Retiring early can be the best decision ever – or a choice you’ll regret. The outcome depends on whether you are truly ready to leave the workforce at a young age or whether it leads to financial disaster.
So how do you know if quitting work earlier than most people is a good option or if it will doom you to a lifetime of money worries in your later years? Be on the lookout for these three big signs that early retirement isn’t a good idea for you.
1. You don’t have enough savings
If you’re leaving the workforce at a young age, making sure you have a high investment account balance is key.
Your savings will have to support you for many years if you retire early, and the last thing you want is to spend it all when you would have been young enough to work and reach late retirement and be unable to support yourself. Where to find a job.
To ensure you have enough savings to cover costs for the rest of your life, choose a conservative withdrawal rate and see if you will generate enough income from your investment accounts each year. Unless you are sure you can easily withdraw sufficient funds to cover your costs without drain your account balance, early retirement could be a huge mistake.
2. You don’t have a medical insurance plan
Most people define early retirement as occurring well before age 65. The only problem is that you don’t become eligible for Medicare until then. Before that time, you will have to find something else for the insurance.
You may be able to stay on your current employer’s plan under COBRA, but this is usually only an option for about 18 months, so it may not be a long-term solution. . Premiums will also generally be higher than what you paid while you were working, because chances are your employer subsidizes them and will stop doing so when you retire.
If your spouse is not retiring early with you, getting coverage through their employer may be a viable option. But often, early retirement is something both partners pursue together, meaning you’ll have to buy individual coverage elsewhere.
Obamacare marketplaces offer options during open enrollment periods and anytime during special enrollment periods for those who have lost other eligible medical coverage. You may even be eligible for grants to cover premium costs, depending on your income. But the plans available to individuals may cost more than what you pay for employer insurance, and may not provide as extensive coverage or as wide a network of providers.
Since medical coverage can be a very sensitive issue for pre-retirees, you could end up seriously regretting your decision to leave work early if you forgo employer-provided health benefits without a detailed plan to replace them.
3. You have no plans for how you will spend your time.
Finally, if you don’t know what you’ll do with your days after leaving the workforce, you might end up wishing you still had the structure and social connections that a job provides. For many people, early retirement is better in theory than in practice, and they get bored and depressed once work has no purpose.
If you’re just hoping to leave your current job but don’t have a clear idea of what you want to do in early retirement, you might be better off changing careers than leaving the working world altogether.
If you spot any of these three red flags, you should be sure not to rush to give notice. Instead, take the time to really think through all of your options — and the consequences of quitting your job for good — to maximize the chances of making the choice that’s right for you.
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