Retiring early is one half of the ‘Financial Independence, Retire Early’ (FIRE) equation. Usually, on this website, I refer to financial independence as the ultimate goal as it avoids the R-word which can be controversial. Have you ever met someone who was retired before they were 50? What about before they were 40? Is before 30 even possible? The answer’s yes in all three cases. I’ve spoken to people online in each of these age ranges who have managed to retire. What’s interesting though is even though each of these people classes themselves as ‘retired’ they’re all as busy as they ever were but are now spending their time doing what they choose, on their terms.

Retiring early is a major life choice that can entail both financial and personal risks if not done at the right time. There’s a host of positives to retiring early including more freedom, more time to build relationships, and improved health. There are of course downsides too including a lack of challenge and fewer social connections but if managed correctly, retiring early could be the best decision you ever made.

I’m not going to bore you with the classic considerations of retirement like ‘more time on the golf course’ but rather lay out a full picture of what retiring early actually is and whether it’s actually worth doing by taking a look at both the pro’s and con’s as reported by early retirees themselves.

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Pro – freedom to spend your time how you please

I’m in the fortunate position where I really enjoy my job and take a lot of satisfaction out of it. But who amongst us can truly say if money were no object, our current line of work is how we’d choose to spend anywhere between 35 to 80 hours a week. Even if your current work is the type of thing you would spend your time doing even if money weren’t an issue, wouldn’t it be preferable to be in a position where you could retire early (i.e. become financially independent) if you wanted to and give you that peace of mind that you could quit when you wanted without the fear of not being able to pay your bills.

Retiring early also allows for opportunities to do things at your leisure that you ordinarily wouldn’t get the chance to do until your 50’s, 60’s or even 70s. How many people, for example, could realistically pack up and travel abroad for 3 months between the ages of 25 and 60? My guess is very few.

Even if you’re in a situation where you are in between jobs and have the time to travel for an extended period, the majority of people don’t have the funds. This study by CareerBuilder.co.uk in 2015 suggests 1 in 3 British employees live paycheck to paycheck meaning that for many, the period of life arguably most suited to foreign travel and discovery is an impossibility.

Beyond travel, retiring early also lets you develop your hobbies in a way that’s simply not possible when you are working 40+ hours a week as an employee. Malcolm Gladwell’s book ‘Outliers‘ suggests becoming an expert in anything requires 10,000 hours of practice. Clearly, you’re much more able to reach this many hours of practice in your hobby or sport when retired and for me, the idea of developing my skills in a hobby I’m interested in sounds a far more ideal way to spend my time than working. That’s not to say I would forego ‘work’ completely after retirement but rather adapt it so my time is spent on the projects I am truly interested in.

Pro – ability to work on the projects you are truly interested in

The three greatest resources we all possess are time, health and money. Once you retire early, by definition, you have both time and money in abundance and the means to live a healthy life. To be in a position to retire, clearly you need enough money and resources to be able to cover your projected expenses for the rest of your life so it’s fair to assume you have money. Once retired, you suddenly don’t have anything in your life which demands a big portion of your time which gifts you an abundance of time as well.

The most common reason people give for not starting their own business or self-employed project are, you guessed it, lack of money and lack of time. So it should come as no surprise that once these barriers to entry are removed, many early retirees end up making significant money and being hugely successful with their own ventures.

Most of you have probably heard the saying “if you do what you love, you’ll never work a day in your life” and this sounds logical and intuitive on paper. The problem is, it’s not realistic for most people. Even for people who say they’re already doing what they love, I’d wager a fair proportion of them are lying to themself for one simple reason, most jobs involve a transaction where you give your time in exchange for money.

It’s only at the point when the fear of not being able to pay your bills is gone that you are able to pursue the projects that you are genuinely interested in. For many people, despite being retired, this may involve ‘working’ insofar as you have a business that still earns you money, even if the primary motivation is something else. The possibility of working and developing new skills whilst not being beholden to other people and able to work at a pace that suits me is, in my opinion, the most exciting part of early retirement.

