Many older workers were pushed into retirement after losing their jobs, and others may have had health concerns. Still, it appears that work-related stress and the emotional toll of the pandemic caused a lot of people to rethink their priorities and their retirement timelines.
How do you know if you can realistically afford to retire early? First and foremost, determine whether you will have enough income to support the lifestyle you envision. Instead of accumulating assets, you may have to start draining your life savings to cover living expenses. Here are four important factors to consider.
You may be sacrificing years of future earnings and contributions to your retirement accounts. For example, an early retiree who was making $80,000 per year would forgo about $400,000 of salary over five years or $800,000 over a decade, not counting cost-of-living or merit increases.
The 10-year total rises to nearly $1 million when annual raises averaging just 3% are included.
If the same retiree could have contributed 5% of salary to an employer-sponsored retirement plan with a 100% match, he or she would also miss out on $8,000 in combined contributions in the first year, more than $40,000 over five years, and almost $100,000 over 10 years.
If you are still paying a mortgage, have other debts, of are supporting children or aging parents, you may not be ready to retire. Ideally, you should be free of “extra” financial responsibilities so you can focus on meeting your own living expenses without a regular paycheck.
The bottom line is that some people might be giving up more than they realize when they retire early. Before you say goodbye to the working world, be sure you have the resources to carry you through the next phase of your life.
1) https://www.census.gov/data/experimental-data-products/household-pulse-survey.html
2) https://www.ebri.org/docs/default-source/fast-facts/ff-356-savingstargets-25jun20.pdf?sfvrsn=4d873d2f_4
3) https://www.kff.org/health-reform/issue-brief/impact-of-key-provisions-of-the-american-rescue-plan-act-of-2021-covid-19-relief-on-marketplace-premiums/