Five Early Retirement Mistakes to Avoid

A man in a camp rocking chair sleeps with a book on his face near an outdoor fire.

(Image credit: Getty Images)

published 17 August 2024

Editor’s note: This is part seven of an ongoing series focused on how to retire early and the FIRE (Financial Independence, Retire Early) movement. The introduction to the series is How to Retire Early in Six Steps. To see all early retirement articles, jump to the end.

The allure of early retirement lies in the prospect of gaining greater freedom over time. However, as you work toward getting there, time is not on your side. Those who join the FIRE movement aim to save and invest aggressively — upwards of 50 to 75% of their income — to achieve financial independence and retire early in their 30s, 40s or 50s. With such an ambitious target date, there’s less time to recover from mistakes along the way.

Fortunately, you don’t have to pursue FIRE in the dark. Legendary investor Warren Buffett once said, “It’s better to learn from other people’s mistakes as much as possible.”

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Since the concept of FIRE was introduced in the 1992 book Your Money or Your Life, many people have successfully achieved it, creating a roadmap of what to do and, most importantly, what not to do. Here are five significant mistakes to avoid if you want to follow in their footsteps.

1. Miscalculating future expenses

Humans tend to overestimate how similar their future selves will be to their current selves, a mental shortcut known as projection bias. This bias can lead to short-sighted decisions that derail your retirement goals.

In an interview, Sam Dogen, founder of the popular FIRE website Financial Samurai, said, “The biggest mistake is miscalculating your future expenses, your future self, and how you’ll be living … whatever you imagine your future to be like will more than likely not be what your future will be like. Your expenses will change. Your desires will change.”

Over time, you might get married, have kids, buy a home, change jobs or relocate — all of which can shift your spending habits and needs.

Additionally, the markets and economy will likely change, as illustrated by recent inflation, which erodes the purchasing power of your savings. Ultimately, your future expenses may be much higher than you initially thought.

How to avoid this mistake: Never stop planning. Regularly review and adjust your plan to account for changes in your personal circumstances, the market and the broader economy. Maintain a disciplined approach to spending and resist the temptation to upgrade your lifestyle in tandem with your earnings.

2. Overlooking healthcare coverage

“One oversight I frequently see is inadequate planning for healthcare expenses,” says Patrick Cummins, certified financial planner and financial adviser at Advance Capital Management. He notes that it “becomes challenging when costs aren’t automatically deducted from work paychecks and must be paid out of pocket.”

While traditional-age retirees can rely on Medicare, younger retirees are on their own when it comes to healthcare. They often pay more for health insurance yet get less coverage.

Charlie Pastor, certified financial planner and contributing expert at The Motley Fool Ascent, cautions, “Private insurance coverage can be prohibitively expensive, especially for those with pre-existing conditions.”

But failing to secure adequate health coverage is like gambling with your retirement savings, potentially leading to financial ruin in the face of serious illness or injury. In the US, 41% of adults have some form of medical debt, and many are driven to bankruptcy as a result, according to a 2022 study by the Kaiser Family Foundation and NPR. Medical debt hits those with acute and chronic diseases the hardest, and most people owe at least $10,000. The administration has enacted several rules to help those with medical debt, yet it remains a stubborn problem, according to the Urban Institute.

How to avoid this mistake: Early retirees can secure healthcare by purchasing coverage in the healthcare marketplace, joining a working spouse’s plan, working enough to qualify for employer coverage, or opting for self-insurance, which can be cheaper if you retire abroad. If your employer offers a Health Savings Account (HSA), try to stash as much as possible there to be used later in retirement.

3. Overestimating investing returns

Early retirement can look especially attractive during times of high market returns. However, it would be a mistake to count on overly optimistic future investment returns, as past performance is no guarantee of future results.

“Even with proper allocation, relying too heavily on achieving high investment returns can be risky,” Cummins says.

The stock market has historically gone up more than down, but not in a straight line. On average, a bear market occurs around every four years, sometimes with prolonged down periods. For instance, the average annual return from the end of 1999 through 2009 was -1%.

How to avoid this mistake: Cummins emphasizes the need for diversification. “It’s essential to maintain a diversified portfolio and have realistic expectations about market performance if you are serious about achieving your goals,” he says. A balanced portfolio that includes a mix of stocks, bonds, real estate and other assets can provide more stability and growth potential.

4. Feeling bored and lonely

A major non-financial mistake is failing to plan for the psychological and social aspects of early retirement. Many people find that without the routine and social interaction provided by work, they feel isolated and purposeless.

A ResumeBuilder.com survey found that 34% of retired Americans who plan to return to work in 2024 say it’s to combat boredom. This phenomenon, known as “retirement boredom,” can make it difficult to transition from the daily routine of a full-time job to retirement’s unstructured life.

Research consistently shows that purpose is a key ingredient for a happy retirement. This explains why many FIRE advocates strive for the FI (financial independence) more than the RE (retire early).

And don't underestimate the cost of loneliness in retirement. Failing to establish a strong social network can wreak your mental and physical health. Early retirees need to make an extra effort to keep and make new friends, which can be especially hard if many of your friends are still working during the day.

How to avoid this mistake: Instead of a bucket list, have a plan for how you’ll spend your time, including hobbies, volunteering, part-time work and other fulfilling activities. You might even consider going back to college to launch a career or business in a new field. Staying connected with a community and maintaining a sense of purpose can greatly enhance the quality of your retirement.

5. Not communicating with your spouse or partner

Before setting your early retirement plans into motion, Pastor advises, “Make sure to communicate your plans and expectations with your spouse or significant other.”

If you’re married and plan to stay married in retirement, it’s crucial to be on the same page. Imagine one partner fighting traffic to work while the other is fighting for a tee time. “Managing a household’s finances is a team sport, and clear communication is vital to the long-term success of a couple’s finances,” Pastor adds.

Clear communication ensures agreement on goals and expectations, helping to avoid future conflicts. Couples need to organize their finances, including savings, investments and budgets, and discuss lifestyle choices to create a cohesive and realistic retirement plan. Being married in retirement affects important decisions, like when you or your spouse should take Social Security benefits.

How to avoid this mistake: In addition to talking to each other, Pastor says, “It is not uncommon for financial planners to work with a couple that have completely different expectations around retirement.” Couples can benefit from consulting with a financial adviser who provides an objective point of view.

Even when you know the potential pitfalls, the path to FIRE doesn’t necessarily get any easier. It still takes a lot of work, discipline and careful planning. However, by planning for these common mistakes, you improve your chances of moving forward instead of backward – saving you a lot of stress and, above all, time.