These days, early retirement is all the rage. The idea of ditching the rat race as soon as possible holds a certain allure. After retiring early, you could travel, spend more time with your kids, or do any number of things on your bucket list.
As attractive as this might sound, though, early retirement isn’t on my list of things to do. While I have nothing against the FIRE movement (financial independence, retire early), it’s not really for me. Why?
Simply put: I like my life, so the idea of retiring from it doesn’t hold much appeal. Especially when you look at the reality of what “early retirement” actually means.
The (research-backed) downsides to early retirement
When many of us think of early retirement, it’s usually framed in terms of leaving work and not replacing it with anything. The idea is that you move into “traditional” retirement mode at an earlier age, spending your days in blissful relaxation.
The problem with that, according to research, is that all sorts of issues can arise if you retire early and don’t have anything to replace your work with:
- Research from Boston College indicates that retiring early might be associated with earlier death, as well as higher rates of depression and diabetes risk.
- Other research at Boston College found that our social networks shrink in size after retirement, a situation that can also have an impact on our mental and emotional health.
- On top of that, research published in the Journal of Economic Perspectives found that early retirement led to a negative impact on cognitive ability for those in their early 60s.
Without something to occupy you, it’s possible you could run into a number of problems due to a more sedentary lifestyle and without work to keep your mind engaged. Of course, these outcomes are the result of retiring early with nothing to do. The key to early retirement success (at least when it comes to your physical and mental health) is to have something meaningful to do.
According to an independent report sponsored by the Corporation for National and Community Service, volunteering has many of the same benefits as working. So, even though there are some downsides to early retirement, they can often be offset by finding a purpose to keep your mind sharp, keep your social network strong, and remain physically active.
The good news is that most of the emphasis on early retirement these days is on escaping the traditional nine-to-five in favor of focusing on pursuits that have meaning. Few people want to retire early to do nothing. Instead, they hope early retirement can increase the amount of time they have to do things they find worthwhile.
Even with the idea of retiring early to do something I find meaningful, though, it’s still not high on my list of things to do. A lot of it has to do with the fact I have a lot of purpose in my life right now — and the reality that making the sacrifices needed for early retirement makes me feel tired.
Early retirement, financial independence, and what I’m doing instead
Even though reporting on FIRE often portrays “early retirement” and “financial independence” as the same thing, there are some who like to draw a distinction between the two.
For some, financial independence is the real goal. It’s about creating a lifestyle where you won’t be required to rely on a traditional job for income. By making lifestyle sacrifices, aggressively saving, and building an investment portfolio, some people can quit their jobs by the time they’re 30 or 40 years old. They can live off their investments and, as long as they continue to be moderate in their lifestyle, they don’t need a traditional job.
Other proponents of the financial independence movement employ other strategies, such as building rental empires, growing online businesses, or developing passive income. The result of this approach is that even if you retire early from a traditional job, you might not be done “working.” The difference is that you can pursue money-making or volunteer projects that appeal to you — and you’re also usually location-independent.
The reality is that FIRE isn’t a monolith, and there are many paths to retiring early and/or becoming financially independent. But even with that said, I’m not seeking to retire early or even trying to reach true financial independence anytime soon. Mostly because I’m not big into sacrifice, and because, for the most part, I enjoy my life as it is.
Part of my advantage is that I work online, doing something I love. I can write from anywhere, and I have a great deal of control over my schedule. Additionally, I’m to the point in my career where I don’t have to stick with clients I don’t enjoy working with.
It’s possible for me to be around for my son, volunteer in my community, and travel several times a year. Almost three years ago my travel fund allowed my son and me to go on a Viking River Cruise. When it was time for my son to upgrade his car, we were able to liquidate some assets and make the purchase with cash. If I want to get my nails done during the week, meet a friend for lunch, or take a volunteer shift with a local non-profit, I can simply rearrange my schedule.
Because of where I’m at, there’s no need for me to retire early or aggressively work toward financial independence. I work on diversifying my revenue streams and use investing to help me accomplish what I want today. Because I’ve taken steps to design my lifestyle this way, I’m not looking for an escape.
How my retirement planning impacts my investing strategy
If I were intent on retiring early or creating some sort of financial independence plan, I’d probably be investing way more than I am right now. But, as I just explained, I've developed a personal financial strategy that ticks all the boxes I’m interested in.
Don’t get me wrong. I invest about one-third of my income each month in index funds, ETFs, and real estate investing in the form of REITs. However, if I wanted to aggressively pursue a FIRE strategy, I’d probably need to cut back on some of the things I’m spending money on now and put at least half my income toward investing.
For example, I like living in my current house. It’s probably “too big” for my son and me, but it comes with lifestyle perks I like. There’s a spacious downstairs and my son frequently has his friends over. I like that I can keep an eye on the teenagers at my place. Additionally, we frequently host guests. I like that friends and relatives can comfortably stay at my house. In order to effectively FIRE, I’d probably have to move to a smaller place. It would cost less and I could invest the savings, but my quality of life would be negatively impacted.
As a result, I don’t save as much as some people, but I’m completely okay with that — and I’m confident in the method I used to create my retirement plan. Basically, I used a retirement calculator to estimate how much I need to put into a tax-advantaged retirement account (like a 401(k) or IRA) each month in order to have $1 million when I reach age 65. This doesn’t mean I’ll necessarily stop doing what I do when I hit 65. I just sort of picked a target that was doable and seemed reasonable, just in case I was forced to retire at some point.
I automatically transfer money into my tax-advantaged retirement savings each month, but I also make automatic transfers to the following:
- Health Savings Account: for tax-free gains I can use later as my healthcare costs rise
- Taxable investment account: 50/50 stock/bond split, invested with the intended use of spending on unexpected expenses
- Taxable investment account: 60/20/10 stock/bond/REIT split, invested for spending on traveling
Investing helps me live the life I want right now, without the scrimping and saving that often (but not always) comes with aggressively pursuing FIRE. Plus, taking this approach is a way to ease into the idea of setting up different accounts for various goals. Adding a taxable investment account to your planning adds flexibility, and there are plenty of places to open an account with a small amount of money. I use Betterment, but there are other options out there that might make sense.
Is early retirement right for you?
All personal finance is, of course, personal. What works for me might not be the right path for someone else. When deciding if early retirement is right for you, it’s important to take a step back and figure out what you want out of life.
Start with your values, priorities, and goals. My main priorities are my son, freedom and flexibility, travel, and community involvement. Because of my flexible work-at-home schedule, I can focus on my most cherished priorities without the need for making big changes in my life.
However, I recognize that my situation isn’t exactly common. If you’re struggling with a job you don’t like, and it’s taking up a lot of time you wish you could use for something else, focusing on strategies that help you achieve early retirement might make more sense. By making extra sacrifices for a few years now in order to accelerate your savings, you could be free of your jobs 10 or even 20 years earlier — and use that time to do what matters most to you.
For many people, the ultimate goal is freedom. If you don’t feel like your finances allow you to have the freedom to travel, pursue meaningful projects, or just enjoy time with your kids, some sort of FIRE strategy can make a lot of sense. But if there’s a lot you enjoy about your life right now, the necessary sacrifices may not pencil out for you.
The key is to determine what you want out of life, and then figure out what you need to do with your money to help you achieve it.