By Jamie Johnson, WCI Contributor
The FIRE movement has been around since the early 1990s but became popularized in 2010, largely thanks to personal finance sites. Once the concept became more mainstream, many in the personal finance community began embracing the idea of an early retirement. But does that early retirement also come with a side of regret?
Historically, retirement was seen as something people did once they had to—you quit working because you were too old or became ill. Others lost their jobs due to layoffs or downsizing and found that retirement was the only option.In comparison, there’s something appealing about the idea of reaching financial independence early and retiring on your own terms. This allows you to spend the best years of your life in retirement.
But many FIRE devotees don’t consider the possibility that they could end up regretting an early retirement.
3 Reasons You May Regret Early Retirement
It’s impossible to live life without regrets, and when it comes to early retirement, there are two possibilities you must consider. First, there’s the possibility that you could regret working too long and wish you’d retired sooner. That’s especially true if you’re financially independent and burnt out in your career. However, there’s also a chance you’ll regret retiring too soon and wish you’d spent a little more time working and saving. Let’s look at three reasons you might regret early retirement.
You Could Have Earned More
According to the research firm Payscale, full-time employees tend to hit their peak earning years in their 40s and 50s. So, if you choose to retire at age 35, there’s a chance you could look back with some regret.
Working for an additional 5-10 years gives you more time to save and take advantage of compounding interest. Putting more money aside for retirement allows you to have a lower withdrawal rate so you can go into retirement with more ease. It also makes it easier for you to deal with lifestyle inflation.
More information here:
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You’ll Probably Spend More Than You Think
Most people assume they’ll spend far less money in retirement, but the reality is quite different. A J.P. Morgan Asset Management study found that many new retirees spend quite a bit on travel, home renovations, or relocating.Of course, you probably didn’t make it to FIRE by indulging in a lot of needless spending. But even if you’re careful with your money, the odds are still high that you’ll spend more than you think you will in retirement—at least in the first several years, aka the go-go years.
Inflation has been high for the past few years which can quickly eat up your retirement savings. And if you’re too young to qualify for Medicaid, you’ll have to spend money on a good healthcare plan.According to Fidelity, the average 65-year-old needs $157,500 saved after taxes to cover healthcare costs in retirement. That number gets much higher if you’re retiring in your 30s or 40s.
You May Live Longer Than You Anticipate
Due to advances in healthcare, you’ll probably live a lot longer than you think you will. According to AARP, someone who retires at age 55 needs to make their savings last an average of 28.6 years.
The earlier you retire, the longer you’ll need to stretch out your retirement savings. The average monthly Social Security check is $1,907, which is only about $400 more than the average cost of rent. So, Social Security won’t be enough to help most people get by during retirement.
More information here:
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What Do You Need to Retire Early?
Of course, life is short and you don’t want to fall into the trap of waiting “just one more year” to retire. Burnout is increasing, especially among physicians,
and if you’re financially prepared for retirement, there’s no point in staying in a career that makes you unhappy.
The key is to look for a balance when it comes to minimizing regret. You don’t want to leave your career and retire before you’re ready, but you also don’t want to look back and wish you had retired far sooner.
Ultimately, if you can meet the following criteria, you may be ready for early retirement:
- You’ve achieved financial independence by saving at least 25x your annual expenses
- You have passive and active income that can cover your expenses
- You’ve fulfilled the majority of your career aspirations
- You have a plan for retirement—you’re retiring to do something, not to escape something
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