3 Signs Early Retirement Isn't For You

When you're dreaming of the moment you can stop setting your alarm clock and start spending your days enjoying life on your own terms, early retirement may sound like a dream come true.

Of course, nearly everyone wants to spend as much time in retirement as possible. And considering the median retirement age is 62 according to the Employee Benefit Research Institute, many workers do choose to retire relatively early.

But spending several decades in retirement isn't always all it's cracked up to be. There are disadvantages to leaving the workplace early, and there are a few signs that can suggest early retirement may not be the right choice for you.

1. You don't have a (very) solid retirement fund

Retirement is an exciting milestone in life, but it's also expensive.

The average person aged 65 and up spends around $46,000 per year according to the Bureau of Labor Statistics, and the Social Security Administration estimates that a third of those turning 65 today will live past age 90. That means that if you retire at, say, age 55, you could be spending upwards of 35 years in retirement. If you're spending $46,000 per year, that amounts to a total retirement cost of around $1.6 million -- not accounting for inflation.

It may not seem like a big deal to retire just a few years early, but when you're spending tens of thousands of dollars per year it quickly adds up. If you don't have a hefty retirement fund, you may have to pinch your pennies to make ends meet. In that case, a shorter but more financially secure retirement may be more enjoyable than a longer but more stressful one.

But what if you're planning on retiring early and picking up part-time work later for some extra cash? That's a smart move, but be sure you have enough savings to last through retirement even without additional income. Approximately three-quarters of workers said they're expecting to work to some extent during retirement according to a report from the Employee Benefit Research Institute, yet only 25% of retirees actually ended up doing so. Working during retirement is a good idea on the surface, but if you make it an integral part of your retirement plan it could come back to bite you if you can't find work.

2. You plan to rely on Social Security benefits

Say you don't have a robust retirement fund. That's no problem as long as you have Social Security benefits, right? Not necessarily. You're not even eligible to start claiming benefits until age 62, so if you retire before that you'll need to rely on other sources of income to get by until then.

In addition, Social Security benefits are designed to supplement your retirement income, not be your sole source of income. The average check is just $1,300 per month, so if that's the only money coming in, you may need to get creative with your retirement spending.

Also, if you claim at 62 (or anytime before you reach your full retirement age), your benefits will be reduced by up to 30%. So if your full retirement age is 67, you'd be receiving $1,300 per month by claiming at that age. But by claiming at 62 you'd receive just $910 per month. That's a good source of supplemental income to cushion your personal savings, but you likely won't be able to get by on that alone.

3. You're struggling with health issues

Regardless of what age you retire, you're going to face healthcare expenses. But for those planning on early retirement, healthcare could be even more expensive.

Most retirees will enroll in Medicare for their healthcare needs, but you're not eligible for the program until age 65. So if you retire before then, you'll need to find alternate insurance, typically through COBRA coverage or the Affordable Care Act insurance marketplace.

COBRA allows you to continue the coverage you had through your employer even after you leave your job, but there are two major drawbacks: It can be incredibly pricey, and you're typically only allowed to keep coverage for up to 18 months. That means if you retire before age 63 1/2, you'll need to find another type of coverage to fill the gap before you're eligible for Medicare.

Buying insurance through the Affordable Care Act marketplace is another option, but again, it can be expensive. Premiums and deductibles vary based on the plans available in your location as well as your age and general health, but they're typically more expensive than what you paid through your employer.

Even if you're relatively healthy, insurance can be expensive. If you have health issues, those costs can skyrocket and quickly eat away at your retirement savings. In addition, once you turn 65 and can enroll in Medicare, you're not off the hook -- Medicare doesn't cover everything, and you're still responsible for certain costs.

Early retirement isn't the right fit for everyone, but that doesn't mean you can't retire at all. Sometimes patience is key when it comes to retirement, and it's better to hold off until you're financially ready so you can truly enjoy the rest of your life to the fullest.

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