Early Retirement Caveats to Consider


It’s hard to imagine a downside to retiring early. What could be better than retiring long before age sixty-five, with enough money in the bank to last indefinitely? That is the core belief of the FIRE movement, which stands for “financial independence, retire early.” The FIRE movement’s followers aim to save enough money so that they gain financial independence and can retire from their 9-to-5 jobs long-before the traditional retirement age.

While the idea of stepping out of the workforce early might sound appealing, there are some downsides to retiring in your 30s, 40s or even 20s (yes, it has been done!). Here are some caveats to consider if you have FIRE on your mind – but don’t want to get burned.

It might be hard to rejoin the workforce if you want (or need) to.

As much as we try to predict how much money we will need before retiring early, sometimes our math just is not right. Whether emergencies cause you to spend much more than you anticipated or you simply miscalculated, there could come a time during early retirement where the money runs out.

If your money runs out, you are very likely going to need to get a job. If you have been out of the workforce for years, it can be difficult to jump back in. Many mothers can tell you just how hard it is to get back into the workforce after leaving for several years to raise children. If you can find a job, it is likely not going to pay as much as your former job.

While this does not mean you will never be able to get a job, it is something to consider. Would you be comfortable getting a job in the service industry or something that pays much less than your prior job?

Another aspect to consider regarding rejoining the workforce is will you, physically, be able to? Some people are extremely healthy for many years beyond the traditional retirement age of sixty-five, whereas others are not. While health is so individual, it is more likely that the younger you are, the healthier and more able to work you will be. If you need to rejoin the workforce at a later age, it might be difficult given you will likely not be as healthy and up for the long hours of hard work as you were in your younger years.

Lastly, after early retirement, you might want to rejoin the workforce. Early retirement might sound amazing, but for some, once they are in it, they realize they prefer working. If you get out of the workforce, but then realize a few years later that you wish you had never left, consider how it might be difficult to jump back in.

Healthcare costs might be hard to predict.

Most early retirees do (and should) consider healthcare costs in their retirement budget. However, even if you do consider these costs, the correct healthcare calculations can be difficult to pin down. Healthcare expenses are one of the largest expenses in a person’s later life, costing individuals thousands and thousands of dollars – not even including long-term care, another large expense in retirement.

No matter how prepared you are financially, it is simply very hard to predict your future healthcare costs. We all hope we will be healthy forever, with only minor bumps and bruises, but in reality, this is not true. If you are considering retiring early, really take into account just how much healthcare might cost over the rest of your life and plan accordingly.

Unexpected family events or circumstances might take place.

Aside from unexpected healthcare costs, other events can happen during retirement that you might not have predicted or accounted for financially.

We can prepare and predict our retirement spending, but there are just some things we cannot prepare for. Whether it is caring for a loved one, getting divorced, having another child, or any number of changes that will surely change your expenses, sometimes life ends up costing more than we thought.

Have you taken into account the unexpected? Depending on your family circumstances, FIRE might not be the best option for you until you can fully account for the unpredictable and ensure that you and your family will be covered financially no matter what.

Scrimping too much today might diminish your current happiness so much that FIRE is not worth it.

Reaching FIRE requires a great deal of sacrifice. It usually means greatly cutting back on expenses, such as giving up a car in favor of public transportation, forgoing meals out, skipping vacations, and living with many roommates way past college age. While none of these things are inherently bad, and each can save anyone money who is looking to cut back, they are sacrifices that not everyone will be willing to make.

Additionally, sometimes your regular income is not enough to reach FIRE, even with drastic cut-backs on expenses. Many in the FIRE movement pick up extra jobs or side hustles and end up working double the number of hours they worked before starting their FIRE journeys.

Be careful that you do not scrimp so much during the time leading up to early retirement that you forget to live life during that time. Expecting to live and enjoy life once you reach early retirement might set you up for failure – both while you are sacrificing the present, and in the future, when you reach early retirement and realize not working might not solve all of your problems after all.

FIRE requires a certain amount of risk tolerance, which you might not have.

Traditionally, a person reaches FIRE when he has accumulated at least twenty-five times his average expected annual expenses during retirement. That figure assumes you can safely withdraw 4% of your investment portfolio every year during retirement, indefinitely.

This so-called 4% rule is the standard figure cited in the FIRE movement, but it is by no means a sure-fire way to guarantee enough money in retirement to last your entire life. The figure is based on past market performance, which is assumed will continue in a similar fashion in the future, but there is just no way of knowing whether that is true.

If you are not comfortable with some uncertainty when it comes to how much is enough, relying on the 4% rule (or even a higher figure, say, 6%) could be difficult. Depending on your level of risk tolerance, the unknown of how long your money will last in retirement might deter you from participating in FIRE after all.

Is FIRE right for you?

If you are looking to participate in the FIRE movement, but are not fully on board yet, many of the tenants of the FIRE movement are helpful for us all. Instead of extreme savings, to the point it takes away your current quality of life, why not try to cut back little by little. Start with eliminating your debt and building up your emergency savings fund and take it from there.

If you decide to pursue FIRE, remember that the choice to retire after becoming financially independent is always yours. You can continue to work for as long as you want or as long as you can, even after reaching FIRE.

If you have debt that is hampering your early retirement goals, consider reaching out to a debt relief agency for help getting back on track financially. The best debt consolidation programs out there can help you manage your debt and will not pressure you to take on more. These programs can help you realize your dream of becoming debt free so that you can achieve financial independence and retire early.

Keep in mind, though, that the best debt settlement options for you may not involve writing off all of your debt. You may very well need to pay some down on your own before getting relief. That said, do what you can now to keep your expenses low and your income high. With consistency and determination, you can move yourself closer and closer to your financial goals – even FIRE.