Win the Battle Between Early Retirement Dreams and Late-Life Realities
Early retirement is a common dream these days, but its viability remains a point of debate even among its advocates. Different lifestyles make the possibility of retirement quite varied and often seem to incur a sacrifice either now or later to make it work.
If you’re planning on retiring early, make sure you run the numbers to make sure you’re set for the early years and the later years, according to Annie Cole, EdD, money coach and founder of Money Essentials for Women.
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“Many people who retire young do so in hopes of living on a shoestring budget,” she said. “Be sure to include emergency funds and what-if scenarios into your calculations.”
Read on to see what the money pros told MoneyLion about the difference between early retirement dreams and late-life realities — and a reminder to plan for the unexpected.
Early Retirement Dreams Without Planning
“Early retirement dreams can be lofty or realistic,” said Melanie Musson, a finance expert with Clearsurance.com. “A dream could be rooted in an accurate prediction of later life or it could be rooted in an unrealistic idea.”
Musson added that you could also dream of early retirement and do nothing to prepare. She said that if you do that, you’re not going to be able to retire early unless you’re just plain lucky.
“Dreams are only as good as what you put in place to make those dreams happen,” she said. “Late-life realities are facts you have to deal with. Even if you dream of an early retirement and prepare for one, there’s a chance late-life realities could postpone that dream from happening. For example, you might face health issues that require you to continue working to maintain health insurance coverage.”
Early Retirement Dreams Lack Spending Realities
According to Taylor Kovar, certified financial planner and co-founder of UseKlear.com, the biggest gap he tends to see is around spending.
“A lot of people assume they'll spend less in retirement, but especially in those early years, a lot of retirees are actually spending more because they finally have the time to travel, do things they put off,” he said. “The money going out doesn't automatically shrink just because the paycheck stopped.”
In addition, Kovar said that longevity is underestimated more than almost anything else.
“People plan for maybe 20 years of retirement and end up needing 30 or 35. That changes the math considerably,” he said.
“Most people plan the finances but forget to plan the life itself,” said Andrew Lokenauth, founder of the blog Fluent in Finance. “Boredom sets in fast, identity starts to blur without work and spending runs 30%-40% higher than projected because free time costs real money. The gap between what people imagine and what they actually experience is wide.”
Early Retirement Dreams Depend on Timing
Per Lokenauth, the financial side has its own surprises.
“Sequence-of-returns risk is one of the most underestimated threats out there,” he noted. “If the market drops 25% in your first two years of retirement, your portfolio may never recover, even if long-term averages look fine on paper.”
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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