Early retirement is a desire of many, yet mostly a nightmare for actual early retirees. Estimated numbers show the new low in the number of early retired Brits, with 1.1 million retired before the age of 65. According to a recent analysis of early retirees, 25% retire because of an illness, 21% because they’ve become redundant, while 10% have certain care demands.
The same analysis found that only 25% of early retirees think that they can actually afford retirement, as they find that their savings and their pension can cover their expenses.
Even though early retirement can be the best decision you’ve ever made, as it will give you enough time to live your life to the fullest, here are several risks you should consider seriously.
What Will Replace Your Job?
To make the most out of early retirement, you need to have plans for your future activities or the lifestyle which will increase the quality of your life and make it meaningful. While you’ll hardly miss all the work-related stress and the 9-to-5 routine, there are a couple of other things being employed and having a career bring, and that are quite beneficial for everyone.
One of those things is social interaction. When you retire, the odds are high you won’t be keeping the same level of your social activity. Most employees engage socially with their coworkers, and although it may seem that when you escape the rat race, you will have all the time in the world to socialize, studies show that retirement actually shrinks your social networks and can result in social isolation, leading to loneliness and depression, all of which can ultimately affect your longevity.
Another benefit to employment is that it gives your life a structure necessary to keep you active and focused on achieving your goals. Having a daily routine and structure is important for keeping all the good habits and breaking the bad ones, and without it, you can easily get caught in the trap of procrastination.
To avoid these dangers, you need to know exactly what you will do when you are retired.
What About Your Finances?
One of the greatest fears and dangers related to retirement, and especially to an early one, is money. If we bear in mind that the average life expectancy is constantly increasing, you’ll have to make sure your savings and your pension can cover personal and immediate family members’ expenses, including emergencies.
When considering retiring early, you’ll need to decide how you plan to use your pension pot. If you have a defined contributed pension plan, you will be able to take as much money as you need, with one-quarter of the sum being tax-free.
As for the state pension, the state retirement age is increasing, with 66 being the statutory retirement age for both men and women by 2020, and it will increase even more.
You need to make sure you’ve made a financial plan and stress tested it. It needs to be flexible enough to adapt to changing market conditions, cover for some unexpected costs and delay some expenses when your personal investment portfolio is down so that you don’t have to spend too much of your principal until it recovers.
Also, if you want to retire earlier, consider the viable options for earning some extra money to cover for your daily expenditures.
Have You Sorted Out Your Medical Insurance?
Health is one of our greatest concerns when it comes to retirement, and whether we will be able to provide for our and our immediate family’s growing medical needs as we age. Before you’ve made your decision to leave your job and retire, make sure you have a medical insurance plan early on, so that you are certain you and your close ones will be safe if medical emergencies occur. Getting health insurance for the first time at an older age will be at your disadvantage, as the costs are significantly higher.
If you’re considering early retirement because you are chronically ill or have a disability, make sure you’ve checked all other options carefully.
In some cases, your employer needs to make ‘reasonable adjustments’ so that you’re not deprived of your right to work. When it comes to disabilities and certain illnesses, your employer doesn’t have the right to push you to resign, as you are protected by the anti-discrimination law.
On the other hand, you might find that it’s more beneficial for you to take redundancy. When such sensitive issues arise, it’s best to weigh all your options thoroughly, with the support of an independent expert.
If you’re thinking about retiring early, make sure you’ve planned such a crucial decision far in advance, so that you have enough time to prepare and make the transition, and the life after it, as smooth as possible.
