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Early retirement can be the best decision ever — or a choice you come to regret. The outcome all depends on whether you’re really prepared to leave the workforce at a young age or whether doing so leads to financial disaster.
So how can you tell if quitting work sooner than most people is a good option or if it will doom you to a life of money worries in your later years? Be on the lookout for these three big signs that early retirement isn’t a good idea for you.
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1. You don’t have enough saved
If you’re going to leave the workforce at a young age, it’s crucial to ensure you have a hefty investment account balance.
Your savings will need to support you for many more years if you retire early, and the last thing you want is to spend it all when you would’ve been young enough to work and reach late retirement and be unable to support yourself or find a job.
To make sure you have plenty saved to cover costs for the rest of your life, choose a conservative withdrawal rate and see if you’ll generate enough income from your investment accounts each year. Unless you’re confident you can easily take out sufficient funds to cover your costs without draining your account balance, early retirement could be a huge mistake.
2. You don’t have a plan for medical insurance
Most people define early retirement as occurring well before age 65. The only problem is, you don’t become eligible for Medicare until then. Before that time, you’ll have to figure something else out for insurance.
You may be able to remain on your current employer’s plan under COBRA, but this is typically only an option for about 18 months, so it may not be a long-term solution. Premiums will also typically be higher than what you paid while working since chances are good your employer was probably subsidizing them and they’ll stop doing that when you retire.
If your spouse isn’t retiring early along with you, getting coverage through their employer may be a viable option. But often early retirement is something both partners pursue together, which means you’ll need to purchase individual coverage elsewhere.
Obamacare marketplaces offer options during open enrollment periods and at any time during special enrollment periods for those who have lost other eligible health coverage. You may even be able to qualify for subsidies to defray premium costs, depending on income. But the plans available to individuals may cost more than you were paying for employer insurance, and may not provide as much coverage or as wide of a network of providers.
Because medical coverage can be a very tricky issue for early retirees, you could end up seriously regretting your decision to quit work early if you give up employer-provided health benefits without a detailed plan for how to replace them.
3. You don’t have plans for how you’ll spend your time
Finally, if you don’t know what you’ll do with your days after leaving the workforce, you could end up wishing you still had the structure and social connections a job provides. For many people, early retirement is better in theory than in practice, and they find themselves bored and depressed once work doesn’t provide a purpose.
If you’re simply hoping to get out of your current job but don’t have a clear idea of what you want to do during early retirement, perhaps you’d be better off with a career change rather than leaving the working world altogether.
If you spot any of these three red flags, you should make certain not to rush into giving notice. Instead, take the time to really think about all your options — and about the ramifications of quitting your job for good — so you can maximize the chances of making the choice that’s right for you.
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