Some people consider leaving work before age 65 as an early retirement while others believe that it has to happen before age 50.
Retiring early and saying goodbye to the workforce is usually a conscious move to pursue personal interests, be it to travel, training for a marathon or writing that book you know is inside you. Sometimes it’s unplanned: a layoff, a long-term illness or caring for a loved one. In these cases, early retirement may be unavoidable, whether you’re ready for it or not.
Bear in mind that retiring early has its own challenges and the most obvious challenge is having enough assets to provide the level of income you’ll need. The earlier you retire the more assets you will need to compensate for the potentially decades-long period that you won’t be earning wages. If you retire at age 50, for example, will you have enough to live comfortably on for the next 40 years? What if some of those years require expensive medical care?
A person retiring early at 50 on an annual pension of just €20,000 per year, increasing at 3% p.a. will require a pension fund of €970,000 to purchase it. Assuming they begin contributing to their pension plan at age 25, they will need to contribute an average €35,000 per year to achieve that target, assuming they opt for a conservative low risk investment strategy.
Apart from the financial challenges, not working frees up a lot of time. Do you have enough hobbies, adventures and pursuits to keep you occupied and engaged for the next 10, 20, 30 or 40 years? The workplace also provides a social outlet, and for many people, it’s their primary means of socialising, either directly at work or through work-related outings.
Not everyone has a choice when it comes to retirement. A job loss or health problem can result in an unexpected early retirement. However, if you intend to retire early, you need to plan it carefully from an early age to ensure you will have the necessary finances available.