Retiring Early And Social Security – As soon as you hit life’s third staircase (By that, I mean the 30s), the thoughts of retiring early start hitting you. This usually is the time when you have to be realistic about your plans and the future. A good question to ask yourself is; what do you want with your life? Do they say life begins at forty but does it really?
While retiring early is great, experts say it’s not perfect. Why? Well, that’s why you’re watching this video today. You’re probably scared of making financial moves that will risk your future retirement plans, and your thoughts have probably turned to concerns. But before you make that big decision of retiring in your early 30s, why don’t you ask yourself these questions:
Can I afford to stop working?
How will I get health insurance?
Do I need to get a part-time job to make ends meet?
What will I do to occupy my time?
And most importantly, are my plans in sync with my spouse/partners? As you continue to answer these questions silently, here are things you must know about leaving work at a young age.
The 9 Scariest Things About Retiring Early And Social Security
1. Health Insurance is expensive.
If there’s something you need to factor in before retiring early is that health insurance is going to be expensive. This is because after you leave your full-time job, the job will no longer be providing health insurance for you. And even after knowing that and budgeting for it, it still becomes difficult for some to keep up. If you get lucky to have insurance that can extend your insurance coverage, it’s very costly for a single person, and chances are that it won’t cover you until you’re eligible for Medicare at age 65. Sad, right? So how you’ll get health insurance after retiring is a critical consideration for anyone who wants to retire early.
Before you make that decision, you can visit several health insurance marketplaces or talk to experts. You may get an idea of what you may need to budget for. Things get easier when you have a full-time working spouse as you can always exchange roles and let them be the ones to provide health insurance through their job.
2. You sacrifice the power of compounding interest
I know this may seem harsh, but when it comes to growth and success, time is your friend when you’re saving for your retirement, and not when you’re spending. Which is something you’ll be doing a lot when you retire. Don’t worry, we’ll talk about that in a few, but first, let’s talk about the power of compound interest.
What’s the meaning of compound interest?
Well, basically, It’s interest earned on interest. If you’re saving, compound interest is the money you earn in both your original money and the interest that keeps accumulating over time. The longer you retire, the higher the interest. For instance, let’s assume you earn an average of 6% annually on your investments.
That means that if you save from 25 years old, $250 a month, which is $3,000 a year, by age 55, you’ll have about $237,000 when you retire. That’s not a bad return on your $90,000 in contributions, right? Okay, let’s say you work for 10 more years and retire at 65. More money, right? So how about when you retire at 40 instead? That’s less money. Now you know how a decade’s worth of contributions helps. Keep in mind that after you retire, there will be more spending than saving. If this excites you, continue watching to find out more about that.
3. You’ll have to make your savings last longer
Like we’ve said, the earlier you retire, the less money you have. That’s unless you’re Mark Zuckerberg or Elon Musk. We all know that the human life expectancy is around 86 years, depending on the country you’re in. The ugly truth about retirement that nobody will ever tell you is that the longer you live, the more you have to shell out to fund your extended golden years. Sad, right?
This is something you’ll have to consider before retiring early, and we’re going to talk about it in the next few. Now, if you retire, let’s say at 40, you’ll have no choice but to stretch your savings to last for 46 years. Taking the example we did previously, you have $237,000 at your retirement. Will it be enough to serve you for 46 years? Well, we won’t answer that for you.
4. You’ll spend more money than you think
In the early years of retirement, when you’re still young, you’ll want to spend your money on travel, home renovations or relocation, and other retirement-related lifestyles. Like Sean Pearson said, Every day is Saturday when you retire. What he meant was that once you retire, all your days will look like a Saturday. For example, when you don’t have anything to do, you just pick any work around the house to keep yourself from being idle. It’s also a day considered to be fun and social, and we all know that whether fun is involved or not, money isn’t far away from it.
These are the reasons why Saturday is the most expensive day of the week. Now, imagine all your days are Saturdays when you retire, you’d probably spend as much as or more than you did before retirement. Though you’ll be happy that you won’t be paying social security payroll tax, saving for your retirement, or commuting every day, your money will go to things you don’t even need, and if you have no more money, that would be the end of your financial move.
