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The danger of retiring too early

It’s likely that you’ve read articles outlining the steps you need to take to be able to retire early.

On the face of it, it’s an appealing proposition. If you’ve always had a target date in mind when you intend to stop work totally, deciding to aim for a date prior to that, and to reduce the time you’re in work, can have its attractions.

By way of balance, however, read on to discover why early retirement may not be right for you and why it’s possible for you to retire too early.

Ask yourself why you want to retire early

One often-cited reason for wanting to retire is not enjoying your current job.

It’s an understandable reaction. Work can define who you are, and gives you structure and financial stability. So, if you aren’t enjoying what you’re doing for seven or eight hours each day, then wanting to pack it all in and retire instantly is a reasonable thought to have.

However, one job isn’t necessarily the same as another. Even if you’re of an age when stopping work totally could be an option, there’s nothing to stop you finding another job that is much more rewarding, or looking for another opportunity with your current employer.

Your remuneration may be a possible barrier to this, but you may find that taking a reduction in salary is worth it for a more engaging and rewarding job with less stress.

Working patterns are changing

Another driver for thinking about retiring early could be that you’re tired of the daily grind, even if you do enjoy your job.

The routine of commuting into work, working your hours, and then reversing the journey can be an ongoing challenge. This can be accentuated during the winter months when you’re leaving the house before it gets light and returning in darkness.

One positive outcome of the pandemic, however, has been a growing realisation that many jobs can be done at home just as easily as in an office. So, working from home could be a positive alternative to stopping work entirely – even if you still visit the office a couple of times a week.

Financial independence could be a chimera

It’s likely that one of the articles you’ve read extolling the benefits of early retirement has referenced the “FIRE” movement that has gained a lot of publicity in recent years.

FIRE stands for “financial independence, retire early” and highlights the attraction of managing your finances in such a way that you reach a position of having the financial freedom to stop working when you’re as young as 40.

Superficially, only working for around 25 years and then potentially having at least that amount of time living a life of leisure sounds an attractive idea.

There are some catches, however.

For one thing, the journey involves a lot of self-denial and financial discipline.

Few FIRE case studies involve having a family. If you have children of your own, you’ll know only too well how the cost of raising them will blow a big hole in most ideas of stopping work at 40.

On top of that, your family gives you meaning and motivation, as well as a huge amount of enjoyment. Forgoing that in the name of financial independence may not be for everyone.

It’s important to live in the present

Another issue with overly focusing on retiring early is that it’s easy to become too fixated about your financial status at the expense of other areas of your life.

In the same way as I’ll regularly advise you not to repeatedly check your investment values, there’s a similar danger in continually obsessing about your net worth. It can mean that you set an unrealistic target to achieve by a certain age and could potentially lead you to forget to make the most of what you’re doing now.

Your time is finite, so it’s important to make the most of it and not to spend too long thinking forward and ignoring the present.

What will you actually do in retirement?

I’m always stressing about how important planning is to you. That’s my job.

As well as planning for retirement  – getting there and ensuring you have the means to enjoy it and not run out of money – you also need to plan for what you’re going to do once you do stop work.

The ability to be able to rest and relax is clearly important, particularly if your current job involves a lot of high pressure and stress.

It’s also important to think about your mental health and ensure that you’re going to get sufficient stimulation to keep your mind active. Additionally, you’ll want to stay physically active.

By not planning ahead, you could well end up becoming bored, and regretting your decision to retire.

Your finances need to add up

Any decision you make to retire early needs to be underpinned by financial security. If you’re really adamant that an early retirement is something you want to do, then it may be possible to make the maths add up – but planning ahead is close to essential in order to be able to take such a step.

It’s important to remember that retirement doesn’t have to be binary. Pension Freedoms legislation means that it’s possible to create a flexible or “phased” retirement that involves you being able to enjoy some of the benefits of retirement without having to stop work totally.

If you have sufficient means, there may also be the option of taking a sabbatical from work and recharging your batteries before going back to work full-time for a further period.

Regardless of what you decide, having a robust plan in place that defines how and when you’re going to retire can make the process much easier.

Get in touch

If you’d like to talk about your retirement plans, then please get in touch.

You can call me on 07769 156 250.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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