of us hold down jobs even one we actively dislike and endure the politics, commuting miseries, brutally long working hours and horrible bosses is because of the money.

Few of us would persist in working, “even if they didn’t pay me.” Naturally, one of the most dreaded issues those of us considering early retirement grapple with is the potential drastic loss of income.

Just the idea of losing their reliable source of income is sufficient to stop many potential early retirees dead in their tracks. For some, a steady income equates to the ability to exercise some control over their lives.

If you are considering early retirement, chances are you will also have run the numbers and put in place effective financial strategies to reduce your exposure to a reduction in income levels including:

1. Understanding your monthly expenses and major financial commitments post-retirement
2. Saving sufficient funds to cover your expenses or liquidating assets to fund your early retirement
3. Paying off or significantly reducing your pre-retirement debt levels so they are sustainable after retirement
4. Investing in assets such as property, high dividend stocks and bonds to generate post-retirement income
5. Developing a retirement financial plan with built-in safety margins and contingencies

However, all these tactics require planning, disciplined self-control and a basic understanding of personal finances and investment strategies. Many Australians lack the awareness in or interest to pursue developing these personal finance skills

There is always the lure of hanging in there at work to keep building up that nest egg. However, increasingly people are exploring options for early retirement and overcoming that natural preference for safety and security and the urge to continue to accumulate assets.

 

2. Reduced Social Security Benefits

Most early retirees structure their financial plan around no support from Australia’s Social Security system. So, if you need Social Security to retire early or even need it later in your retirement, retiring early could put a major hole in your entitlements.

Most superannuation funds are based on a normal working life or 35 to 45 years, and your superannuation benefits are based on those expected years. If you work less than that period you may experience issues accessing your superannuation savings or face a financial penalty for cashing in your superannuation.

So if you’re going to need all the money you can get from your superannuation or Social Security, retiring early can prove to be a significant downside.

 

3. Identity Loss

For many people, their work and what they do represents who they are. When early retirement comes along and the job is done, they feel adrift and don’t know who they are anymore.

This can be a complex issue for many early retirees. Those from the professions especially often find the disconnect between the status imbued by their former profession, whether it was medicine, law, accounting or teaching wrenching. If this sounds like you or someone you know, you may want to think long and hard before you decide to retire early.

The only way through an identity crisis is to discover new activities to replace the time and meaning work once provided.

Whether it is recreational hobbies or travel-related, volunteering or even occupational through a part-time job, which brings back that sense of feeling productive once more, retirement is an opportunity to broaden horizons.

 

4. Shrinking Social Interaction

Retiring frequently disconnects relationships and social networks, particularly those centred on work. Many people mourn the loss of these social interactions. Others discover more time to spend with their immediate and extended family and to redefine their relationship with their partner.

Time and availability are no longer as closely rationed as they were during a busy working life and holidays are no longer fitted in around work.

Similarly, there is more time to see people in varies places, be it the gym, the golf club, church, or neighbourhood events. Free from work commitments there is freedom to do more of these social engagements.

However, if work provided much of your social interactions and friendships, retiring early can be difficult.

Solution? Join a club, whether it’s cycling, gardening or writing. Do something that involves others. Next, volunteer. Those non-profits whether they take the form of charities, a hospital or an art gallery can use your time, your enthusiasm and your experience.

Now if you’re the type of person who doesn’t make friends easily, now will be the time to learn!

5. Boredom

Some find the lack of an enforced rhythm in early retirement leads to boredom, particularly for those whose work is a major part of their lives, both commercial and social. Eating, sleeping, and breathing work is no preparation for retirement, particularly if you neglect to develop interests outside work.

Similarly, many discover their social invitations dry up once they leave their organisational position. Once their working life is over some lose their sense of identity and grow bored.

Of course, developing healthy outside interests is an effective solution to this dilemma. Ideally, those considering early retirement should explore a range of potential new interests or revisit old interests that have fallen by the wayside well before to retirement to see which ones are worth pursuing and which ones lack staying power.

There is only so much TV you can watch, golf you can play, flowers you can tend and books you can read. You have to have other interests or early retirement will indeed prove B-O-R-I-N-G.

 

Final Observation

If you plan well financially for your retirement, your financial issues will largely dissipate. Similarly, those who retire to something enjoy rewarding retirements. So, always sure you have something to retire to. Many people retiring early realise they should have done it much sooner than they did. Should you retire early and discover the downside is overwhelming, you can always go back to work providing you leave the right doors open.

What are your thoughts on the potential downside of early retirement? Share your experiences with us and leave your comments below.