Pro – to be in a position to retire early, you will have proved many things to yourself along the way

Retiring early is not an easy thing to do. If it were, a much greater proportion of the population would do it. From the early retirees I’ve spoken to all agree that to get yourself in a position to reach early retirement, a number of sacrifices are required including working hard to increase your income as much as possible and giving up purchases to decrease your expenditure as far as possible.

From here, financial independence becomes a simple mathematical equation. Maximise your surplus (income – expenses), invest the difference wisely into assets that allow your wealth to compound each year until you reach a level of investments that pays you a passive income that covers your annual expenses.

Let’s say for example you can currently live on £3,000 per month or £36,000 per year which is easily enough money to live a perfectly comfortable, if not luxurious, life. To cover this level of annual expense, the 4% rule (which I wrote about here) suggests you would need investments of £900,000 (£36,000 annual expenses divided by 4%). Clearly £900,000 is not an insignificant amount of money but at the same time, it’s also not such a large figure that it’s completely unattainable.

If you do manage to save to this level, you will have proved to yourself along the way that not only are you capable of earning a substantial income but also that you have the discipline and patience to stick to a long term plan which should serve you well within your retired years.

Con – your retirement savings will have to last longer

Early retirement may be sounding pretty appealing so far but there are some genuine problems you’ll have to consider. Not least amongst these is the fact that your retirement savings will have to last substantially longer.

The average person in Britain retires at 65 and dies at age 81 which is only a 16 year retirement to finance. However, for those planning to retire early, say at 45, the retirement period becomes much longer. Let’s assume those who retire early manage to prolong their life by a further 9 years through a healthier lifestyle. That would make the retirement period 45 years rather than the average 16. The problem lies with funding all of these extras years of retirement.

Part of this equation is your pension. For typical workplace pensions, you will be unable to draw from your pot without incurring significant tax penalties until you are 55. Similarly, the state pension isn’t available to be drawn from until you are 65.

This means that the ordinary pension based retirement strategy can’t be used between the date of your early retirement and the date of your 55th birthday when you can start using your pension. We therefore have to find a different way to fund these years through passive income, whether than be investment returns on a portfolio of company shares or rental income on an investment property.

It would be remiss of me not to mention the risk here, for example, if you retired at 40 but had some bad luck with your investments and realised you could no longer fund your retirement through to an age where you draw on your pension, you would be stuck in the unfortunate position of having to go back to work after a period of not working. Not only would this be a huge change to your way of living after becoming acclimated to retirement, but you may also struggle to find meaningful employment after a time out of the employment pool which may spell genuine difficulties for your financial situation.

Con – you may experience boredom and a lack of challenge

Even if the numbers work out, you may run into a separate issue altogether when it comes to boredom in retirement. Whilst it may sound like a lack of imagination, many retirees struggle to replace all of the hours they were previously working and find themselves getting bored. One retiree commented that he wished he transitioned out of work by working progressively fewer days per week rather than going ‘cold turkey’ as soon as he knew he had the financial means to retire.

Similarly, some early retirees report negative consequences over the lack of challenge faced in retirement. To be the kind of person who retires early, you will have had to of worked hard and competitively throughout your life, fighting for promotions or to make a success of your business. When these pressures are left behind in retirement, it’s understandable that some will begin to find that they lack purpose.

For all of the problems I see on working 40+ hours per week of your life for 40-50 years, at the very least, most jobs will keep your brain engaged and nimble. For those retiring early without a plan of action, there is always the risk of slipping into negative habits which end up with you effectively floating through your remaining years doing nothing.

This isn’t something I particularly worry about when thinking about what I’d do when financially independent. I think there’s an important distinction to make between retiring to relax and do nothing and retiring to spend the time doing the things you truly take satisfaction from. With that being said, early retirees would do well to have a plan in place for how they will spend the hours that they previously committed to employment regardless if that is spent on a different type of work, hobbies or charity.

