7 Key Signs Your Early Retirement Plan Will Fail
Written by
Nicole Spector
Edited by
Jenna Klaverweiden
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Many people are worried that they will never be able to comfortably retire. Then there are the folks on the other end of the spectrum — those who are confident not only that they will be able to comfortably retire but that they can retire early.
There’s nothing inherently wrong with retiring early, and plenty of people have proven that it’s possible to do without taking on financial hardship. But early retirement isn’t something you can just magically pull off; it requires years of intensive planning and strategizing.
Are you on track to retire early? Consider seven key signs that suggest you’re radically off track and that your early retirement plan will fail.
You Haven’t Created a Realistic Budget That Factors In Inflation
Everybody needs to get on board with a meticulous and, perhaps most important, realistic budget. This means homing in on needs versus wants and tracking your expenses. If you’re planning on retiring early, it’s critical that you design a retirement budget that is feasible to stick to and that factors in inflation.
“When planning to retire early, it’s not enough to save based on your current expenses,” said Erika Kullberg, a personal finance expert, an attorney and the founder of Erika.com. “You need to do some research on inflation patterns and how much you can expect your living expenses to grow over how many years of retirement you have planned. The last thing you want is to need to head back into the workforce in your old age because you had the wrong savings goal in mind.”
Your Housing Situation Is Up in the Air
Do you know where you will live once retired? Will you be able to comfortably afford it? If you don’t have your retirement housing squared away, it’s time to get it sorted out.
“If you have enough savings to rent for the rest of your life, renting is an option,” Kullberg said. “Although, it can be hard to predict what rent prices will look like decades from now. Ideally, you will pay off a mortgage on a home before you retire so you have a safe place to live. You do still need to budget for property tax, homeowners insurance, utilities and maintenance costs as a homeowner.”
You Haven’t Been Saving Aggressively
Everyone who wants to retire needs to be saving money, but those who want to retire early need to be saving on steroids, so to speak.
“Retiring early requires quite the hustle,” Kullberg said. “Saving to retire at the standard age is challenging, especially with how long we live these days. To retire early, you need to save really aggressively so you can support yourself for many years to come.”
You Have No Plan for Earning Income in Retirement
And savings aren’t enough. You need good money coming in, even once you’re not working.
“Living off your savings for decades can be really difficult and unattainable for most people,” Kullberg said. “You need to have a plan to earn income during retirement. This doesn’t mean you need to have a job, but you should have investments, rental property or a passive income stream planned.”
You Haven’t Saved For Rising Healthcare Costs
Many retirees are completely unprepared for healthcare costs in retirement. If you’re retiring early (before the age of 65), you won’t yet be eligible for Medicare, so you must double down on savings for healthcare-related expenses — and be ready for them to tick up as the years go by.
“As healthcare costs continue to rise, if you haven’t accounted for these expenses adequately, you may find your retirement funds depleted faster than you anticipated,” said Michael Martin, vice president of market strategy at TradingBlock.
Your Adult Children Do — or Will — Financially Depend On You
Perhaps you don’t have kids, or you do and they’re already totally financially independent. But many parents or other caregivers end up helping out their kids well into adulthood. If this is you, or could be you, be careful — such responsibility could blow up your early retirement plan.
“If your adult children are still financially dependent on you, this can place an unplanned strain on your retirement budget,” Martin said. “Without planning for these potential expenses, you may find that your savings run out faster than anticipated.”
You Lack Income or Investment Diversification
It’s poor practice to rely on a single income stream, or to place all your eggs into one investment basket. If you’re not well diversified financially, early retirement could remain a pipe dream.
“Relying on a single income source, such as the stock market or real estate, can be risky,” Martin said. “If your assets take a hit due to market volatility or unexpected downturns, your entire retirement plan could fall apart. Diversifying your income streams may help to deter these risks.”
More From GOBankingRates
