The biggest mistake to be retired too soon is to retire without saving enough money. Many early retirees are too confident and think they saved enough money to pay for the rest of their lives. The best thing to do is to over-prepare and save more money than what seems necessary.
Early retirees at the height of 2021 felt confident. They were coming off a historically all time high bull market and saw their net worth increase to new heights! More so than ever before! Then their world came crashing down in 2022. With no assurance it’ll get better in 2023.
That’s what many early retirees faced in 2000. They retired at the height of the tech bubble and thought the good times would last forever. Then they got hit again at the great financial crisis of ’07. Our governments are great at causing financial crises.
Therefore, it’s more important than ever to stress test our portfolios to even the worst possible case scenarios. It doesn’t feel good to be retired too soon because the option to go back to the corporate world is not as easy as we think.
Especially as we get older. One recruiter told me, “the best employees I like to work with is when they’re 25 – 30 years old. Companies don’t want someone who’s too old”. Age discrimination is real. Retired too soon is a real mistake that HAS to be avoided at all costs.
Otherwise, we may just live a life of misery that we can’t fix.
Retired Too Soon: 9 Mistakes Early Retirees Make
Below are the 9 biggest mistakes the ones who retired too soon made. It’s best to measure twice and cut once because we don’t get another chance to measure again! It’s why I’m saving and investing as much money as I possibly can for a rainy day down the road.
Whether we like it or not, there are disadvantages of early retirement.
1) Didn’t Save Enough Money
This is the scariest mistake to make. The ones who retired too soon didn’t adequately stress test their portfolios enough to armageddon levels to see whether they would survive multiple doomsday scenarios. It’s not easy to go back to earning money.
And it’s certainly harder to go back to the level early retirees were at before retiring. The ones who retired in their 30s retired at their peak earning years. $1mil could be enough to pay for the rest of an early retiree’s life. But it’s better to save for $1.25mil for the margin of safety.
An extra 25% margin of safety does wonders for mental health and for the family’s security. Early retirees cannot afford to get this wrong because it’s not just their life they’re affecting. It’s their family’s life they are affecting. Early retirement is great but not without great planning.
Saving money is the bedrock of great personal finance decision and especially more so when the stakes are much higher.
2) Retired Too Soon? Overspending
High inflation can happen suddenly. I personally used to only spend $20k – $25k per year. And then 2022 hit and my spending skyrocketed throughout that period. Inflation is a real thing and I couldn’t believe just how much more products cost in just a single year.
Just the other day, I went to Raising Cane’s and they used to sell 6 finger strip combos for ~$10. Now they sell for $15.50, a 55% increase in food costs! The ones who retired too soon don’t understand just how badly overspending can affect their finances.
Even if we control our spending, some things are just out of our control. Although I contained my costs even though inflation was running rampant, I wouldn’t be surprised if I was overspending. Some of it because I would miss the days of spending. And some because of factors beyond my control.
No matter how disciplined we are, sometimes, we just can’t help but spend more money than we would like. We think it can’t happen to us until it does.
3) Withdrawing Social Security Too Soon
Social security benefits vary by when a retiree takes out the money. The sooner retirees withdraw from Social Security, the less the amount. Actually, some may have actually even depended on their social security checks to retire comfortably. That’s not good.
The best route to take is to financially plan for early retirement without social security checks. Even more so, early retirees generally do not need Social Security checks in the beginning years of early retirement because they theoretically saved enough money to last decades, already.
Therefore, the benefit to withdrawing early from Social Security is practically nonexistent for an early retiree. I personally am not factoring in any Social Security checks to my calculation. The best way to live life is to never depend on the government.
The government does not fight for its citizens’ interests. But rather the government’s interests. Depending on them to take care of us would be a disaster. Instead of always complaining, it’s time to take life on our own terms.
4) Not Planning for Longevity
The best case scenario is to live longer than expected! That is an amazing feat and it means that the early retiree took great care of their health when they were younger. Not drinking, smoking, or doing drugs at all will help with longevity.
Early retirees who retired too soon may not have planned for longevity. Healthcare costs are on the rise and as we get older, they can only get larger down the road. If the worst case scenario is to live longer, then that’s a great worst case scenario.
I personally protect my health at all costs because I want to live as long as possible. I exercise 5x a week, eat great food, and sleep 8 hours a day. Therefore, I try to overshoot for how much I’ll need to retire early. Healthcare improves at a very fast pace.
I can’t imagine just how much more advanced it’ll get in the years to come. I’ll be ready for it to take advantage.
5) Not Considering Healthcare Costs
Modern medicine is improving at a faster pace than ever before. Humans are great at figuring out information and knowing how to solve problems. Especially health problems. However, with advanced technology comes advanced costs. The costs are higher because the value is higher.
Those who retired too soon did not consider the rising healthcare costs. The United States is notorious for outrageously charging hospital and doctor bills. I’m personally from South Korea. The cost to get my wisdom tooth out there? $50.
And it only costed so much because I didn’t have insurance. In the United States? They quoted me $1,000 just to take out one wisdom tooth. It was bad. Hospitals know they can charge whatever they want and the patients will pay it because healthcare is a necessity.
Healthcare costs are rising rapidly. I’m not sure how hospitals can legally charge $25 for one pill you can buy over the counter for $5 but that’s the reality as it exists today. Being retired too early interferes with the rising healthcare costs.
6) They Didn’t Backtest Their Portfolio
There is a wonderful FIRE Calculator that stress tests your portfolio through multiple economic periods. The ones who retired too soon didn’t backtest and stress test their portfolio enough to see if it can withstand multiple bear markets.
