Today on Agile Finance Radio, we will talk about Early Retirement and go through a list of things you should consider before you think about running off into the land of six Saturdays and one Sunday.
- Four reasons to support the case for early retirement.
- Learn about six reasons why you should delay an early retirement.
- Understand how early retirement is more than just math and how you need to prepare for the other aspects of retirement.
Dig deeper into working during retirement.
Listen in on my conversation with Jon Harris about his early retirement.
Setup a free assessment with Jason to discuss your financial situation.
The Case For Early Retirement
One of the overwhelmingly positive reasons to go into early retirement is that you’ve got an idea or a new purpose in life that you want to work toward. I call this retiring to something rather than retiring to run away from something.
If you are happy with how your career has gone and you’ve had success, but you’re just ready for the next adventure, this is a positive sign that it might be time to think about the next phase. I know when I went through this that I wanted to retire to something else. I already had in my mind what I wanted to do, and that was a combination of work, travel, special time with family, and purposeful giving of my time to some charitable causes as well.
The next reason to head into early retirement is simply that you have enough money. Some people have not taken the time to consider what is enough, so they don’t know when they can quit. They keep working and working and just trying to accumulate money and stuff.
Maybe that’s because something is missing in their life that they’re trying to get fulfillment through things and entertainment. I understand that, and it certainly happens to many people.
But what if you’ve decided that you have enough and you’ve determined that the amount of money you have can generate the monthly income that you need. If that’s the case and the income allows you to keep the lifestyle you want in retirement, then that’s certainly a reason to consider moving into an early retirement phase.
A Different Phase of Life
Another reason for the case for early retirement is because of your phase in life. You have a different purpose, or you’ve found a new desire or passion for something that resonates with your life.
This could be many things. It could be you’re ready to start a business that can help others based on your years of experience. Or it could be that your new purpose is to volunteer 20 hours a week at a local or national charity.
The case for early retirement is more about the opportunity and purpose in the next phase of your life. This allows you to control the most critical asset in your life, and that is your time. To me, this is the biggest reason to consider early retirement.
There are only 168 hours per week, and we all have the same amount of time. If you’re looking at that time saying I wish I could spend time on these things in my life that’s a good sign
Being able to own your own time can undoubtedly relieve the stress, anxiety, or frustration of working for someone else.
There’s nothing better than deciding what to do with your time and then being able to do it at that moment. For example, maybe you want to see your kid because they have the day off from work, and you want to go play golf.
Or maybe your grandkids have a soccer game after school, and you want to see them play. Having the flexibility to control your time is a key motivator to early retirement.
Retirement is a Different Pace
Another advantage for early retirement is merely being able not to run at full speed all the time. Study after study shows that the human body needs recovery time and rest. We can’t keep going 80 miles an hour seven days a week. That gets tiring after years of not being able to take that time and pause.
I also think the expectation of being connected all the time adds additional pressure and frustration because you can’t get the time that you need to do really good deep work. I’m a big believer in blocking off time, so I can focus and get things done, and by the way, that maximizes my time, and I’m working much more efficiently.
When you’re working and getting instant messaged here, texted there, a phone call, or someone walking into your office every 15 minutes, it’s hard to stay in a mindset of productivity.
This is a massive advantage of early retirement. This allows that so-called work-life balance to get back into a place where it energizes you rather than being tired and distracted and unable to make real progress on the things that you want.
We still need to be productive in our retirement years, but it doesn’t necessarily mean at the same pace or same path that we were in our earlier years. We should be working hard and getting things done to affect humankind for the greater good, but there has to come a time when we’re able to pass that along to the next generation providing them with the wisdom and expertise of our experiences.
So there are some reasons for the case for early retirement. Notice how I didn’t mention anything about sitting back on the beach and playing or being entertained all the time. Sure, that will be nice to do those things, but that’s not a case for early retirement. You’ll regret it later if that’s all you plan to do.
The Case Against Early Retirement
One of the most significant drawbacks of stepping into early retirement is if all of your identity is tied to the work you’re doing. I suspect that in this case, you’re probably running away from something rather than leaning into something else.
One of the biggest challenges for folks and especially high achievers, is finding their identity in what they do. There’s nothing wrong with achievement, and it’s good for us to be able to make progress towards goals, however many people get caught up in associating their work with who they are, and to me, that’s not healthy.
When I was in the tech industry, I wasn’t a software engineer or a manager. And now, I’m not a financial advisor. I’m a human being with needs, wants, and desires, and by the way, I have skills and talent that allow me to do those things as work, but that’s not who I am.
I’m a husband, father, faith-believing man who tries to do the right thing and spend an appropriate amount of time on all the important things in my life. I do good work, but it doesn’t define me, which allows me to navigate the ebbs and flows much easier.
How many conversations have started with what do you do? I never liked that question because it can lead to all kinds of assumptions about a person, which in most cases, gives you little insight into who a person actually is.
