Early retirement is a huge lifestyle choice, and it means quitting work and living the next 40 or 50 years without a full-time job.
It sounds good on the surface. And for many early retirees, they are having the time of their lives.
Typical early retirees have expert-level knowledge of cash flow (in other words, money in vs. money out). They are either debt-free or have minimal debts. Many use the power of automation to put their financial lives on auto-pilot. And, they have a vastly diversified collection of investments in the stock market or real estate.
Early retirees have a good grasp of money. To retire early, you need to.
But, early retirement also won't be for everyone.
In fact, there are several reasons why early retirement might not be in your best interest.
Let's take a look at those below.
6 Reasons Why Early Retirement Isn't for You
1: You Love Your Job
There is nothing wrong with loving what you do for a living. In fact, that's good. In 2019, a national survey found that 85% of people are generally happy with their jobs.
And, if you don't see yourself ever quitting your job because you love it so much, then early retirement probably won't improve your life. In fact, it might just make it worse because you will no longer have the job you love in your life.
If you love your job, keep working!
2: Your Job Is Your Life
Like #1, if you don't have any hobbies outside of your job, early retirement will be awfully frustrating.
Without a job, the responsibility to fill your day with activities that make you feel productive is entirely yours. And, it might not be as easy as it sounds. We can only binge on Netflix for so long before we need to find something meaningful in early retirement.
And for most of us, watching television, isn't it.
If you don't have hobbies to fill your time with, then your job might be providing you with exactly what you need. And, that's purpose.
3: You Don't Have the Money
This might go without saying, but it's an important topic with a lot of nuances. If you don't have an emergency fund, then you are living your life at risk. But even if you do, we cannot control the stock market or our investments.
According to a Bankrate survey, Americans are largely unprepared for an emergency. Less than half of those surveyed said that they could pay a $1,000 emergency from savings. Most would need to finance the expense, reduce their spending elsewhere, or borrow from friends or family.
Also, don't let a high salary fool you into thinking that you have enough money.
According to a Nielsen study, a quarter of families that earn north of $150,000 still live paycheck to paycheck. According to a GoBankingRates study, almost 25% of folks who earn more than $150,000 a year have less than $1,000 in their bank account.
Americans with a net worth of $100,000 to $199,999 are much more likely to carry credit card debt, arguably the most debilitating type of debt in existence.
High-income earners are not immune to financial struggles, including debt. And, these struggles could push early retirement out of the realm of possibility.
If you don't have enough saved savings accounts and an investment portfolio, then early retirement may not last very long. Remember that due to major advances in healthcare, we are living longer these days. Do you have enough money to live for the next 50 years without a job?
For most people, healthcare is one of the most expensive budget items in our lives. On average, it costs almost $4,000 to stay in a hospital overnight, and the average stay in a hospital is over $15,000.
Clearly, those costs add up quickly, and health insurance is a critical element in making sure we don't go broke after a health emergency.
If you cannot afford a costly hospital visit without a company-sponsored healthcare plan, then early retirement may not be in your best interest. At least, not right now.
5: Your Lifestyle Is Too Expensive
If you are used to season tickets to your favorite sports team, going out for pricey meals, and taking ritzy vacations, then early retirement may not be possible.
Your lifestyle is the “accounts payable” portion of your life. It’s not profit. Your lifestyle (such as your home, car, the things you buy, the vacations you take, etc.) all need to be funded. Your lifestyle takes away from the wealth you need to quit your job early in life.
Without a consistent paycheck to fund your lifestyle, we need other income sources to support our life.
The more expensive our life is, the more money that we'll need to support it.
Early retirees generally live frugal lifestyles. Before retiring, they downsized their life and took stock of what means the most to them.
6: Your Money Is Tied up in Retirement Accounts
Retirement investment accounts like 401(k)s and Roth IRAs are wonderful ways to save for retirement. We cannot withdraw money from those accounts before 59 1/2 without paying an additional 10% penalty.
There are ways to get around those penalties, as the Roth backdoor conversion ladder and taking Substantially Equal Periodic Payments. Still, those options may not be wise, depending on your financial picture.
Early retirement requires freely available money in accounts that we can easily access, such as our checking account, savings account, or any number of investment accounts. If most of your money is tied up in long-term accounts with early withdrawal penalties, then early retirement may not be possible.
Early retirement is right for many people, but it won't be right for all of us. Challenges exist even if you do not hold down a full-time job. And, the early retirement lifestyle will not work for all of us.
Take a step back and analyze your life and what truly makes you happy before making the jump. Quitting your job (and your only significant source of income) is a big step, after all.
Make sure it's right for you.
Steve Adcock is an early retiree who writes about mental toughness, financial independence and how to get the most out of your life and career. As a regular contributor to The Ladders, CBS MarketWatch and CNBC, Adcock maintains a rare and exclusive voice as a career expert, consistently offering actionable counseling to thousands of readers who want to level-up their lives, careers, and freedom. Adcock's main areas of coverage include money, personal finance, lifestyle, and digital nomad advice. Steve lives in a 100% off-grid solar home in the middle of the Arizona desert and writes on his own website at SteveAdcock.us.