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After working for a couple of decades, you finally feel like you’ve given your career all you’ve got. And maybe you’re looking to retire early so you can finally live life on your terms. Early retirement will provide you with the freedom to spend more time with your grandchildren, travel while you’re still healthy, and pursue your greatest passions. You might be wondering if you should accept the early retirement offer an employer sent you. In this article, we’ll be sharing the pros and cons of early retirement and our tips to help you retire early.
What is An Early Retirement?
Early retirement is when you retire from working before the age of 65. The retirement age is increasing each year, so this number is expected to increase to 67 by 2023.
Pros of An Early Retirement
1. Retire While Still Healthy
One of the benefits of early retirement is that you get to retire while you’re still healthy. No one wants to retire when they’re physically or mentally unable to work. It’s better to do this because you have the option to choose not to work. Of course, it’s important to maintain your health routine in retirement too. So, no, this doesn’t mean that you can stay home all day and skip out on your exercise. Moving around will be more critical than ever. Eating healthy too. Plus, you’ll want to ensure that you’re still maintaining positive relationships and maybe practicing meditation as well. Ultimately, in early retirement, you’ll want to continue taking care of your physical and mental health so that you stay strong longer.
2. More Family Time
In early parenthood, you spent so much time raising your children. However, when your children become parents themselves, time spent with family lessens. A great compromise to see more of your family would be to offer help to take care of your grandchildren while your children are working. That way, you get to maintain your youthful spirit by playing with the little ones. Spending time with your grandchildren can be good for your mental health too, so you feel less lonely in your early retirement. Plus, it’ll give your life a bigger meaning as you’ll be cooking, playing, and taking care of the people you love: your family.
3. Start A Business
While some people who retire early choose not to work a day more in life, not everyone feels the same way towards work. Others want to take an early retirement so that they can invest in their lifelong dream. Maybe you finally decide to become a painter who sells their paintings online. Or you pursue your passion for writing and become a freelance writer for some of the biggest websites in the world. You could even buy a business that’s already succeeding a bit and take it to the next level by applying all of your life experience to it. The only difference between starting a business and retiring early from work is that now you’ll get to set the rules instead of being told what to do. Plus, working in retirement is an option instead of a necessity.
4. Learn Something New
One of the advantages of early retirement is that you can invest in learning to keep your brain sharp. You might use this time to sign up for a university class to learn more about a topic you’ve always wondered about. Or you might sign up for an online course to learn a new skill that can help you earn some additional income in retirement. Maybe you finally sign up for that language class so you can speak like a local when you travel. Or you take a cooking class to prove to your significant other that you really are the master chef of the household. By taking the time to educate yourself, you keep your brain healthy and active in early retirement to help slow the aging of the brain.
5. More Time to Travel
While COVID-19 has slowed down travel, it’s important to remember that this travel ban is only temporary. One of the greatest pros of early retirement is that you finally have the time and money to travel. Maybe you and your siblings make a pact to travel down south each winter for some good old fashioned sibling bonding. Or you finally go to the places you’ve been dreaming about for years. You can experience different cultures, try new foods, and experience a whole new world. And by retiring early, you ensure that you’re healthy enough to check out all the places on your bucket list.
6. Enjoy Less Stress
Work stress can add up to cause numerous health problems. Plus, if you’ve been sitting on your rear staring at a screen for years, that can also cause stress on your body. If you plan on taking an early retirement, you’ll want to do things that give you meaning and keep you active. So you probably shouldn’t spend years of your retirement staring at a screen at home. You’ll want to plan fun activities that you enjoy so that you stay busy while keeping your stress levels low. Plus, you’ll want to avoid staying home to stare at screens at all too to prevent stress on your body.
Cons of An Early Retirement
1. You Might Run Out of Savings
One of the downsides of early retirement is that you may run out of savings if you’re unprepared. You likely won’t be able to use your Retirement Savings Plan, but even using Social Security can eat away at your nest egg. Before retiring early, it’s essential to have some savings locked away that can last a few years. Also, if you plan on an early retirement, consider having a passive income stream or two coming in to help you live comfortably. If you own a business, this can be a great way to earn some additional recurring income. Some business models, such as dropshipping, are ideal for having a work-life balance in retirement as many of the processes are automated with technology.
