Early retirement is one of the hottest topics right now in the personal finance community. The abbreviation FIRE is often used for it and means Financial Independence and Retire Early.
No, we are not talking about retiring at the age of 55 or 50. Very often you will find people they want to retire at 40 or even earlier. It works by cutting down your expenses to a bare minimum (because you enjoy that frugal lifestyle) and investing heavily in conservative stocks (often ETFs) that will generate roughly $40k per year. This amount will grow and take care of the inflation.
For sure, you need a huge amount of money in your portfolio for that but by living way below your means you’re able to do so.
In theory, if you do enjoy a frugal lifestyle, this is a great option to escape the rat race and stop trading your time for money. It also makes sense as more and more jobs get automated and therefore many jobs aren’t required anymore.
However, today I want to cover just 5 things you should consider before you retire early. Otherwise, this may turn out to be a bad decision. There are other reasons, but I just want to show you the most important for me.
Note: I am not a big fan of retiring early and the 5 things below are some of the reasons for it. Anyway, if you want to check out some blogs about FIRE make sure to read Mr. Money Mustache, Physician on FIRE and 1500 days to Freedom.
1. If you hate what you’re doing, why do you do it?
I asked my followers on Twitter when they want to retire. Many have answered that question with 40 as stated above. If I asked them why they want to retire early many of them said because they want to do something they actually like.
That was some kind of a shocker for me. That means they are not doing what they like/love right now. Often they have to work 40 hours per week; 45 weeks a year, sometimes even more. Do you know how many time of your life this is? Just to make this clear: Our time on this planet is limited! So why do you waste your time by doing something you don’t like. You can change it. Sure it takes some motivation and maybe a little extra work but I think this shouldn’t be a reason for retiring early.
I also don’t love my job all the time. But in general, I really like developing software. If there would be no paycheck, I’d still do programming just for fun. Maybe you should fix this instead of removing yourself from the working life completely.
2. You may forget the here and now
You will work hard to have a bright future. That’s okay. I guess, most of us are doing it that way.
But there are three things that come to my mind.
- The future has the same standard of living like now.
- You work your butt off in your best years.
- Well, the future is somewhat unpredictable.
Let me explain these a little further. I know, that the quality of life gets better as soon as you don’t have to work anymore. But what I mean by that is that your income won’t increase heavily. Often, a career looks pretty much like this: At first, you are young and won’t get a lot of money. After that, you will become more experienced and get a good position and therefore you are better paid. Now you have a decent income.
However, when retiring early you will lose the last stage where the income is at its peak.
The second thing is that you are in the best constitution during your early years. Now you work very hard at this stage and later when you become older you stop working. It’s not as heavy as it is with a normal career. But you still use the healthiest time of your life for working which is sad. Mini-retirements (retiring for 1 month every quarter or taking a sabbatical) are a much better solution. This will help you enjoy your early years as well as when you get older. Okay, you have to work for a longer time, but you will never hate your life as you know, a new break will be coming soon.
Note: If you want to learn more about early retirement and all that stuff, I highly encourage you to read The 4-Hour Workweek by Timothy Ferriss.
Lastly, you may remember an early post by me about a man who died shortly after retiring and working for his whole life. Yeah, I know if you are retiring early it’s much more unlikely that this will happen to you. However, we can’t predict the future. Just because the market has increased its value on average 8% per year, doesn’t mean it will continue to do so. It also doesn’t mean that you won’t have a heart attack at the age of 40, one month after retiring early.
In my opinion, you should enjoy all stages of your life and not just work towards a great future (for sure, you don’t want to do stupid shit and throw away your money while yelling ‘YOLO’). You just have to find a good balance between now and then.
3. It’s often a decision for the rest of your life
One argument I see FIRE buddies make all the time is: ‘I can go back to work at any time’. But is this true?
If you are working in a technical or fast-changing environment, you probably won’t find a good job after 10 years of absence. Just too much has happened and you are not a good fit for such a job anymore. Yeah, you will likely be able to go back but it will require a huge amount of work from your side. You should consider this before retiring early.
Another thing to note is that you lose a lot of flexibility. What do you think can turn faster a motorboat or a cargo ship?
Sure the motorboat. If you have a job and unexpected you and your spouse become parents again, you probably can handle that. It’s harder if you have a planned system that won’t allow you to have more expenses. This is just one example. But you could also change your way of living. You don’t know if you want to spend more money in 15 years from now. You lose a lot of this flexibility and this should be viewed critically before diving into early retirement.
4. You need to fill your spare time
This sounds strange. There are thousands of things to do. But have you ever noticed how that a project is rarely finished before its deadline?
The reason is that the time for its completion tends to vary depending on the time you have for this. This means if you have exactly one night to finish the project, you will probably be able to do it somehow. On the other hand, if you have 3 weeks to prepare for an exam, you will need all of that time.
It’s pretty much the same when it comes to retiring early and have much more spare time. You may not be able to use that time better than you do right now. Now you have just some hours during the week and the weekend to do the stuff you love. Therefore, you will make sure to be focused on those things. If you have a nearly unlimited timeframe, you will find yourself doing stuff that doesn’t need to be done or you just hang around doing nothing (my Dad is the perfect example for both of those things!).
If you still want to retire early, make sure that you schedule your hobbies and use your time wisely.
5. The society loses a brilliant mind
Man, if you are able to accomplish a retirement at the age of 40, you are probably a very smart, focused, and passionate person. If you would still work, you could use that brilliance to create something meaningful. I know, you can still do this if you are retired. But it’s often the easier way to contribute the society by doing a great job at your company. You can make the world a better place. If not in your current company, find another where you can do that.
I know sometimes you may just feel like a small piece of the whole. But you are more than that. No matter if you are a physician, a lawyer or a street sweeper. You contribute in some way to our society and a brilliant mind like yours would be missed deeply.
Again, don’t get me wrong. I am not a fan of retiring early but I see the point of those who are. I just think, for many, it’s an illusion that without the work you’re doing right now everything will become better. But you need to ask many questions and listen closely to your inner self to find out if FIRE is a thing for you.
What do you think? Do you want to retire early? How do you plan to make your life meaningful after you’ve quit your job? Or do you don’t like the idea as a whole?