These 3 Pieces of Early Retirement Advice Are Overrated — Here’s Why
Written by
Jamela Adam
Edited by
Rebekah Evans
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Early retirement sounds amazing, but not all the popular advice out there will actually help you get there. In a YouTube video of Ari Taublieb, certified financial planner (CFP) and host of the “Early Retirement Podcast,” he shared three of the most common “rules” of early retirement that are not only overrated but could actually hurt your plan if you follow them blindly.
If you are planning on retiring early, here’s what he said you should rethink and what to focus on instead.
You Need $1 Million To Retire Early
Taublieb doesn’t believe you always need $1 million to retire.
He showed a real client couple in their mid-50s who have just under $1 million saved and plan to retire at 62. Even with that amount, they’re on track to grow their nest egg to $2.8 million by age 90. This is because their planned spending is around $4,000 a month, which fits comfortably with their assets and investment growth.
There’s really no magic retirement number. According to Fidelity guidelines, the amount you need to retire comfortably depends largely on when you plan to retire and your desired retirement lifestyle. Fidelity suggested that you save at least:
- One times your salary by 30
- Three times by 40
- Six times by 50
- Eight times by 60
- And 10 times by 67
Always Max Out Your 401(k)
Another piece of advice you hear everywhere is to max out your 401(k) no matter what. Though that’s smart for young savers just starting out, Taublieb said it’s not always the best idea for people who are closer to retirement.
He explains that a 401(k) is a “qualified” account, which means it’s tax-deferred now but fully taxable when you withdraw later. Having most of your money in 401(k) plans can make early retirement more complicated since these accounts penalize you for taking money out before age 59 and a half (with limited exceptions), according to IRS guidelines.
He uses the phrase “qualified rich, cash poor” to describe people who focus on maxing out their 401(k)s. In other words, these people may have a large retirement balance on paper, but little flexibility to create tax-efficient income in the years before Social Security or Medicare kicks in. A taxable brokerage account, on the other hand, will give you much easier (and cheaper) access to your money.
So if you’re thinking about retiring early, he encouraged you to consider splitting contributions between your 401(k), a Roth IRA (if eligible) and a regular brokerage account. That mix gives you more flexibility when you decide to leave the workforce early.
Cut Expenses to the Bone To Retire Early
The third overrated piece of advice is cut your expenses as much as possible so you can retire as soon as possible. Taublieb said doing this could actually lead to a stressful retirement where you’re always second-guessing every purchase.
Imagine retiring early but feeling guilty about ordering an appetizer or booking a vacation because it wasn’t in your strict budget. That’s not freedom.
Taublieb said increasing monthly spending from $4,000 to $6,000 in retirement won’t necessarily mess up your plan. It might mean you pass away with $1.6 million instead of $2.8 million (but you’ll have enjoyed more of your money while you were alive and healthy).
He emphasized that retirement should be about using your money to enjoy life, not living in fear of running out.
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