Finance expert shares why early retirement could be a bad decision for certain Brits | Personal Finance | Finance
With the minimum state pension age looking to rise consistently over the next few years, many are satisfied with the fact that they will be working far longer than they planned, however others are planning to ditch this entirely. Unbiased CEO and founder Karen Barrett shares just what it means for a person’s finances to retire early, and why it could be a terrible decision for some Britons. An early retiree has also revealed what it feels like to drop out of the rat race prematurely.
Many dream of early retirement: being able to quit their job and enjoy life before their golden years set in along with all the detriments of old age.
However, the cost of this dream, both financially and mentally, is terribly underestimated.
Ms Barrett shared some things that those looking for an early retirement must take into account before setting their work aside.
She said: “If early retirement is a goal that appeals to you, it’s worth taking a closer look to see what it means in practice.
“Being able to retire early means that you need to be able to achieve a level of financial independence, namely:
- Paying off your debts
- Paying off your mortgage (or being close to doing so)
- Having enough income for your daily needs (e.g. from your pension)
- Having additional funds so you can enjoy life
- Having sufficient savings for emergencies.”
While these are general financial goals that the majority of people have, retiring early places far more importance on having one’s finances in order as they don’t have much room for failure.
Ms Barrett added that achieving this “doesn’t necessarily demand a huge level of wealth” but will require some lifestyle changes in order for people to live within their different means.
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She explained: “The more modest your intended lifestyle, the less you’ll need in the way of assets. However, retiring early also places a triple strain on your funds, because not only does your money have to last longer, but you’ve also had less time to build it up.
“In short, every year of early retirement will cost you significantly more than an ordinary year of retirement.”
Most often, by the time an early retiree realises the precarious financial situation they are in, it is usually too late for them to head back into the workforce to try again.
Ms Barrett added that each individual’s circumstances is unique and suggested savers “get trusted financial advice” to figure out how much an early retirement will cost them “and whether you can really afford it”.
Removing this pivotal aspect of one’s personal identity can see many being confused and upset while they get used to the transition.
He also noted that others may not be as accepting of this decision as people think due to its unconventional nature.
He shared: “People won’t always give you the same amount of respect as they would to a working-class citizen. Eventually, I grew tired of explaining why I retired early or that I wasn’t a trust fund kid. To keep the discussion simple and regain a social identity, I’d simply say I was a writer and tennis coach.”
Lastly, he shared the surprising notion that: “Retiring early is like finishing the season finale of your favourite TV show. You’re glad it got a nice ending, but you’re also sad it’s over and left wondering what’s next.”
Research has proven that new retirees in general can experience mental health issues such as depression and anxiety, with early retirees being warned of emotional turbulence just after they retire.