2. You May Develop Bad Habits
After spending decades of your life working hard, it makes sense that you want to enjoy some freedom in retirement. You want to pursue your passions, spend time with family, and relax. You deserve it! You’ve paid your dues. However, one of the best things about working is that you develop a routine. In retirement, you’ll also want to create a routine to help prevent bad habits from building up. Including exercise to ensure you stay physically active is a must. You’ll need to keep doing activities that keep your brain sharp. And you’ll need to make sure that you’re not overspending so that you don’t rack up debt while you’re no longer working. Be sure to devote time to your mental and physical health to help you enjoy your early retirement longer.
3. You May Feel Lonelier
A disadvantage of early retirement is that you may feel lonely. After decades of working with other people, you might miss the social interactions you’ve had over the years. People who have more friends live longer. Owning a business can help you stay connected with people in your retirement. You might choose to go to conferences to network with other business people. Or you join meetups in your community for entrepreneurs. You might be speaking with customers daily through social media and email support. Business ownership is a great way to keep working without having a boss to report to, a dedicated schedule to work on it while having the freedom to work from anywhere. With a business, you’ll likely feel less lonely as it can keep you busy while also benefiting from some social interaction each day.
How to Retire Early: 6 Steps to Early Retirement
1. Assess Your Financial Situation
Like we mentioned earlier, early retirement can cause you to run out of savings. The last thing you want is to outlive your money. Before entering an early retirement, you need to speak with a financial advisor. Not all financial advisors are equal, though. You may seek the guidance of a fiduciary, a financial expert who works in your best interest to assess your financial situation to provide you with a plan that’ll help you retire early while allowing you to live comfortably.
2. Set Goals
After discussing with a financial advisor, the next step to retire early is to set goals. At what age do you hope to retire? How much money do you need to have in savings in order to retire at that age while living comfortably? After you’ve set your financial goal, add 10% to that goal. Some people anticipate living below their means in retirement only to realize that it’s a lot harder in action than in principle. Rather than slashing your budget in half, save more so that you can afford to do things you like when you retire.
3. Earn More Income
Now that you’ve established your age and financial goals, it’s time to earn more income. There are three ways to increase your income: earned income (9 to 5 job or freelancing), passive income (money earned from a passive source like a business), and portfolio income (money earned from stocks, royalties, dividends). You might choose to invest in one or all three sources of income to help you build your nest egg. With passive and portfolio income, you don’t trade your time for money, so the earning potential is higher. With earned income, the money you earn is guaranteed based on the hours worked. You’re only limited by your time.
4. Acquire Assets
An asset is something you own that appreciates in value with time. The benefit of owning an asset is that it generates income for you while increasing in value. Using the income you’ve earned, you can acquire assets that make you money. For example, you might choose to rent out a property you own. Or you might buy a website here on Exchange to help you earn income from a business that grows your bank account as you build it up. And after building it up for a few years, you might choose to sell your business to help you earn additional income that you can use in your early retirement.
5. Pay Off Debts
Before you embark on that early retirement, you’ll need to pay off debts, so you start your retirement with a clean slate. Being debt-free is one of the best feelings in the world. Your house should be paid off. Your line of credit, credit card, and any loan too. Being debt-free can help lower your expenses so that you can afford to live comfortably as you retire early. You can use your asset to help you pay down your debt.
6. Ease Into Early Retirement
Some people ease their way into early retirement like my aunt, who was asked to continue working part-time after she announced that she wanted to retire. Easing into early retirement by doing part-time work allows you to have some of the perks of retirement and analyze if you’re ready to take the plunge. Since you’ll still have money coming in, you’ll know if you can afford to retire early from real-life experience.
Early Retirement: Is It Worth It?
At this point, you’ve analyzed some of the pros and cons of early retirement and learned a few tips to help you retire early. So is an early retirement all it’s cracked out to be? Yes, but you may need to make some adjustments to help you live comfortably, stay healthy, and stay connected with the world around you. Having a job can give you a purpose to get out of bed in the morning. You might choose to compromise by starting a business giving you the flexibility to work when and where you want. It’s important to stay connected with people, so joining clubs, networking events, or fitness classes, can be a great way to keep your social life active. By incorporating some of these suggestions into your early retirement, you can enjoy a balanced lifestyle: one that includes a little bit of work and a lot of play.