It’s easy to see why the idea of early retirement is so appealing. If your job is tough and demanding, the idea of not having to do it any longer may be enticing. And also, the reality is that none of us can predict the exact course our health might take. You may decide you want to exit the workforce at a relatively young age so you can enjoy retirement while your body is still cooperative.
But while it’s easy to see why so many people want to retire early, pulling it off is far from easy. Here are just a few reasons you might end up bemoaning your decision to leave the workforce at a younger age.
1. You might have trouble stretching your savings
The money you bring with you into retirement in your 401(k) or IRA needs to last as long as you live. But the longer your retirement, the harder it is to manage your withdrawals.
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For years, financial experts have said that withdrawing from savings at a rate of 4% per year makes it likely that your nest egg will last for 30 years. But if you retire early, you may need your savings to last more than 30 years.
Furthermore, if you retire early, that could mean giving up your paycheck right around the time your earnings have peaked. In doing so, you could miss out on the chance to pad your nest egg so your savings are able to last a few extra years.
2. You might struggle with healthcare costs
Medicare isn’t free. But the cost of health insurance outside of Medicare or an employer-subsidized plan can be astronomical. And if you retire early, you may have to cover that cost yourself until Medicare eligibility kicks in at age 65.
Keep in mind that COBRA is not a good solution for securing health coverage as an early retiree. Not only can it be very expensive, but you’re only allowed to stay on it for so long. And unless you have a ton of money in savings, you may find that the cost of health coverage truly wrecks your financial plans.
3. You might lock in a lower Social Security benefit for life
Claiming Social Security early means slashing your monthly benefit on a permanent basis. But if early retirement makes it so you have to sign up early, that could prove problematic down the line.
Let’s imagine you decide to retire at age 60, live off …….