Early retirement is doing a lot of buzz these days. People from various sectors are so much attracted to this concept of retiring early. This concept of early retirement also has a cool phrase attached to it – Financial Independence, Retire Early (FIRE).
This term actually denotes a movement that involves a strictly frugal lifestyle accompanied by rigorous savings and investment, in an aim to achieve FIRE.
Though the concept looks highly motivating, it is not as easy as it sounds for many. I am not trying to discourage here or demotivate anyone who would want to adopt such a lifestyle – but it is extremely important that anyone who would want to give FIRE a try must know what to expect right?
Before diving into the positives and negatives of this whole early retirement concept, let me briefly summarize what this is about.
With detailed planning, extreme economic discipline and wise investment strategy, one has to get ready to retire early. With the corpus built, and from its return, a person would meet his daily living requirements – typically those aiming to retire early would withdraw less than 5% of their earnings annually to meet their living expenses. This means, that one must have accumulated a corpus substantial enough to support the entire (unconventionally long) retirement period.
While it may sound daunting, it is actually doable. Many people around the globe have successfully done it and many are doing it.
But before you decide whether to take this idea up or not, let us see some of the pros and cons of this early retirement approach.
When you go for a job, whether you like it or not, you need to wake up on time, get ready, and make it to work because only when you do it, you can meet your financial needs. A job or a business that stays as a source of income will require you to consistently put in the effort to keep it going.
You cannot shy away from doing the things that need to be done at work, or in your business just because you don’t like it. This “pressure” can cause a lot of physical and mental health issues.
As of now, it is happening with the majority of the working people. On the other hand, if you retire early, there is no pressure to get up and force yourself to do something that you don’t like.
You don’t have to run behind targets or be answerable to anyone. This puts a lot of pressure off your shoulders and you can feel really relaxed, physically and mentally.
These benefits are quite common among retired persons and with early retirement, you get to enjoy this pressure-free, commitment-free phase of life for quite a long time.
When you choose to retire early, you have a lot of time in your hands. Unlike those who have to show up for work, do work for prolonged hours, commute for work, engage in business-related activities and so on, a retired person will have free time.
In this free time, you can choose to do anything you love. You can travel – not just because you have free time, but also because you will not have commitments that chain you down. That’s the power of retiring early.
And, travelling is just one example. You could actually do something you are passionate about – like writing a book, starting that side hustle, learning a skill or whatever!
Now let’s see what the cons are!
It can be bad for your health!
I know, I know. A few paragraphs ago, I said early retirement is good for health. But now, I say it is bad. How could it be?
Well, whether you like it or not – getting up, getting ready and showing up for work keeps your momentum in shape. If you are not compelled to roll out of your bed, and get to work on something, it might make you lazy in the long run.
As you are not committed to doing anything, or have no one to question you, or there is no target that you should be focusing on completing, this could put you in a completely lazy state!
For a short period of time, this would feel relaxing and calm. But after a point, without much physical and mental work, you could feel pointless.
On top of it, since you are not meeting people at work (or virtually in your business), or have anything to do (on a commitment), you would start to feel lonely. This will trigger quite some mental issues over time.
Most people your age would be working on something or be busy, while you would be free most of the time. And just because you are free, it doesn’t mean it would be easy for you to join your friends any time because they will be busy.
Yes, early retirement means you build that substantial corpus, and have it as a backup and/or emergency fund, while at the same time, meeting your life expenses from the returns that corpus earns.
For those who retire in the conventional age, this is a comparatively easier thing to do when compared to someone who wants to retire early.
When you reach your conventional retirement age, the period you have worked (either a 9-5 or a business) is very long, and the period where you enjoy the benefits of retirement, and life off a retirement fund is very small.
On the flip side, if you retire early, the period you have worked is very small and the period that you would enjoy your retirement benefits is very long.
This means two things:
- You need to build a corpus that is at least 3 or 4 times more than the corpus of someone who would retire at the conventional age.
- And, you need to build that huge corpus while working only a few years, compared to others who retire at the conventional age.
On top of these, you should also account for inflation and any other crises that would fault your retirement plans!
See – it is not as easy as it sounds!
You might miss out on work-related perks
Things like health insurance, medical insurance and perks given by the government or the companies to their employees won’t benefit you.
Most companies place these benefits on the number of years an employee works with them. And based on the number of years, these perks would either be available or not available at all, in some cases.
Depending upon the sector you work on, you might miss some really good perks when you retire early.
So what’s the conclusion?
If you ask me, I would say – choose a sweet spot in between! You might not want to work your full term and retire at an age where you would have no energy to enjoy your life fully. Or you might want to enjoy those benefits early on.
But don’t make it too early either. Work for sufficient time to build a strong-enough corpus, enjoy the social life, the momentum and work-related perks while you are young and active, and choose to retire earlier than the conventional folks!
Hope this helps! Share your thoughts in the comments below.