Will You Regret Early Retirement? 8 Signs You're Jumping in Too Soon
Retiring early sounds like a dream, but it can quickly turn into a financial or emotional nightmare. Here are eight signs you might be quitting too soon and what you can do about it.
With life expectancies increasing and inflation soaring, many people are retiring later to boost savings and stretch their nest eggs further. However, those who have saved well and are tired of the nine-to-five grind may be eager to retire early.
Early retirement has its benefits — traveling, exploring hobbies, and enjoying life while your health is stronger. But make sure you’re not retiring too early. Here are eight signs you may not be ready, according to financial planning experts.
1. You haven't test-driven your retirement paycheck
You’ll often hear that you should create a retirement budget that accounts for your expected costs. From there, you can use a calculator to see if you’ve saved enough.
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Mike McCracken, IRMAA-Certified Planner and founder of Wealth Guide Financial, likes to take this concept one step further, especially for people who are ending their careers on the early side.
"One thing I like people to do before retiring is actually practice living on what they expect to have available in retirement." — Mike McCracken
"Don't just put the numbers into a financial plan and assume you're comfortable with them," says McCracken. "Try it."
McCracken recommends living on your projected retirement income for six months and saving the difference.
"You'll learn pretty quickly whether the lifestyle you've been picturing matches the income you've planned for," he says. "If your retirement paycheck doesn't feel comfortable while you still have a paycheck coming in, it's probably not going to feel better after the paycheck stops."
2. You're not planning for the worst-case scenario
Being an optimist is a good thing. But in the context of early retirement, it could hurt you. That’s why McCracken says it’s important to plan for the worst-case scenario.
"The math may say they can retire, but what assumptions are underneath that math?" he explains. "What happens if the market has a bad couple of years early in retirement? What if inflation stays higher than expected? The roof needs replacing? One spouse needs care?"
McCracken insists that if your retirement plan only works when everything goes right, it’s not complete. Before you retire early, make sure your plan can survive unwanted surprises, not just an average year.
3. You haven't looked at your retirement tax calendar
The timing of your retirement could have huge tax implications, McCracken says. If you haven’t thought about them, you may be ending your career too soon or missing out on some helpful opportunities.
"The first several years of retirement can create some really interesting tax-planning opportunities, especially between the last paycheck and when Social Security and required minimum distributions begin," he explains. "Roth conversions can make sense during those years, but you have to look several years ahead."
As McCracken explains, while Roth conversions could save you loads of money on taxes over time, Medicare adds a wrinkle.
"A Roth conversion, large IRA distribution, or taxable capital gain can increase Medicare Part B and Part D premiums two years later through IRMAA," he says. That surprise can catch people off guard.
4. You don’t have a social network you can lean into to replace work life
Many people view their jobs as a way to collect a paycheck without realizing how important work is for their social lives. Keith Spencer, CFP and founder of Spencer Financial Planning, says early retirees can get thrown for a loop when they realize the absence of a job means losing connections.
"Keeping up social connections is very important as someone ages," he says. "But when you leave your job, that social component will likely be lost as well. So it’s very important that you find other avenues to build social connections."
Spencer recommends that early retirees come up with a plan for staying connected to others. Options could include getting more involved with a house of worship, joining a common-interest club or volunteering.
"Being intentional about this will make it so much more likely that you’ll be able to replace those social bonds that are lost when you leave work," he says.
5. You don’t have a plan for long-term care
Long-term care can be one of the biggest retirement expenses. And as Spencer warns, "If it’s not planned for, it can derail retirement plans."
Spencer says you don’t necessarily need long-term care insurance. But you do need a long-term care plan before you retire early, especially since you might then spend more resources at a younger age, leaving you with less money down the line to cover long-term care needs. For a sense of how much you'll need to set aside, you could consult one of the long-term care estimator tools designed to calculate your health outcome and care costs.
Your long-term care plan could mean setting aside a portion of your nest egg up front. Alternatively, you could use your home as your long-term care safety net — provided you are actually willing to sell it if the time comes.
6. You're running away from a stressful or toxic job
It’s one thing to retire early because you’re ready to embrace that stage of life. It’s another thing to retire early if your goal is to ditch a job you can’t stand, says Roland Chow, financial planner and portfolio manager at Optura Advisors.
"If the motivation is to escape a bad situation at work or you are feeling burned out, then maybe a sabbatical or a career change may be the right solution versus retirement," he says.
Both options have benefits. A sabbatical could give you a true mental reset, allowing you to power through a few more years of work when you return and build a better financial plan before full-fledged retirement begins. A career change, meanwhile, keeps money flowing in while allowing you to do something more engaging or meaningful.
7. You're selling your life expectancy short
Your early retirement calculations might assume an average lifespan. But Chow says that if your numbers only work in that scenario, early retirement could be dangerous.
"Without planning for longevity, there is a chance of running out of money in the later years of your life."
"Today's actuarial tables used by life insurance companies go out to age 120." — Roland Chow
Before retiring early, test your retirement income plan against various lifespans — 90, 95, 100, and beyond. And don’t assume you won’t live well into your 90s just because your parents passed away in their 70s, either.
8. You and your spouse aren't synced up
If you’re married, you must discuss early retirement at length with your spouse before taking the leap. If you and your spouse haven’t shared each other’s vision for retirement, Chow says, then you may not be ready for it.
"Maybe your spouse would like to spend more time with the kids and grandkids while you prefer to travel and complete your bucket list," he says. "The spending priorities and time priorities need to be discussed to avoid relational strains and potentially financial strains while in retirement."
It’s also important to wrap your heads around the idea of seeing each other all day, every day, without the natural break work provides. You may want to intentionally plan some separate activities so you can enjoy your newfound freedom without getting overwhelmed by too much togetherness.
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