As you surf around the web these days you can not help but fall on personal finance blogs talking about early retirement. I have no fundamental issue or concern with this take. But, in interest of fairness I wanted to create a post on the downside of early retirement. Besides, most of my fellow Personal Finance blogging brethren are off at Fincon, so I couldn’t help but have a little fun. Particularly I wanted to focus on the benefits of having full-time job.
Pay, the Obvious Downside of Early Retirement
When you retire you lose out on all the benefits of regular employment. Some of these are readily apparent. Without a full-time job you will lose your full-time pay check. You might be able to find a secondary source of income but it is highly unlikely you will fully replace your income. Still this is the most obvious loss and the one for which people are most prepared.
Health care, an Added Cost in Early Retirement
You also lose out on health care. Given our current health care environment this can be a significant cost beyond your normal expenditure level. Still unless you are living under a rock it is highly likely you will expect and prepare for this loss. The magnitude may be a surprise, you should expect to spend 10-20K a year on health care for a family in retirement. You may or may not find subsidies to help you in this expenditure depending on your retirement age and plans.
Sense of Self and Purpose
But the items you give up are not limited to direct income. Another potential downside is a sense of accomplishment. Now some who are pursuing early retirement will point out, this is something you can potentially replace. However, this is one of the reasons it is so critical to retire to something. All too often people retire and then soon their after they go back to work, converor worse, kick the bucket. Not having a purpose is a quick ride to one of these results.
Sociality in Early Retirement
Beyond a purpose there are interpersonal considerations. In some cases the majority of a persons’ friends are at their workplace. After all, other than our family we spend more time with our workmates during our career then anyone else. Worse still most people your age will likely still be at work during your days. Leaving the work force can leave you with a feeling of isolation. As you stay home, others will go to work leaving you without your normal friends to interact. Meeting new friends is also a challenge. I suspect early Retirement with a spouse or other family might help here. Still lonliness and depression would be a major downside if they materialized.
Non Financial and Psychological Loss of Benefits in Early Retirement
Beyond person experience and costs you will also lose out on other indirect benefits. Some of these include:
- Potential discounts on certain services and products. Every employer I have ever worked with has had deals for their employers from local or national retailers.
- Reduction in Travel miles. If you are like me and do a lot of international travel then you collect miles and hotel points for later use. That source of free vacations will potentially dry up in retirement. You may be able to replace some of this with travel hacking.
- The occasional free meal or other perk related to something you are specifically working on.
- Travel to certain locales you may not otherwise visit. As discussed I’ve done a large amount of international travel for work. I have no doubt I would do a lot less if I paid my own way.
- Potential matches for charitable donations. I’ve worked for several companies that will match and magnify my charitable contributions up to a certain point. Your mileage may very here.
- Life insurance and disability insurance. Many employers offer these as part of your pay package. If you require such things for some reason, and are not otherwise self insuring, then these can be significant benefits.
- Some employers offer services like family counseling, money for adoptions, and other ancillary services. Depending on your situation these can change your financial situation significantly.
- It’s harder to contribute to tax advantaged accounts. Without an income you cannot insert additional funds into many tax advantaged accounts. This may impact your tax planning depending on your current situation.
- Some employers offer cell phone service. Currently we have this perk as some of my projects involve mobile apps. A free iPhone and monthly service can save you considerable cash. There is of course a down side of potentially being always on.
- Loans may be harder to obtain. Many loans seem to focus more on your income then your assets. As such you may have difficulty getting a new loan for a car, home, or other large item.
While there is a downside to early retirement, it might still be worth pursuing
By this post I do not mean you should not consider early retirement. This post is more meant as a prep. If you are pursuing or entering early retirement it is best you go in with eyes wide open to the downside.
Can you think of any other benefits or downsides? For those considering early retirement have you considered how you will replace these things?
I have a company laptop and use it for both (work and personal use) when I am on travel.
I think the hardest would be the non-financial losses, everything else you can easily replace if you need to:)
I think for me when the time comes it will be the people.
There are certainly advantages of staying in the work force which you have pointed out quite well.
It was shocking when I first read some studies that early retirees have a decreased life expectancy. Seemed counterintuitive. But loss of social interaction and sense of purpose can certainly contribute to that
That stat scares me. Then again I’ve known a handful of people that didn’t make it more then a year after retirement, so perhaps its not that surprising.
The biggest downside for me is the social aspect. I don’t have as many people to talk to now. But I did make some new friends from my kid’s school. That’s one way to replace work friends – other parents. If you don’t have kids, then I don’t know…
Another big downside is your brain will slow down. When you’re working, there is a lot of stress and your brain has to cope with that. With no stress, the brain slows down and eventually, you won’t be as sharp/smart. Work is exercise for the brain.
That is an interesting and very good point about brain slowdown. How does one continue to exercise their brain in retirement?
You have to keep learning. I read that going back to school is a great way to challenge your brain.
I think being a creator works really well too. Blogging, wood shop, etc… You need to keep using your brain.
i don’t know who i would hang out with monday through friday if i wasn’t going to a job. if the job was terrible i would quit and do something else but it’s minimally annoying at worst.
we don’t have family here in our town or kids so it would be all leisure time at this point. we’re working on figuring out a loose lifestyle when we call it quits, including practice retirements.
I think your on to something with practice retirements.
Loss of company vehicle is a big one for me. I haven’t had to pay vehicle expenses for the last 10 years so will be a bit of a shock to the system
Thats a good one, albeit perhaps more common in some countries or roles then others.
For me, money will not be a driving force to think about retirement. I believe I cannot sit idle or slump over a book all day or vacation somewhere during my retirement. I would still want to work – not as heavy as I am doing right now – but something to help me get the time by. Money wouldn’t matter then as I have a fairly sound retirement corpus built.