3 Reasons Early Retirement Won’t Work for You, Even if You Have a Lot of Savings

Many people dream of early retirement. And if you plan and save really well, it may be feasible.

But even if you manage to accrue a fairly large nest egg by, say, your early 50s, you might still end up struggling with an early retirement. Here’s why.

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1. You don’t have funds outside of a 401(k) or IRA

There’s a benefit to saving for retirement in a 401(k) plan or IRA. These plans are loaded with tax breaks designed to make it easier for savers to sock funds away for the future.

But there’s a downside to having money in a 401(k) or IRA, and it’s that you can’t touch it until you turn 59 1/2 or otherwise face penalties (note that in some cases, you can start taking 401(k) withdrawals without penalty at age 55). And so if you have all of your savings in one of these plans, early retirement may not be feasible simply because you can’t access that money when you need to.

If you’re serious about retiring early, make sure to keep some of your savings outside of a 401(k) or IRA. You could invest in a regular brokerage account, for example, which is unrestricted, albeit devoid of tax breaks.

2. You can’t afford healthcare

You might reach your early 50s with over $1 million socked away for retirement. And that’s not a small amount of money. But will it be enough to cover the cost of health insurance for a decade or longer until Medicare eligibility kicks in at age 65? Maybe not.

If you really want to retire early, it pays to maintain a separate savings or investment account for healthcare spending only. That way, you’ll have funds dedicated to the cost of health insurance premiums.

3. You don’t do well with downtime

Retiring early could mean having a lot of downtime unless you truly have enough money to keep yourself entertained 24/7. And if you’re the type of person who doesn’t enjoy downtime, that could prove problematic.

Granted, there are different ways you can stay occupied as an early retiree without breaking the bank. Volunteering is one option, whether that means running food drives or caring for animals at your local shelter. Another option is to see what programs your community center offers. But for the most part, if you’re the sort of person who needs to stay busy, early retirement may not be the best thing for you.

Should you retire early?

The upside of early retirement is getting to avoid workplace stress, take control of your days, and do the things you’ve always dreamed of at a time when you’re younger and have more energy. But early retirement has its challenges. You may not have access to all or any of your savings if you retire too young, and the cost of healthcare could end up being exorbitant until Medicare kicks in. Throw in struggles with downtime, and it makes the case to reconsider early retirement — especially if you have a job you don’t despise.

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