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Retiring early? Avoid these 5 missteps

Daydreaming about the day you can leave the office routine behind? You may find some obstacles to the carefree life you imagine.

By MSN Smart Spending editor Sep 20, 2013 11:26AM
This post comes from Joe Udo at partner site U.S. News & World Report.

USN logoMany people dream of early retirement, especially if they don’t like their current jobs. According to a recent Gallup poll, 70% of workers are disengaged from their jobs.

Mature couple hugging on the beach © Jerry Marks Productions/UpperCut Images/Getty ImagesBasically, the majority of us don't like our current position. While early retirement is a great alternative to working in a job you hate, there are many pitfalls. Here are five early retirement mistakes to avoid:

1. Spending too much too early. Our life expectancy is steadily increasing, and many of us will spend 20 or more years in retirement. Spending too much money early on can greatly increase the chances of your retirement savings running out when you need it most.

The 4% safe withdrawal rate might be good for traditional retirees, but early retirees have to be more conservative. By keeping your withdrawal rate under 3% in the early years, your portfolio will have a better chance of lasting much longer.

2. Not considering working part time. One way to reduce your withdrawal rate is to work a little bit after you first retire. Many early retirees are still young and want to contribute to society. Even if money isn't an issue, it's still good to work a little bit when you first transition into retirement. Working part time will keep you more active and engaged. Easing your way into retirement is much better than quitting work cold turkey.

3. Investing too conservatively. As we approach retirement, our risk tolerance decreases. Many people reduce the stock exposure in their retirement portfolio, perhaps down to 30% to 40% equities. However, early retirees will spend even more time in retirement, so they might be able to handle higher stock exposure.

4. Not considering future medical costs. Early retirees are often healthier than the typical retiree simply because they are younger. But being a healthy early retiree can be misleading. When you're younger, you generally don't need to spend as much on health care, and you might think you'll be healthy forever.

Fidelity Investments estimates that a 65-year-old couple retiring this year will need $240,000 to cover future medical costs. This doesn't even include long-term care. It will cost even more for an early retiree because Medicare doesn’t kick in until you're 65. Planning for early retirement must include the cost of future health care.
5. Being too passive in retirement.
Sipping an umbrella drink on the beach sounds good when you're slaving away at your office, but it's an unrealistic plan for early retirees. Retirees will need to figure out how to meaningfully spend their time. A lot of time is available once you stop working so much, and not filling your hours adequately can lead to dissatisfaction and depression.

It's better to plan for a retirement full of activities you like. This is why I have worked part time since retiring early. You still have time to relax, but not too much time.

Early retirement might sound good in theory, but there are many pitfalls you should be cognizant of before actually pulling the plug on work. You have to plan more carefully than a traditional retiree and be more flexible because you will spend a long time in retirement. Adequate preparation is necessary to enjoy this segment of your life without the added stress of dwindling retirement funds.

More from U.S. News & World Report:
Best places to retire for under $40,000
12 surprising facts about boomer retirement
10 target-date funds producing high-grade nest eggs

Sep 20, 2013 9:06PM

Ok I retired early.  Yes it can be a problem figuring out what to do with your time.  But dealing with bad issues at work was no fun either.  But it is incredible how much time you can spend reading good books.  I know I have learned to read and sometimes read a book in a day. 


Yes healthcare is a big issue for sure.  So I left the country til 65 but I pay my taxes to the feds and use no servies.  But that is ok, I believe in our country just not the politics taking us the wrong way spending money elsewhere but not on our country. 


It is not easy to plan for retirement but working til you drop is not the answer either.  So you just have to jump and retire. 

Sep 21, 2013 1:36AM
I retired @ 53 eleven years ago, never worked a day since and never looked back. So just keep on working because early retirement is the pitts, yeah right LOL. 
Sep 20, 2013 10:19PM

There are very few "good" jobs out there. You will basically be lucky to get $12-$15 an hour even after working 30 plus years in a real job. People live too high and don't think about things until it's time to retire. Mistake #1. Mistake #2 is banging your head against the wall and blaming yourself because you can't find something good out there. Take what you can. Cut your expenses and don't beat yourself up. Life goes on.....


Sep 23, 2013 7:08AM
Sep 20, 2013 9:33PM
I'm losing my job after 33 years, so I'm going to try retirement at age 55.  Am hoping that I'm not making a mistake.  I've got a pension, SS in several years, a 401K and my wife's pension in a few more years also.  There simply aren't any jobs in the area for someone with my background and I don't want to pull my son out of high school to move.
Sep 20, 2013 10:23PM

just enjoy the what is free and don't spend more than you got coming in.

best things in life are free. Now you can retire at 66

Sep 23, 2013 11:57AM

The best plan is to live within you means and save as much money as you can.  Then retire when you are ready.  Continue to live within your means and enjoy your life.  Stop worrying about all the things you don't have and be happy with what you do have. 


I have seen too many people keep working until the day the doctor tells them they have cancer and then they die.  That is not the way I want to go.  I will be happy to spend my days working in my garden and enjoying the simple life with my beautiful wife and grand-children.