So if you haven’t made that disconnect from who you are and the work you do, then to me, that would certainly be a reason not to head into early retirement until you solved that relationship with your work.
Retirement Plan Status
Another reason that would be against stepping into early retirement is if you don’t have a plan. So last week’s episode, we talked about kind of high-level things that you’ve got to nail down before you step off into early retirement.
A quick recap. Those were having a solid why, having a grasp on what you would do to fill the time, having a friend or community circle, and having the assets to generate an income. I’m not talking about those things for a plan.
What I mean by a plan is a real financial plan that you’ve purposely thought about or worked with Advisor to really understand where you’re at. That includes all of your financial picture. The things that you have, the things that you owe money on. Your assets, your liabilities, all of the sources of income, and then a plan that spells out how will use those assets to generate an income.
I should cover your expected expenses and answer for how long it will do that. It should also answer some questions about:
What if the market goes into a correction and we have one to two years of negative returns. What does that do to your investment portfolio? What happens if healthcare skyrockets or you have a health emergency? Will you be protected? Have you thought about long-term care, and do you even need it, or can you self-insure?
There are lots of things to think about. It’s more than just about money. It’s about how that money will support your lifestyle and what you want to do, and the people you want to spend it with.
Retiring with a Spouse?
Another thing to consider is your spouse if you are married. If you’ve never spent that amount of time with your spouse, meaning someone has always been out of the house working, then you might want to do a trial run before you retire.
Are both of you going to retire at the same time? That could be challenging or create friction in your relationship because you’ve never had that much time together. A possible solution might be for one of you to retire, and that person retires for maybe six months or a year earlier to get accustomed to the changes that happen when you decide to stop work.
It’s not just about time that you’re gaining back. This is an emotional, psychological, and behavioral change that affects most parts of your life. If you don’t know how to deal with that in a healthy way, it will create friction. It might be a good idea to think about that and figure out what that means to your relationship.
So I just mentioned the emotional changes, so I’ll go a litter deeper on that. Moving into retirement can be an emotional roller coaster because you don’t have the same consistency that you had with your work routine, friends, and money.
You may be more likely to watch things like the stock market or other things with an obsession. It becomes an emotional issue for you, and if you don’t deal with that, that could lead to further behavioral challenges.
These are the things that people in the finance industry don’t talk about a lot. If all you’ve ever had as a financial advisor was someone that managed your money, you’ve probably never heard this before. Most don’t develop that relationship level, and they’ve never experienced the same thing for themselves.
For some, it is not a simple transition, and it’s something that many people just aren’t prepared for because this area of your life you’re moving into can have all sorts of emotional needs. Some of your needs won’t be met unless you have good relationships with family and friends. And by the way, interacting with others is crucial to happiness, fulfillment, and longevity.
Retirement and Healthcare
Another case against early retirement will be if you don’t have a plan to manage healthcare. Healthcare can be an expensive proposition for some. It could cost $10,000 per year or more for a couple if you haven’t factored that in and maybe even a little more for flexibility. You’re not eligible for Medicare until 65, so you are responsible for your medical issues. It’s not something that can’t be overcome, but you need to factor that into your cost because more than likely, it’s going to be more expensive than what you were paying through your employer-provided plan.
Another thing that I would state as the case against is if you’ve built into your plan to reduce your expenses drastically. If you know your numbers, this could be possible to reduce costs by quite a bit. Especially if you decide that selling your home is the right thing for you and you have a lot of equity and you’re going to use that for your living expenses.
Maybe that was $2,000 or $3,000 a month for your mortgage, and you’ll be saving that expense because you have another paid off property that you are moving to. You can lower your costs considerably, but the majority of people should plan for having expenses that are not half or more than half of your current expenses.
If you do that, typically, it’s going to mean you’re sacrificing your lifestyle. For the first part of your early retirement, you’re probably going to want to do things because you’re probably still healthy and active.
You’re going to want to travel, go out, attend entertainment venues, and things of that nature. You’ll need to factor those costs to enhance your lifestyle and not sacrifice on that because that can lead to an unfilled and dissatisfied life.
That negative mindset goes back to affect your emotional well-being. If you aren’t really clear and realistic about your living expenses, then that’s a case against early retirement.
Those are some of the things that you need to plan for if you haven’t thought through them already. Take action now if you are serious about early retirement. This is not something you want to step into lightly.
Well, I’m running up against my time limit, so we’ll have to carry this into part three, where we talk about retirement income and how you should think about it differently than you might with traditional retirement.
Hopefully, this has given you some more insight into what early retirement might look like and some of the things you need to plan for or resolve. If you’re thinking about early retirement and want someone to look over your situation, then head over to agile finance radio.com and select the work with me option. You can schedule a free assessment call with me, and we can talk about your unique situation.