The average age of retirement for most Australians range from 60 to 65; however, people may choose to retire early with accordance to their financial planning scheme, life plans and insurance. While there may be excellent features available for early retirement planning, it comes with drawbacks too.
If you’re planning to retire in your mid-30s or 40s, it practically falls under early retirement. Early retirement is a process where you have to deal with a lot of factors starting from managing your income, to pay off your mortgage bills. Of course, you don’t want to enter your retirement phase with a hefty ton of debts and repayments pending.
Advantages of early retirement:
Retiring early can mean taking time off from the rigorous workload and stress. This can potentially positively boost your health issues. You don’t have to worry about rushing on breakfasts to get to your desk.
Leaving behind the 9 to 5 office grinds can mean you’re leading yourself to healthier morning habits. Retiring at 60 and over means having less physical ability to enjoy the time after you’ve finally gotten rid of the grind.
Early retirement financial independence hence supports to improve your mental wellbeing, as well as give you more space to figure out your physical wellbeing too.
More time oneself:
Being healthy and enjoying more time with oneself, and the family you so direly earn for. Having the resources and enough money to travel around the world can mean a lot when you’re retiring early.
You can take the time to travel to places and invest time in your hobbies. You no longer have to wait for a proverbial timeline for enjoying your vacation. With excellent mobility, you’ll most likely need no extra help with travel. You can create a bucket list and create a budget to fulfil the activities that you include in your bucket list.
While exploring everything you’ve ever wanted, you could also find out some new hobbies that you love. This could be hiking, painting or even sightseeing. Your hobbies can generate a source of income as well if taken with a grip to do so.
Starting a new career:
Many of us dream of creating something unique with our initiative, whether it’s starting a new business or shifting career paths, it could be done if you plan your retirement early.
This also expands your chances of upgrading your job positions having experiences beforehand. Whether you want to hop into a new career or to be your boss, you can take the opportunity of early retirement to shape your future.
With more time in hand, you can build a possible extension to your business (if you start one) and can even make investments in different companies. Years from where you start, you’ll have enough to cover yourself and can ensure a lifelong annuity within your means.
Starting a new path also means that you can diversify your experiences and can explore your options, which most of the citizens do not have the opportunity to do so.
Possible cons of early retirement:
Smaller social security benefits:
The earlier you retire, the lower will be the social security benefits. However, you can always begin your social security scheme much later after you’ve retired. For maximizing your future survivor benefit, the plan should be to save up as much as possible.
There are also pension schemes that come with a more considerable monthly benefit. The pension goes down when you plan to draw social security. Being aware of this helps you to understand that you’ll not get the full pension plus social security benefit.
Working during the early retirement phase can also have a significant effect on social security. You may find that your social security benefits have been reduced. This applies if your income is higher than the earning limit.
Finding health insurance:
If you choose to pick the path of early retirement, you do need to find health insurance that benefits you. When you’re employed, your employer assigns your company’s health benefits. Unless and until your ex-employer provides you with the health benefits, you’ll have to pay for the health insurance unless you get your eligibility at age 65.
This also means that you’ll have to look after your health. Health risks during the period of early retirement can cost you a lot since you’ll not be covered with insurance. Early retirement also recommends having emergency funds under your belt in case of any shortcomings, accident or health emergencies.
Insurance stocks are generally double or triple of the price of what you’ve paid at your workplace. Hence, if you’re considering retiring early, making sure you have enough funds for health emergencies.
Again, the most daunting factor within health insurance of early retirement is the rates climbing higher with age. It gets up to at least four figures every month after the age of 55.
You might end up getting bored:
When you get an immediate transition from hard grind to doing nothing at well, it does get tiring. The tiredness does not come from not doing anything in a day, but comes from the transition of the unstructured routine.
You might end up being not occupied with something to look forward to. The monotonousness of the unstructured life can also negatively impact one’s mental health. Mental health deterioration during early retirement can range from being anxious about getting hopeless.
Another factor that comes within the monotony is losing the workflow. If you see yourself returning to the grind mission, chances are; you’ll find it is much difficult to cope with the pressure of work.
Retirement savings to last longer:
Since retiring early means that you give your superannuation less time to grow with interest, it means that you’ll yearn less. The longer you work, the higher the savings, however, if early retirement is what you want to choose, make sure you have enough to cover your insurance and bills.
With time, living expenses seem to increase as well; hence, as much as early retirement plan gives you financial independence, it also contributes to increasing the costs of living.
Conclusion: While we don’t have control over a lot of things, we do have control over how we want to shape our future. Just like any financial decision, early retirement financial independence has its pros and cons. Be sure to know where you stand before any transition!