Sep 23, 2013 1:00PM
Ask some dead people if they wished they had worked longer.
Sep 20, 2013 11:05PM
I'm a teacher who is 28 and can retire with pension when I turn 55. When I hit 55 I'll definitely be retiring. Makes no sense to continue working my tooshie when I can collect a pension and work part time some where and make the same amount of money or more. The biggest hiccup, of course, will be health insurance and the fact that the retirement age for social security will probably be 70 by the time I need to retire. Oh well. Socking, and investing, some money away now and have a rental up and going, and hoping to acquire more with time, so that I can pay my premiums and enjoy my golden years. Too many people that I know of that retired and then something tragic happened.
Sep 23, 2013 10:17AM
If you retire too early you can always go back to work. Save up, keep yourself out of debt, and you can take a year off at any age you want, travel, whatever. You can do it. Don't let the boss and the indentured servitude of debt rule your time on this earth. Quitting a job in such a case is one of the best feelings there is. 
Sep 20, 2013 10:58PM

It's impossible to predict what your healthcare will cost.   Medicare was $35/month when we it's over a hundred.  The supplement was under $50 a month now it's $230/per person up from $185 just two years ago.  Our premiums as a couple for meds, supplement etc is just shy of $10,000 a year.  We had PAID healthcare until we were 65.


Our "kids" are talking about retiring "early" was nice until our health gave out.   Do alot of soul searching before you do it.

Sep 23, 2013 10:49AM
I planned for 35 years. I had to go outside my employers and invest in stocks. I had a 401 k . Participated fully with that. Investing was my part time job for 35 years. I knew I could fall back on the money I made. Don't ever trust your employer to keep you employed until 65. At 55 I sold off all stocks and bought simple interest annuities. I was lucky I got them at 3 or 4 %. When the market crashed in 08 I didn't loose a penny. When you retire stay out of stocks unless you have money to burn.
Sep 23, 2013 12:59PM
Knowing how much money you will need to spend on yourself's in retirement is easy....knowing how much of your money you will need that the government is going to piss away is another!!!!
Sep 23, 2013 3:08PM
I plan on spending the first 18 years getting even with my damn kids, so I have plenty of things to do.  I really look forward to the day that they have to change my diapers, ungrateful brats!  

Just kidding of course, my kids would never consider putting Dad into a home, right? right? right? Damn brats, I knew it!
Sep 23, 2013 10:57AM
Nobody lives for ever!  When you are gone, you aren't going to know how long you were here.   You could just take health care and tell them collectively to shove it where the sun doesn't shine!  I mean, what's the point of living the life of a pauper just so you can continue to live?  What kind of life is that?  Unless you are wealthy, the health industry is going to consume all of your savings.  You going to end up homeless and on medicaid eventually so you need to think about controlling your income in retirement to place yourself below the medicaid cap.  If you have defined pension, you might want to think about taking a lump sum when it comes time, especially if the monthly pension check is going to be higher than the monthly medicaid limit!  Right now, my home insurance, health care insurance, and automobile insurance come to over $17,000/year before copays and deductibles.   That sucking sound you hear is my life savings being consumed by the insurance industry!   Combine insurance costs,  property tax, sales tax, and federal income tax and that alone is already most of my retirement income.  Without savings, I wouldn't even be able to afford food which is going up rapidly, unconstrained by inflation!    Oh also need money for electricity and utilities.  I don't run the air conditioner any more and the hot water tank has been off for years.  Travel, entertainment, a family?  Forget about it!  Or, live like a pauper if you are not wealthy!  It's up to you.  Especially those of you that insist on remaining arrogantly ignorant!
Sep 23, 2013 1:35PM
C07 you've got to be kidding all the money that I pay out each month and to say don't retire why not. I have been working since I was 15 years old I will be 64 in November. I do plan on working as long as I can but I will retire when I am tired or working. if I get bored I will get a part time job. the problem is don't live beyond your means. problem solved............
Sep 23, 2013 11:44AM
More propaganda , about asking for the money I put in Social Security and a Pension , maybe I will believe you and wait , die , and the government gets to keep my money !
Sep 23, 2013 11:47AM
I heard Dave Ramsey tell someone this morning that if you keep a large amount of savings in a regular bank savings account(this person had around $200,000 there) you are losing 8% per year due to inflation.  Dude, the more money you make in mutual funds or something else puts you in a higher tax bracket, which may or may not(lately questionable) pay off for you.  With a regular savings account you at least have control of that balance book and can live within your means, a necessity in this point of time.  So I'm glad Dave made and makes his from somebody, hope he becomes a gadzillionaire, but personally I will forgo that advice and stick to passbook savings and gradual withdrawal from ira over time along with ss to fund my retirement.  With house paid off long ago and debt out of the way and resolve to only see a doc when pain becomes unbearable it shouldn't be too difficult.
Sep 23, 2013 3:45PM


When you retire early like I did if you manage your money right.which my wife & did and because we had 3 children you learn to do that with normal paying jobs. You understand not to change your spending to much. We have been married 40 years.Two  daughters,38,26,son 36  all with good paying jobs. We do spend a little more,health is okay . I am 64 wife 62 is it wrote down you are going to live until you are 80-90. We just take a vacation maybe twice a year and not 10.000 ones. We have save enough money to be put to rest when the time comes.Unexpected things can happen,but you cannot plan for those. If you work until your 70 years old and have money to burn. That maybe all you really can do with it because of your heath. That's it the government dream. Not many checks coming when you are 6ft. in the ground.
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