Retiring early, especially for those involved in the FIRE movement, can have significant consequences that many people may not be aware of, including the impact on your ‘end of life balance sheet’, experts have warned.
FIRE, or the Financial Independence Retire Early movement, is renowned for the extreme frugality its members adopt to retire well before the majority of the population. With many aiming to quit their jobs in their 40s, two financial experts have highlighted four potential pitfalls of early retirement.
The issue was raised when a member of the FIRE community called into the Afford Anything podcast. She asked host Paula Pant and former financial planner Joe Saul-Sehy whether she should postpone her planned early retirement – she intended to leave the workforce by 45 – to increase her contributions and receive more state pension benefits.
While both experts agreed that the decision largely depends on the individual’s retirement goals, Joe made it clear that being part of the FIRE movement inherently means not having access to as much government support as someone who works until the state retirement age.
Paula, an early retirement expert, has outlined the four major consequences of retiring early: “If you’re in the FIRE movement, with the definition of early retirement as the recession or reduction of income, then you will not only have less social security you will have a smaller (investment) portfolio than you otherwise could have. You will also have a smaller net worth than you otherwise could have. Your balance sheet at the end of your life will be smaller than it otherwise could be.”
However, she emphasised that this is simply “the trade-off” people make to achieve their early retirement goals. She added: “It could go in either direction, simply not working does not ensure happiness.”
“Life might be longer because you get to spend more time at the gym, might be happier because you can spend time with loved ones, but it might be more miserable because you have more time on your hands to endlessly ruminate.
“Fixating on all of the wrongs that have been inflicted upon you. You might not be working but you’ll still be unhappy. It does bring flexibility, time, freedom and what you do with that is up to you.”
Meanwhile, Joe highlighted that early retirement doesn’t necessarily mean completely refusing all types of income but rather focusing on what you enjoy doing.
He shared how his father-in-law found the perfect balance after retiring early due to a lack of passion and enjoyment for his work.
The retiree found a clever way to bridge the gap in the American medical system’s requirements for medicare. He became a beloved part-time school bus driver, which secured his health insurance through the school system.
Joe shared: “He became a bus driver because it was every day, for just a couple hours, and the kids loved him. He got to work part-time, spent the rest of the day doing what he wanted to do and the school system paid for his health insurance. He was able to bridge the gap by finding something additive to the design he was making for his life. If it’s additive, chasing benefits is fine. We overestimate the power of money but that other resource of time, we just don’t get it back.”
