Many of us dream of an early retirement – we imagine drinking endless Martinis while lazing in the beach and outsourcing the hard work of earning money to our investments.
While these dreams are great water cooler talk or motivates you to get up on a Monday morning, you need to ask yourself honestly – what is my real reason/motivation for an early retirement?
Why is it important to understand the real reasons? Because, quite frankly, early retirement is a bad idea! Now, this is such a strong statement, so a few explanations are needed here.
- A job gives you, the best inflation hedge. To get an inflation adjusted salary of $3000 per month, you need a corpus of at least $1.2 M (assuming a 3% withdrawal rate and a 1% real investment return)
- Having a job, on an average, keeps you in a better physical, mental, and emotional health by giving you something worthwhile to do for 8 hours. This may or may not be true in your particular situation, but in general, there are known positive health benefits to constructive work.
- Retiring before or during the age of peak earning potential (roughly 35-50 years) – can significantly impact the overall net worth of the individual. Do you want to retire early and count pennies for the rest of your life?
- Your social standing can take a hit. A CxO level person or a Director understandably has better social standing and influence than a young retired person.
- The biggest problem with early retirement is that after an extended career break, often it is next to impossible to return back to same levels of earnings – so we have smaller chance to recover from any of life’s late curve balls.