6:18 pm , by
Category: Retirement Calculator
How many times have you thought about early retirement? How many times have you read about it?
I myself have read about it many times, but as I alluded to in “Financial Independence” it is not high on my list of goals that I want to achieve before I leave the planet. I also wonder if it would be even worth the sacrifice earlier in your life to make this goal a likely reality. Achieving this goal actually requires big sacrifices over the lifetime – it means that instead of a comfy retirement at a relatively advanced age, you get an early retirement where you are hit with a double whammy.
First, you cut your working life short. Remember, a lot of us tire of going to work, but we keep doing it because when we work we get an income! You can put some of this income towards your retirement savings. When you retire, you lose that regular bread-and-butter income. So, you won’t have any additional savings you can add to your retirement account.
Second, when you retire early, you actually add to your years of retirement. Think about it – assuming you die at the same age you otherwise would have, you have to spend more years eating out of your nest egg, so those retirement savings need to last longer. Depending on your actual life expectancy, you may end up withdrawing money for a few decades!
Let me do the math for you, using details from my own life. I will use a life expectancy of 90, but that may be a little low. All my grandparents, great-aunts and uncles lived at least close to 90 if not well over 90 – I usually tell everyone I’m dying at age 94. But we’ll use 90 for the sake of argument, and let’s also say I am shooting for early retirement at 50. I started full-time work at 24, which means that I must work 26 years before I retire. In these 26 years I would have to save enough money to last me 40 years more! I suppose I would have to be extremely frugal in those few years to save enough money to live 26 years and save for 40 more. That means I have to save almost twice as much as I consume. In any case, 26 working years versus 40 years in retirement does not look like a good ratio to me. It will surely make those 26 first years of life pretty difficult.
If I delayed retirement by ten years, I would have 36 years of income in which I can put money away. I would also cut my retirement years down to 30 years. In other words I would have to provide for a lot less years in this scenario. And the ratio is closer to 50-50, where my working years might even allow me to pay for some extra luxuries to make my working years that much easier.
So, delaying retirement gives me two benefits. (1) I have more years with an income, which I can use to save for retirement and (2) I don’t need to provide for as many years in retirement. As far as I am concerned, delaying retirement gives me a much better overall experience of that which we call “life.”
What do you think of the early retirement idea?
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