Common myths about early retirement can shift the way people think about their finances and change the decisions they would make if they knew the truth.
These decisions can swing in both directions, too. You might continue to work a job you hate so you can afford retirement later or leave your job too soon, thinking you can live only on Social Security.
Here are 12 common myths about early retirement to help you see if you can retire early.
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You will pay fewer taxes
Just because you retire doesn’t mean you’re off the hook for taxes. Some pensions are taxable on the federal level and withdrawing from your 401(k) can increase your tax burden.
If you have other income, such as from dividends or interest payments, some of your Social Security benefits may also become subject to tax.
Where you live can also impact your tax burden. Some states impose income tax on retirement income, and others don’t tax income at all. If you decide to move in retirement, you could end up paying more than you plan for.
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Retiring will make you happier
Some people choose to retire because they think it’s the only way they can find happiness. This isn’t always the case. You might have hated your job but find yourself still unhappy during retirement.
If happiness is a driving factor for wanting to retire early, consider whether having a job is really why you are miserable. Working remotely, starting your own business, or relocating might provide a better result.
You will run out of money
While it is true that running out of money during retirement is a possibility, you can take the necessary steps to ensure financial security while you live out your golden years. You can start saving early, pay down debt, and budget wisely before you retire.
You can also continue making money during retirement if you made wise investments or secured passive income streams before you took the plunge.
Some retirees choose to open their own businesses or rent properties for additional income too. Being retired doesn’t mean you can’t ever make more money. If you add money to your savings now you can be in a much better position for retirement later.
You won’t have health coverage
Retiring early can cause you to lose health insurance through your employer and in most cases, you won’t qualify for Medicare until you reach 65.
But that doesn’t mean you won’t have insurance. If you retire early and lose your benefits, you can purchase a plan through the Health Insurance Marketplace or directly with a carrier.
You can also use a Health Savings Account (HSA) to help cover medical expenses when you retire early. HSA distributions are not subject to federal taxes when used for qualified expenses.
You’ll be lonely
Loneliness during retirement is often depicted in movies and on TV, but retirees can socialize like anyone else. When you’re retired, you get to make all the decisions about how to spend your time.
If you mainly socialize at work, you can choose to spend time with others by volunteering or participating in activities that you’ll now have the time for.
Keeping your loved ones close before retirement can also reduce loneliness later. If loneliness is a concern, consider retiring somewhere close to the people you care about.
You can live off Social Security
Some people think Social Security retirement benefits will cover all their expenses in retirement. Social Security was not designed to replace the income you earned while you worked.
You will need to supplement retirement benefits with other income to maintain your pre-retirement lifestyle and retiring early might not be an option if you haven’t planned ahead.
Some people choose to invest or continue working after retirement in order to make more money and stretch their funds. Regardless of your plans, a healthy amount of savings is essential for ensuring you can keep up with your cost of living.
You won’t be able to work
Not all retirees quit working. Some continue to work full-time, others part-time, and some even go back to school and start brand-new careers. You can work as little or as much as you’d like once you retire.
However, keep in mind that continuing to work can increase your tax burden. But it can also help you save more money and fill your time if you’re bored or need something to do.
You’ll experience a lower cost of living
Retiring doesn’t magically lower the total cost of living that continues to rise. Your routine and daily expenses may change but you will still need to pay for your house, food, and activities.
You may no longer need to commute to work but you could find yourself spending just as much money filling your time with entertainment or commuting elsewhere.
Inflation will impact your cost of living over the next several years, and so will your location. Relocating to another area can stretch your dollar further or cause your savings to deplete faster.
You’ll have too much time
There is no such thing as having too much time, even in retirement. You will just have the freedom to decide what to do with your time.
Retirees can do the same things non-retirees can, including working, volunteering, and enjoying hobbies. However, retirement is also a great time to pursue new passions or hobbies that you never had time for.
You might discover a new activity or interest that brings you joy and fulfillment. Time is an opportunity that many working people would like to find more of.
You won’t have money for extras
Retiring early doesn’t mean you can never afford to spend money on extras. While you should spend wisely, you can account for these extra expenses when planning for retirement.
You can determine before retirement how much you will need to save and how much you need to supplement to live the lifestyle you want and then create the right budget for you.
You won’t need to save anymore
You never know what emergency expenses might arise, even after you retire. Continuing to save during retirement can help you prepare for a recession or other unexpected events, and improve the chances of your retirement lasting longer than you had planned.
You can save money whether or not you continue working. If you can’t put away extra money every week, you can at least save money by budgeting more carefully to make your money last longer.
It’s always best to wait to retire
Retiring later can result in larger Social Security benefits and more money in savings, but it isn’t always the best idea. There is no point in waiting to retire if you don’t expect to live long enough to enjoy the additional money.
If your job impacts your physical or mental health, it might also make sense to leave earlier. Other people find it best to retire early when they need to take care of loved ones or want the time to start their own business ventures.
Regardless of your plans after retirement, it is essential to prepare as early as possible. If you make the right money moves now then it can allow you the opportunity to retire early later.
You might find it best to work with a financial advisor to assist in your retirement planning. If you choose to go it alone, educating yourself and estimating your benefits can give you a better understanding of what your retired life will look like.
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