6 Reasons Early Retirement Might Be Wrong for You

While it isn’t possible for everyone, some people are able (and even make it a priority) to quit the grind well ahead of schedule. They usually reach this early retirement with careful planning, perseverance and extra discipline.

Knowing how much savings you need for retirement is a great place to start, but then there are plenty of other considerations to take into account. You may be excited to start your golden years on the golf course, beach or traveling the world, but it turns out that early retirement can sometimes hurt your finances without leading to the happiness you might expect. Check out some reasons below why you may want to refrain from retiring early (or at least planning for an early retirement!).

1. Social Security & Retirement Accounts

Timing has a big impact when it comes to taking your Social Security retirement benefits as well as making 401(k) and individual retirement account (IRA) withdrawals. By taking your money out early, you may pay penalties and fees that can deplete your savings and affect your future earnings. If you think you are going to rely on these funds at some point down the road, it’s important to consider how early retirement will affect your overall financial outlook. The best advice is to make sure you have money set aside for these “extra” years that won’t impact your long-term financial health.

2. Debt

Student loans, mortgages, car payments, credit card debt — it seems there are a million obligations for your money. This may be holding you back from early retirement, since debt can cost you tens of thousands of dollars over the course of a lifetime (this tool can show you how) . The best thing you can do for your financial health is make a plan and pay these debts down aggressively. If you need some extra motivation, crunch the numbers for how much you pay in interest over time versus the returns you could be earning in a retirement account or other investment. Then, once the debts are paid off, continue to aggressively put that money away — into a retirement account.

If you already have debt, keep in mind that your credit score can help you get to that retirement deadline sooner by earning you lower interest rates on the debt you already carry. For example, if you improve your credit, you can refinance your home loan at a lower rate and save money that can then be put toward your early retirement goal. You can check your credit scores for free on Credit.com to see where you stand.

3. Health Insurance

If your employer subsidizes your health insurance, keep in mind you can’t sign up for Medicare coverage until you turn 65, and you’ll need to plan for health insurance. You might be able to find individual coverage in the marketplace, but it’s important to research this before you retire early.

4. Taxes

Even if you think you have your retirement budget pretty worked out and calibrated for early retirement, you may face different taxes in retirement depending on where you live. Aside from early withdrawals from tax-deferred accounts, you will owe regular income taxes on the distributions and could get hit by capital gains tax from any long-term investments you sell off. Without plenty of savings in place, you could be looking at a real tax burden in addition to all other costs of early retirement.

5. Time

Adding more time to your post-work life may seem ideal. However, it brings more opportunities for you to spend your hard-earned savings. You also have inflation to consider and all the funds you won’t be adding to your accounts by leaving your job. The earlier you retire, the more years you will be withdrawing from your accounts (and the less time they are likely to have to grow).

6. Fulfillment

While leaving the working world behind often seems like the dream, you could end up missing work after retirement. The workday provides structure, socialization and a sense of personal accomplishment. If you don’t have concrete plans for how you will fill your days, you may become bored or lonely. It’s a good idea to have some ideas ready, but consider that they may not provide adequate replacement for the fulfillment and self-worth you feel while employed. If you hated your job and retired to escape that situation, consider looking for a better job or more enjoyable career.

Early retirement can be a great reward for hard work and a wonderful experience, but it doesn’t mean you should quit as soon as you hit your net worth goal. It’s important to think about the short- and long-term impact of this choice.