What with business disruptions from the Covid-19 pandemic, high rates of extreme employee burnout, and the increasing popularity of the FIRE community (which stands for Financial Independence, Retire Early), the concept of early retirement is a hot topic in 2021.
Although many people in 2020 and 2021 were forced to retire early against their wishes, others are sitting in their office spaces dreaming of the day they can walk away from their job forever and spend the rest of their lives doing exactly what they please.
So is “early retirement” a devastating mandate imposed on workers by struggling employers? Or is it instead a wishful daydream – something wonderful that can be attained while still ensuring a secure, enjoyable lifestyle?
Unfortunately, the answer may be both. The truth is, early retirement can mean different things to different people. Below, we discuss different ideas of what early retirement really means, as well as 4 lifestyles prospective early retirees may choose to explore as they consider how they’ll spend the extra time they gain in early retirement.
What Is Early Retirement?
From a government agency perspective, early retirement may mean anyone who retires before age 65. Age 65 is considered a traditional retirement age because this is the year when seniors can enroll in Medicare benefits.
Likewise, prospective retirees won’t be able to claim their full Social Security benefits until age 65, 66, or 67 (your full retirement age depends on the year you were born). As full retirement ages are pushed back by the Social Security Administration, some people may even start to consider 65 an early retirement age.
And finally, regulations governing tax-deferred and tax-exempt retirement accounts disallow individuals from withdrawing money from their retirement accounts before age 59½ without paying steep penalty taxes to the IRS. It’s usually never a good idea to pay penalty taxes, as these can significantly reduce your nest egg. So for individuals whose assets are mostly held in retirement accounts, early retirement may be anytime before age 59 ½.
But many people dream of reaching retirement in their 50s or even their 40s. Anecdotal evidence shows that retiring in your 40s isn’t entirely out of the realm of possibility – although those who have done it will tell you it’s not the easiest journey.
The bottom line is that early retirement means different things to different people. To some people, early retirement may mean retiring any earlier than age 65. To others, early retirement may mean having the ability to retire in their 40s or 50s. Ultimately, your definition of early retirement may also depend on your particular career or other personal circumstances.
What Can Early Retirement Look Like For Me?
Similarly, your vision or understanding of early retirement may also look significantly different from others’ understanding. For some, retiring early is simply having the financial capabilities to retire from an unfulfilling corporate job and pursue a lower-paying job they actually enjoy.
For others, early retirement truly means retirement, in which they’re financially independent to the point of not having to work at all.
Just as your definition of early retirement age may be unique, your idea of what early retirement looks like may differ from others’ ideas. To illustrate how early retirement might look different in more detail, here are 4 ways some early retirees have designed their lifestyles so they can enjoy their best life.
1. The Work-Optional Lifestyle
To many people, early retirement does not mean leaving the workforce entirely. Instead, early retirement provides them with options. This can mean only working as hard and as often as you want at a job that is currently too demanding without having to rely on the paycheck.
Or it can mean having the ability to work a lower-paying job that is more fulfilling – whether that be creatively fulfilling, philanthropically fulfilling, or something else. Many early retirees find that when they’re not depending on the paycheck to fund their lifestyle, they enjoy lower-paying jobs such as part-time or substitute teaching, part-time retail work, or gig jobs like event planning.
For others, the ability to retire early can provide the freedom and confidence needed for individuals to start their own businesses. Without the pressure of needing to be immediately successful, new entrepreneurs can build a business at their own pace and with other priorities besides the need to produce substantial income.
2. The Passion Project Lifestyle
Similarly, some early retirees prefer to use their early retirement time to pursue passion projects they otherwise wouldn’t have time for. As stated above, many early retirees’ passion projects are small businesses. Without the pressure to produce needed income, early retirees can build businesses they simply enjoy running.
Other retirees start blogs, write books, pursue interesting hobbies, or explore new learning opportunities, such as learning a new language or auditing university classes. Retiring early also affords people the opportunity to spend more time volunteering, getting involved with, and giving back to their communities with their time.
3. A Life of Exploration
Individuals with the travel bug use early retirement to explore the world. Some early retirees even sell their house when they retire and instead opt for a more nomadic lifestyle by purchasing an RV or even a live-in van. (Of course, this isn’t for everyone!) Others prefer using traditional modes of travel and the convenience of having a house to return to.
Living a life of exploration doesn’t have to mean travel, either. Some early retirees use their extra time to explore their communities. They try new restaurants, new experiences, and new kinds of entertainment they never had time for before – right in the comfort of their hometowns.
4. A Life of Leisure
And of course, many retirees simply dream of the possibility to live a life of leisure. Whether that’s being able to spend hours a day reading books, enjoying the sunshine on a golf course, spending time with kids and grandkids, or any other leisure activity that brings you joy, the freedom of early retirement puts you in complete control of your time.
Want to Talk About Early Retirement? Contact Caviness Wealth Management
At Caviness Wealth Management, many of our clients dream of retiring early. Of course, early retirement comes with its challenges, so individuals and couples hoping to retire early must develop sound plans and strategies to achieve this dream.
If you’d like to discuss your dreams of early retirement with a financial planner who understands the challenges you might face, schedule a conversation with me today.
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.
