There are plenty of good reasons to retire early and enjoy more leisure time when you're younger. But early retirement isn't always the rosy existence you'd expect it to be. There are several disadvantages associated with leaving the workforce at a relatively young age, so consider these consequences before making a move.
1. Less time to save
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Though you might think you'll manage to cut your costs in retirement, the fact of the matter is that you may end up needing more income than anticipated. And the sooner you retire, the less opportunity you'll have to save.
While it's true that some older workers are well positioned as far as their retirement savings go, the majority are glaringly behind. The median savings balance among older workers aged 56 to 61 is just $17,000, which clearly won't go very far in retirement.
Of course, it may be the case that you've saved significantly more than that, but consider this: Come 2018, you'll get the option to contribute up to $24,500 a year to your 401(k) if you're over 50. Max out that limit for four more years, and you'll have close to $100,000 extra for your golden years, without even factoring in investment growth. Even if you don't end up needing that money for basic expenses, if you work those additional years, you'll have the option to really live it up in retirement.
2. Costlier healthcare
Healthcare is a huge expense for younger Americans and retirees alike. But whereas those who continue working are frequently eligible for employer-sponsored plans, if you retire before the age of 65, which is when Medicare eligibility kicks in, you'll need to cover the cost of health insurance on your own. And that could get pricey.
In 2016, the average monthly premium for an individual health plan was $321 a month. The standard monthly premium for Medicare Part B, meanwhile, is currently $134 a month. That's a sizable difference. If you're going to retire early, you'll probably end up spending a chunk of your savings on healthcare, which means you may not get to enjoy those few extra years of leisure as you would've liked.
3. Having to wait on your IRA or 401(k)
For some people, early retirement means leaving the workforce in their early or even mid-60s. But if you decide to retire in your 50s, you'll need to make sure you have enough income to pay the bills. That's because you're not allowed to touch your traditional IRA or 401(k) before the age of 59 1/2. If you attempt to access that money, you'll be hit with a 10% early withdrawal penalty on whatever distribution you take.
That said, you may have some flexibility with your 401(k). If you leave the company sponsoring your plan at age 55 or later, you'll be allowed to take penalty-free withdrawals from that point on. Otherwise, you'd better plan on getting your income from another source, and that could prove challenging if the bulk of your savings is housed in a tax-advantaged plan.
4. More time to get bored
One final drawback of retiring early is none other than the boredom factor -- namely, the more time you spend not working when you're young and healthy enough to do so, the greater your risk of growing restless and disgruntled with that lifestyle. The Institute of Economic Affairs reports that retirement increases the likelihood of suffering from clinical depression by 40%. If you're the type who tends to thrive on structure, then retiring sooner than necessary only exposes you to this risk. Not only that, but some studies have shown that early retirement has actually been linked to dying younger, so it pays to work longer for that reason alone.
While retiring early might seem like the best way to go, be sure to consider the repercussions of ending your career in your 50s or early 60s. If anything, you may want to think about a partial retirement, which could give you the best of both worlds -- an opportunity to keep busy and keep saving without having to maintain the 40-hour workweek you're looking to shake.
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