10 Surprising Things About Early Retirement You Need To Know

Some folks spend their entire adult lives looking forward to, and planning for, an early retirement. Even with a lifetime of planning, though, surprises will inevitably arise. Given that an early retirement can last 40 years, it’s a period that has plenty of time to surprise you — and your finances.

With that in mind, GOBankingRates spoke to a number of financial experts regarding the surprising things that early retirement can have in store for early retirees, plus how to prepare for them.

“Many people expect expenses to drop,” warned Julien Brault, founder of MooseMoney, “but early retirees often travel more, eat out more and spend more on hobbies.”

Essentially, all the additional free time of an early retirement can lead to a gradual increase to daily spending.

Brault noted that “leaving work early usually means losing employer health coverage,” and health spending can spiral as a result. To protect against excess spending, practice living on your early retirement budget before it actually begins in order to help develop frugal habits. Also, be sure to research insurance costs long before you retire.

A lifetime of employment provides a person with what Brault described as “structure, purpose and social connection.” Losing that with early retirement can create a sense of boredom and disconnection. Be sure to develop hobbies, part-time work or volunteer opportunities prior to retirement.

Brault issued a clever warning about early retirement budgeting: “Prices rise even when (retirement) income stays flat. What feels affordable today may not be later.”

As inflation increases over time (and especially over the timeline of a long retirement), your retirement income risks staying the same. You can combat this by investing so your money grows over time.

As life expectancies continue to grow, so too does the average length of retirement — which can be stretched even further if you retire early.

Brault said, “Retiring early can mean funding 40 or more years without a paycheck, so planning for a longer life and reviewing your plan every year reduces the risk of running out of money.”

Brault noted that retirement — especially early retirement — should be viewed less as an escape and more as an added flexibility to your life. Finding a passion project to be a part-time job isn’t a failure of retirement, it’s simply adaptability.

It’s important to prepare for the fact that early retirement alone may not make you happy. As Ashley Ritterhouse, a CFP at Curious Crow Financial Planning, told GOBankingRates, “You’ll need to mentally prepare and plan for how you will continue to receive (the) mental benefits” that were previously provided to you by the daily structure of employment. Do not expect the act of retirement alone to make you happy — expect it to be your opportunity to find your happiness.

Ritterhouse added that most retired folks think they’ll finally do all the things they never had time for. However, she said most people spend their retirement time the same way they spent their free time prior to retirement.

“If how you spend your free time now does not align with your ideal life, begin incorporating more activities that you’d like to enjoy in retirement into your life before you retire,” she suggested.

Ritterhouse said retirees need to be prepared to make adjustments, especially with early retirement.

“When you retire early, your portfolio will need to support your living expenses for a longer period of time than a traditional retirement, so there may be a greater chance of needing to make adjustments,” she said.

She recommended “stress-testing” your retirement plan to protect against the unpredictable and to “have a plan for what you can adjust,” should you be forced to adapt to large-scale changes during retirement.

According to Bill Harris, CEO and founder of Evergreen Wealth, the riskiest decade in your retirement will likely be the first.

“A market downturn during the first decade of retirement can materially affect a long-term financial plan,” he said, “especially if investments must be sold to cover living expenses.”

He suggested that managing these risks means building (and holding onto) cash reserves, pulling from a variety of income sources and avoiding a retirement plan that leans entirely on portfolio withdrawals.

“Claiming Social Security early can permanently reduce your benefit by about 25% to 30%,” Harris warned, “but what many retirees miss is the opportunity in the years before claiming.”

He suggested that those low-income years can be used for strategic Roth conversions and/or withdrawals from various taxable accounts. Doing so can lower future taxes, delay Social Security and reduce required minimum distributions.