Bear markets are rare… until they happen. Many got so used to the bull market of 2010 – 2021 that they took on risk they didn’t have to take on. They thought the good times will last forever! The good times never last forever. And the worst feeling in the world is withdrawing from the portfolio at a loss.
Just to pay for living expenses. Then the compound returns from the withdrawals make everything even worse than before. It’s more important for early retirees to backtest their portfolio because they will be retired for longer than 40+ years. That’s a very long time for a random event to happen.
It wouldn’t hurt working just one or two more years to really ensure the investment portfolio is enough to pay down the expenses.
7) Unforeseen Tragedies
Life happens unexpectedly. I got into a car accident in 2022 because the driver didn’t stop at the stop sign. I didn’t plan for it and there was nothing I could do about it, even though I braked as hard as I could. It was lucky that the driver had insurance to make me whole.
However, what if the other driver didn’t have car insurance? I’ve been in car accidents in the past where the driver didn’t have any car insurance at all. I had uninsured car insurance so that made me whole but it’s still an unforeseen tragedy that happens all the time.
The ones who retired too soon doesn’t understand unforeseen tragedies happen all the time. In the most unfortunate ways possible and in the most unexpected way possible. I barely drive at all, maybe 5,000 miles per year. And I got into a car accident.
Bad things don’t happen until they do. Random and unforeseen events happen all the time that are beyond our control.
8) Retired Too Soon: Not Thinking About a Fun Budget
The ones who retired too soon do not think about a fun budget. They think spending just on the necessities is enough to live a good life. That’s far from the truth. We need entertainment and fun to keep us occupied and our brains stimulated to some degree.
Too much stimulation is bad but the stimulation can’t be zero. I personally live on a bare bones budget and live very cheaply. Something like $1.5k – $2.0k per month. However, I know I don’t want to live like this forever. There comes a point in my time where I will want to spend much more.
That extra spending has to be factored into my budget. Otherwise, my investment portfolio is not a true early retirement amount. There’s nothing wrong with working for an additional year or two to pad up for the fun budget. My entertainment budget has been minimal.
However, I’m living like no one else today so I can live like no one else later down the road.
9) Overconfident About Their Ability to Make More Money
Many aspiring early retirees say “I’ll retire early. I’ll just go back to work if I change my mind”. It’s not always that easy. The early retirees are competing against employees who’ve been in the job market for years on end already. And the early retirees will be older.
That’s not an easy competition to win.
The ones who retired too soon overestimate their ability to make more money. Others will not just hand a stack of bills to them. Earning a dollar takes a lot of effort, attention, and time. The ones who pay out money don’t do so willy nilly. They make others earn the money.
Some even make it so hard that it’s not worth the money in the first place. I started this blog as a side hustle thinking I’ll start making $1k/mo after 2 years of effort. That’s just not how it works. Early retirees cannot afford to be any kind of overconfident about their abilities.
Going back to making money will be extremely difficult, especially if we are in a bad economy.
Retired Too Soon: My Family’s Story
It was December 2021. My dad finished his 30 year career as an Engineer and retired. It was a long and fruitful career and he was happy to have finished such a long standing career and provided for his family. He was enjoying a well deserved retirement.
But there was a problem. After a year, he wanted to go back to work and earn money. It’s not for the money, he just wanted to go back to go back to work. Luckily, he kept in contact with his old colleagues and bosses and landed a job when he wanted to land a job.
The ones who retired too soon might find that they actually enjoy working. A bad moment doesn’t make up the entire job. There are some jobs that are downright horrible. They are the most toxic things ever and actually staying in the job is detrimental to your health.
I’ve experienced two jobs where it was like that. The job was horrible not because of the job but because of the bosses. It was not the best feeling. Therefore, I wanted to leave the job force as soon as possible. However, that would’ve been the biggest mistake of my life.
Because now, I work for an amazing company working for an amazing boss with amazing coworkers. I’m so glad I stuck it out for more months, turning down two job offers along the way before I landed the best one I could’ve ever possibly landed.
There is a lot of the retired too soon stories, especially in 2023 and beyond.
Retired Too Soon is a Real Mistake
It’s one of the most expensive mistakes someone could ever make for their lives. Our financial lives aren’t determined by the occasional $10 purchases here and there. It’s determined by the big mistakes we make like our housing, car, and investment decisions.
The ones who retired too soon most likely left potentially close to seven figures of money on the table to travel more, only to regret it. That’s the real mistake that needs fixing. The $10 purchases doesn’t make or break our life. It’s the big decisions that make the most difference.
Many people retired too soon at the height of the 2021 bull market. They thought their portfolios are “probably good enough” to last through deep recessions. Then everyone got proven wrong in 2022. Even more people had to go back to work not because they want to.
But because they needed to! For financial reasons! No matter how confident we are about our finances, having more money in the bank doesn’t hurt. It feels even better and more secure than the alternative. The financial independence, retire early movement gained much steam over the bull market.
But many didn’t understand the nuanced way to properly retire early. Therefore, many ended up being retired too soon and didn’t know a good solution to get out of the hole they dug themselves in. It’s dangerous to retire too soon because companies are so slow to hire.
It’s hard for the ones who already have jobs to get a job. Even harder for ones who are unemployed.
Retired Too Soon: 9 Mistakes Early Retirees Make Shortlist
- Didn’t save enough money
- Retired too soon? Overspending
- Withdrawing social security too soon
- Not planning for longevity
- Not considering healthcare costs
- They didn’t backtest their portfolio
- Unforeseen tragedies
- Retired too soon: not thinking about a fun budget
- Overconfident about their ability to make more money