Con – you will have fewer social connections

Another con that I have seen more than once whilst researching for this post is the worry that a retiree will have fewer social connections. Humans are, by nature, social creatures (even the introverts amongst us) so a declining number of social interactions and genuine connections likely spells disaster for our mental health.

The general thought is that many people have friends and connections centred around their place of work and if you were to retire, a lot of these connections would fall by the wayside.

Whilst I can certainly see the argument being made here, I’m not sure I agree with it. Sure, you would likely lose touch with a lot of the casual work acquaintances you speak to each day but I’d like to think my retiring wouldn’t stop genuine friendships I had made whilst at work. If a friendship is dependent on you working in the same place, is it really a friendship at all?

Having the time to focus on your hobbies or your own business post-retirement also sounds like a great recipe for building genuine social connections to me. What sounds better from a social standpoint to you – making friends with people who share an interest in a mutual hobby or work interactions around the coffee machine with people who are brought together by chance?

My guess is that retiring early will actually strengthen your relationships as discussed below.

Pro – your relationships will likely improve

In this article by Marriage.com, it’s suggested that the 2nd most common reason for divorce is money. I would imagine another common reason is lack of affection and time spent with your spouse. Whilst I’m not claiming early retirement will fix a broken relationship, clearly, it will help prevent some of the most common core reasons for the breakdown of marriages.

If you, as a couple, are in a position to retire early this likely means you’re both good with money and neither are wasteful or reckless which as alluded to in the article linked above, is one of the most common reasons for divorce.

Instinctively, a lack of time spent in each other’s company feels like another factor which would damage romantic relationships. Having the freedom that early retirement offers and being able to spend your time travelling, visiting family or bonding over shared hobbies sounds like it could only be good news from a relationship standpoint.

Similarly with parenting – many parents likely feel they have to compromise parenting for providing. What I mean by this is that the parent will spend time working and earning to meet their child’s basic needs at the expense of teaching, playing and caring for them on a daily basis. Whilst I agree that the need to ‘provide’ outweighs the requirement to actively ‘parent’ – early retirement allows you to do both. Not only are you child’s core needs (food, shelter, water, education etc) taken care of from a financial standpoint, they can also benefit from increased time around their mum or dad.

One of my favourite personal finance bloggers, Mr Money Mustache (who’s blog can be found here as long as you come back to this blog after!) follows the story of an American man who manages to retire at 30 and frequently writes about the active, daily role he has in shaping his son’s life. Doesn’t it seem strange how so many of us have children only to be able to spend such little time with them due to our working commitments?

For me, one of the most attractive things about getting to a position where you can retire early is the knowledge that you could commit all the time you needed to what really matters i.e. your family, without being hamstrung by the time and energy used up whilst at work.

Con – to be in a position to retire early, you may have had to sacrifice in your younger years

Whilst you may be able to develop better relationships post-retirement, you may be sacrificing your relationships right now to achieve that.

As discussed above, retiring early is not an easy thing to accomplish. You will likely either have to earn an exceptional income, cut your expenses to a dramatically low level or both. Both of these things can have detrimental impacts on your relationships.

If you’re earning a high income, it’s fair to assume you are working long hours or have a high-pressure job. Whilst different people manage these things in different ways, it seems like neither of these things, on average, lends themself to an optimum home life.

Another way to go is by cutting your expenses in order to develop a monthly surplus (income – expenses). Whilst there’s a wealth of research on how consumerist spending habits don’t boost happiness, it’s also reasonable to expect that if you are too tight with your expenses and deprive your family of certain things that do cost money like entertainment and good food, your relationships may suffer as a result.

Another facet to this is your health. If on your journey to early retirement you are working so hard you are unable to look after yourself in terms of exercise, sleep and nutrition, your retirement years may be sabotaged and you find yourself less able to enjoy them. It’s certainly possible that if you had worked more years but at a less intense rate and continually looked after your health, you may be in a better position overall.

