If you ask someone about their bucket list, or if you think about your own, odds are a few items on that list involve travel. If you dream of walking the Great Wall of China or seeing the Pyramids of Giza, you are not alone. Approximately 60% of Americans dream of traveling during retirement. According to a survey by AARP, the majority of Boomers had an improved sense of well-being after traveling. For retirees, traveling came in second on their list of most enjoyable experiences. First on their list was spending time with family and friends.
Hopefully, you have already started planning for retirement. Are you also considering early retirement? The general age of retirement – depending on the year you were born – is age 66 or 67. These are the ages that most people become eligible for social security. However, there are many future retirees who don’t want to wait that long. Because, unless you are one of the lucky few who absolutely love their job, you are probably looking forward to not having to wake up to a blaring alarm clock each day. And just imagine if you could skip the daily grind of work and start doing the things you love sooner. It sounds like sheer bliss.
However, early retirement is not that simple. And even those people who can afford to do it may decide it is not all that they thought it would be in the end. Let’s take a look at the pros and cons of early retirement to get a better feel for the factors involved.
Early Retirement Pros
- Freedom of Time
This is the most obvious reason that people seek early retirement. Work, no matter how much you enjoy it, means being beholden to the limits and needs of others, from bosses and clients to coworkers and employees. Being retired means that your time is more or less your own to spend how you want.
- Spending Time with Family
Working full-time, keeping up with the house, doing yard work, shuffling children between sports and friends – all of these activities leave very little time to enjoy your family, particularly if they live any distance from you. Retirement is an opportunity for you to rebuild relationships that may have fallen to the wayside of your life. Or, if the relationships are all flourishing, it can be a great time to just sit on the porch together and drink lemonade, sharing stories and enjoying the company of your family.
Making time to travel while working full time is possible, but coming back from traveling and having to return to work often depletes the joy of the trip quickly. Those who have extensive traveling plans during retirement also want to be able to do their traveling while they are still physically able to endure – and enjoy – the adventures. Retiring early makes this more likely.
- Health Benefits
From stress to physical injuries, work takes its toll on your mind and body. Moreover, the longer and later that you work, the more damage it does in the end. Therefore, the sooner you are able to retire, the sooner you can halt or even reverse the health impact from your years of working.
Early Retirement Cons
The most obvious con to early retirement is financial resources. No matter how much money you have when you retire, you will have more if you keep on working. It is just that simple. The earlier you retire, the less money that you will have to spend during your retirement. It also means the more that you will need to save while you are working to achieve the same or similar standard of living after you retire.
- Health Insurance Cost
Most large employers offer some kind of health insurance package for their employees. Retiring early will mean that you need to pay for private health insurance or buy health insurance through the government affordable care plan.
Medicare will become available at age 65, but prior to then, you will need to take care of this on your own. And the older you are, the more expensive health insurance becomes. So, while you may have been able to purchase insurance for a couple hundred dollars per month in your 30s, if you are retiring in your 50s, that cost could be triple or quadruple. Now multiply that by the number of months until you turn 65. That amount can take a big bite out of the retirement funds you were counting on for traveling and living expenses.
- Health Costs
We’ve already discussed the costs of health insurance, but it surprises most people to learn that early retirement can have both physical and mental health costs along with financial costs. Working keeps you sharp and active. This can make a major difference in your old age for keeping your mind and body going. Quitting your job to slump on the couch can have even worse health costs than continuing to work.
- Boredom and Loneliness
Yes, you hated a lot of the time you spent working, but you also took pride in your work, met new people, overcame challenges, shared laughs around the water cooler, and so much more. While you don’t think much about the social aspects of seeing your co-workers on a regular basis, once you no longer have those interactions, you may struggle to find replacements for the social nature of going to work. Being employed is an enormous part of modern life, and many people who retire find that they end up missing some parts of their working life.
As the world of work changes, so does the world of retirement. Now it is possible for more people to retire early, yet more people are actually choosing to work even later in life, and finding that they have the health to do so. Many people are choosing to change careers or work part-time as they age to stay busy and keep the money rolling in, while still cutting back from a regular weekday job.
After looking at the pros and cons, the key is not so much early retirement as it is smart retirement. Think about what is best for you and your needs, and then plan accordingly to retire in the way that suits you best. And if you are going to retire early, consider taking some or all of these approaches.
Early Retirement Approaches
- Start a Roth IRA
Retiring early means that some of your retirement money will not be available to you when you first retire. Or if it is available to you, you will likely be paying a penalty to take it out. And paying a penalty on your retirement funds is an unnecessary expense when you are trying to maximize your returns.
A Roth IRA allows you to contribute your after-tax dollars and then your investment grows tax-free. The earnings on your Roth IRA cannot be withdrawn without paying a penalty, but you can withdraw your contributions at anytime without paying a penalty. If you already have a traditional IRA, check out the Roth IRA Conversion Ladder for suggestions on how to convert a portion of your IRA to a Roth IRA.
- Pursue a Bachelor’s or Master’s Degree (or another degree)
This takes some pre-planning but if you know you are going to retire early, perhaps at age 50, and you’d like to do some traveling, consider applying for a continuing education program to obtain a degree (or another degree). Apply to a college after being retired (not working full-time). Now at age 51, you will have one full year of reduced income. When you apply to college, also fill out the FAFSA (Free Application for Federal Student Aid). You may be able to qualify for some educational grants to help cover your education costs. Then, because you have done some prior research, apply to one of your college’s study abroad programs.
Keep in mind that there are a lot of requirements for student aid, one of which is maintaining satisfactory academic progress. But for those who are interested in learning and who also want to travel during retirement, this can be a great way to immerse yourself in another culture and community at a portion of the cost if you were paying to travel commercially.
- Consulting or Freelancing
A variety of online services are available to help connect consultants and freelancers with clients. Most of this work can be done from your home computer, or even from a computer while you are traveling. It does take some time to get established into these networks to the point that you are earning enough to benefit your budget. However, if you start this process prior to retiring, working even 4-8 hours per week from home for a few years prior to retirement, you can establish a client base and a reputation as a consultant/freelancer that can really help your bottom line after you leave full-time employment.
The most important take-away from this article is that if you want to retire early, plan ahead, be diligent in following your plans, and be creative in thinking about how to reach your goals. It’s a cliche to say that you only live once, but the message behind that cliche, is to enjoy your life. And that message is worth repeating and worth achieving.