5. Housing expenses don’t go away
Another thing you should know is that retiring doesn’t mean that the housing expenses go away. Whether it’s mortgage, repairs and replacements, and not to mention groceries! They never end! First of all, retiring without a mortgage should be a goal whether you’re thinking about retiring early or later. This puts you in the safe zone of life after retirement. But apart from that, we have the home maintenance and increasing property taxes which, if you didn’t know, can take up a large chunk of your budget. It’s advised for homeowners to put aside 1% of their home’s purchase price annually to cover repairs and replacement.
That will be $4,500 per year on a $450,000 house. Not forgetting the small but expensive home shopping you have to do every month for the rest of your life.
I bet you’re thinking right now that, growing up sucks.
6. Part-time work can be a challenge
If you’re thinking a part-time job after you retire is the way to go, then we want to tell you that it’s not as easy as it seems to be. It’s a challenge that only 27% manage to overcome. This is because part-time jobs may require a commitment to a schedule that isn’t flexible, and one thing we know about retirees, they love to enjoy their sweet time completing that bucket list they wrote in their mid-twenties or visiting families.
The inflexibility of a part-time job has surprised many early retirees, and those who managed to overcome the challenge had to cut into their retirement goals. Unless you’re earning millions whilst on your retirement, then you need a part-time job if you don’t want to be declared bankrupt by age 45. Otherwise, the income void will never be filled since you’ll need to be 62 to claim retirement benefits. Though you can risk a reduction of 30% if you claim it earlier than at 62, it’s not considered a wise path to take.
7. Do you have a plan to pass time?
We mentioned earlier that retiring makes all your days feel like Saturday. Apart from spending time, Saturdays are usually boring. Before retiring you were used to working Monday to Friday, but now that you’ve retired, you have a 40-hour gap in your week that you need to fill up with something else. And not just one week, but the many years you have ahead of you. You need to think of a hobby, whether it’s joining the golf club or book club, you need to make sure you have enough activities to keep not only your mind but also your body and spirit occupied.
We all know that an idle mind is the Devil’s workshop, and we don’t want that mind to wander in places it’s not supposed to be. You’ll have to plan your life and make it busy. Go to the gym in the early mornings, lounge by the swimming pool at mid-day, go on long walks in the afternoon, and even curl up on the couch with a good book in the evening.
You could also volunteer or go back to school, in short, just keep your mind busy or better yet, come up with a plan in advance of retirement. If you had the chance to retire early, how would you spend your days? Let us know in the comments below, and be sure to give us a thumbs up!
8. You may need to make new friends
Passing time isn’t an issue. The big question is, who will you be passing time with?. After retirement, doing all this stuff will be pretty boring if you don’t have someone to keep you company. Don’t forget that because you’ve retired early doesn’t mean that your spouse or friends have. The people in your small circle don’t have the same luxury as you and thus won’t always be available for a dip in the swimming pool.
This will force you to make other new friends, and most of the time, these friends are usually people above your age bracket. For example, if you retire in your 40s, the only people you’ll play golf with will be those in their 60s or 70s. They’re the only age group not occupied with the nine-to-five job. So, like it or not, your new friends will be significantly older than you are. You’ll be forced to start the friendship thing all over again, which isn’t a bad thing, but be sure to have a different set of expectations about everything.
9. Retirement can be tough on couples
Lastly, if you have a significant other, the road after retirement isn’t easy. It’s a major life transition that requires both you and your partner to be patient with each other. It’s not like in the movies where it’s all fun and lovey lovey-conveyer you’ve both retired, or one of you has retired, changes around the house will have to be made. If you’re the retired one, things will seem overwhelming as you may be the one handling most of the work while your partner is busy at work.
At times you may even feel lonely, and this might not turn out well for you. If you’re both retired, work around the house might have to change. You’ll have to decide who works on what and where with cleaning, cooking, and all other house chores. It’s at this time that most couples start having problems, and divorce issues arise. Most retired couples never want to be together 24-7 because of the small quarrels that arise every day with house chores and other things.
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