Pro / Con – the impact on your health

The effects of retirement on health are hard to quantify and subject to disagreement in the academic literature. A 2008 study by the National Bureau of Economic Research (linked here) suggests that retirement leads to mental health declines and increases in other poor health outcomes such as strokes. You may be thinking at this point that this is because this research is based on retirement, not early retirement so of course mental health and age-related illnesses will increase.

However, this study actually compared retirees and non-retirees of the same age and still came to these conclusions which suggests simply not working and missing out on the intellectual, social and competitive benefits of employment does negatively impact health.

The literature on this isn’t unanimous though, this 2002 study suggests that “mental functioning declined among those who continued to work and improved among those who had retired” which was attributed to less employment-related stress.

How well these studies correlate to early retirement is unknown with very little literature published on the impacts on health after retiring early. Intuitively, I would suggest that the overall benefit to health is positive but it is dependent on the actions of the retiree. For me personally, I imagine I would have less stress, get more sleep, get more exercise and eat more nutritiously if I were retired and had more available time to prioritise these things.

If, however, my retirement was spent in front of the couch in a lazy-boy watching Arsenal lose (again) whilst eating cookies – the impact on my health would presumably be worse than a life spent in full employment.

The impacts on health from retiring early are also linked to the social considerations mentioned above. For each individual, the benefits of using your increased time to fortify your familial relationships have to be weighed up against losing the everyday social connections of work and everything that entails.

Pro – you may actually make more money post-retirement than you did whilst employed

I met someone recently who is embarking on a project to create a personal finance mobile App and he hypothesized that people actually end up making more money on an annual basis after they become financially independent than before. Whilst neither of us had any data on this, I was inclined to agree.

Have you ever spent a weekend doing something which isn’t necessarily a leisure activity and may even be classed as work or a chore but you were perfectly happy to spend hours working at it? An example that springs to mind is gardening – for some people, the thought of mowing the lawn or tending to the plants is a chore but for others it’s an enjoyable way to spend a Sunday.

My slightly convoluted point is this – when you’re doing something you enjoy, even if it is technically ‘work’ – it doesn’t feel like it and you’re able to do a better job at it than something you are only doing because you are duty-bound too.

If you’ve done the maths properly, after you retire, you’re no longer concerned with how to pay the bills and can dedicate your time to those projects you’re genuinely interested in. From the early retirees I spoke to in creating this post, all but two said they have had at least one year since retiring where they made more income than they ever did whilst in formal employment and I have to believe that’s because when people are emboldened to work on that which interests and excites them, they are capable of producing things that offer society much greater value than they otherwise could.

Conclusion

There are many pros and cons to retiring early depending on how you look at it.

On the positive side, you will have more time to pursue hobbies, interests or even businesses that you are interested in as well as having the time available to strengthen the main relationships in your life rather than having that time taken up by employment.

The other side of the coin is you will have to carefully plan how you can make your retirement fund last for a longer period without running the risk of having to return to work someday. Some retirees also report difficulties after losing the purpose formal employment has given them and from the decreased social connections in retirement.

The impact on health on early retirement is under-researched and not yet clear, my intuition tells me that it would be a net positive for your health if good habits were adopted.

For me, I think the positives of early retirement far outweigh the negatives. Most of the negatives can be mitigated by having a plan for how you will spend your time but with an emphasis on being productive for yourself, rather than for your employer.

Let me know whether early retirement is something that appeals to you or not in the comments!

As always, please remember I am an Accountant, but not your Accountant. In this post (and all of my others) I share information and oftentimes give anecdotes about what has worked well for me. However, I do not know your personal financial situation and so do not offer individual financial advice. If you are unsure of a particular financial subject, please hire a qualified financial advisor to guide you.

This article has been written by Luke Girling, ACA – a qualified Accountant and personal finance enthusiast in the UK. Please visit my ‘About‘ page for more information. To verify my ACA credentials – please search for my name at the ICAEW member finder. To get in touch with questions or ideas for future posts, please comment below or contact me here.

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