Planning to Retire Early? You'd Better Avoid These 5 Common Pitfalls

Early retirement sounds like a dream, doesn’t it? How great would it be if you never had to dread your alarm going off on a Monday morning again? Wouldn’t things be wonderful if you never had to log on for another Zoom meeting that could have been an email? Don’t you long for the day when you don’t have to deal with those terrible commutes every morning and evening?

The standard retirement age in the United States is 65. According to studies, the average American retires at 62 years old, but there are plenty of factors that keep people in the workforce beyond that point. For instance, the Social Security full retirement age for those born after 1959 is 67 years old. This leaves many people working until they’re almost 70, as healthcare can be incredibly expensive.

Early retirement is a lofty goal, but it’s one that you can reach. If you’ve ever wondered how to retire early, you’ve probably seen and heard all sorts of retirement saving tips. While there are things that you must do in order to retire early, there are also some pitfalls that you have to avoid. Fortunately, we’ve put together a list of five things that you should avoid if you want to retire early so you can enjoy the later years of your life.

Underestimating How Much Money You Actually Need

One of the biggest issues that forces people out of retirement and back into the workforce involves underestimating how much money you’ll actually need to retire early. It’s easy to set a goal for how much money you think you’ll need and assume that reaching that number means that you can quit your job. Whether it’s $1 million or $500,000, you may hear numbers like that and assume that there’s no way you couldn’t live on that sort of money.

Unfortunately, many people do this without considering how unique each individual’s retirement needs are. The amount that you need for retirement depends on a wide array of factors, including location, healthcare, and lifestyle. There are also factors, such as inflation, that you can’t do anything to control, that must be considered.

If you retire at 50 and live until you’re 90, that’s 40 years of expenses that you’ll need to plan for. Many people also forget that spending often increases in the early years of retirement. This is because people start finding new hobbies that they invest in, spend more time traveling, and do other things that involve spending money while settling into their new lives.

Make sure that you’re using a retirement calculator to determine how much money you need. It’s also a good idea to work with a financial advisor to determine just how much money you need for your next chapter.

Forgetting About Healthcare: It Gets Expensive – Fast

If you plan on retiring before you turn 65, there’s a large, expensive elephant in the room that you have to address: healthcare. Generally, people become eligible for Medicare at 65. If you work full time, you probably have health insurance through your employer. This means that if you retire while in your 50s, you have to have some sort of health insurance between your retirement and Medicare eligibility.

Let’s face fact; COBRA, ACA plans, and other private insurance options are not cheap. They generally cost thousands of dollars each year, and get even more expensive if you’re also paying for coverage for your spouse. Additionally, you have to remember that Medicare doesn’t pay for everything, so even when you hit 65, you may still face some out-of-pocket costs. Dental, vision, and long-term care are all covered only by supplemental coverage.

Start researching your healthcare options well before you get to retirement. If you’re still working, consider looking into a Health Savings Account (HSA). Make sure that you’re researching the costs of premiums, deductibles, and out-of-pocket maximums. When you go into retirement well-informed, you can avoid the pitfalls that come with costly healthcare.

Becoming Too Reliant on the Stock Market

The only way that anyone can afford to retire early is to invest wisely. For many people, that process involves simply putting money into a retirement account that others manage. Still, some people like to play the stock market themselves, buying and selling stocks in order to build wealth by owning shares in successful companies. However, one of the biggest mistakes that many people make when saving for retirement involves becoming too reliant on the stock market, which can be quite volatile.

Most people keep their investments after they retire, choosing to play the stock market for the rest of their lives. While there’s nothing wrong with having investments, you must remember that a sudden downturn in the market can cost you. If you panic and sell your stocks during one of those downturns, you’ll only compound your losses.

With all of this in mind, be sure that you’re approaching early retirement with a diverse portfolio. What that looks like is up to you. Whether it includes a part-time job or owning a rental property, don’t become so reliant on the stock market that a hiccup in the market jeopardizes your retirement.

Underestimating the Power of Boredom

When you think about living as a retiree, you may picture yourself relaxing in a hammock in the backyard. Perhaps you have visions of spending your evenings sitting on the patio with your friends and family members. No matter how relaxing you think retirement is going to be, you need to consider the power of boredom.

The fantasies about free time that you have while you’re working probably make it seem like having nothing that you have to do every day is a dream scenario. However, once that level of freedom becomes your reality, you may find yourself getting bored. The first few weeks of retirement often feel like an extended vacation. But when the novelty of not working wears off, you’re going to have to make some tough decisions.

Tragically, many retirees blow through their funds early in their retirement, trying to find things that will fill their time. When you’re tired of looking at the same scenery in your backyard every day, you may buy expensive plane tickets to an exotic location. While there’s nothing wrong with taking a vacation, you don’t want to let boredom drive your spending.

Start making a plan for your time, not just your money, today. Don’t wait until you retire to find things that you’re passionate about. Instead, let your retirement years create an opportunity for you to spend more time on those things. This ensures that you’re not spending huge amounts of money in search of something that will keep you from being bored when you’re no longer earning a steady income.

Failing to Account for Lifestyle Inflation

You’re probably already aware that most things are going to be more expensive in 20 years than they are today. If you have any doubts about that, just look back at the fact that things are more expensive today than they were 20 years ago. While that type of inflation should be at the forefront of your retirement planning, you also need to consider lifestyle inflation.

Lifestyle inflation generally refers to people spending more money as they earn more money, but it’s a trap that early retirees can fall into, as well. Maybe a close friend invites you on a luxury cruise, and now that you have the time to go, you jump at the chance. Suddenly, you’re upgrading your car to a more luxurious model and buying a house near your favorite vacation destination because “it will save you money in the long run.”

It's incredibly easy to let your spending get out of control in the name of “enjoying the fruits of your labor.” When you’ve spent decades of your life working, it’s easy to assume that you’ve earned the right to treat yourself when you have the time to do so. However, this can lead to financial problems that can completely wreck your future.

Set clear boundaries for your spending and be prepared to stick to them. If you want to go on a luxury cruise, allow yourself to do that. But you probably don’t want to go on multiple cruises each year. If you want to upgrade your vehicle, consider doing it while you’re still working so you can start making payments while you’re earning an income.

The Future Starts Today

The quality of life that you enjoy when you retire starts with making plans today. By recognizing these early retirement pitfalls, you can start making plans that will set you up for success in the future.