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3 Reasons to Retire Early, and 3 Reasons Not to

Some see early retirement as a wildly irresponsible gamble, while others see it as essential to living life to the fullest. Both sides make good points, but ultimately, we must all decide for ourselves if it's right for us based on our own goals and financial security. Here are a few arguments from each camp that might help you make up your mind.

3 reasons to retire early

Here are three of the most common reasons people think about retiring early.

Image source: Getty Images.

1. You'll have more time for the things you love

The most obvious argument in favor of retiring early is that it will give you more chances to travel, spend time with family, fish, or curl up with a good book at home. This can be a powerful motivator that persuades some people to save a lot of money while they're young.

2. You have plenty of savings

Those who saved a substantial amount from their early 20s onward may be financially ready to retire in their 50s or possibly even sooner. In that case, there's no reason to keep working unless you want to or you're worried that you might grow bored if you don't have structure to your day.

Before you retire, it's a good idea to run the numbers one last time to make sure that you're prepared for even worst-case scenarios like losing money on your investments, living decades longer than expected, or developing a serious medical condition. Keep saving a little longer if you're not sure.

3. Your job is ruining your health

Some jobs cause a lot of stress or encourage sitting all day. These can harm your health and result in costly medical bills down the road. Getting out of that unhealthy environment and spending more time on things you enjoy could improve your well being and save on healthcare.

If you don't think you can afford to exit the workforce quite yet, see if you can switch employers or work part time. This may relieve your stress while still letting you cover your expenses so you don't have to draw upon your retirement savings quite yet.

3 reasons not to retire early

Ready for the bad news? Here are three reasons you might want to keep working.

1. You're nowhere near financially ready

Those who start late on saving probably won't be able to afford to retire early. While the thought might still be tempting, it's important for these individuals to keep working and saving as long as possible to afford their basic living expenses.

Create a retirement plan, if you haven't already, to estimate how much money you'll need. Start by subtracting your estimated life expectancy from your preferred retirement age to determine the length of your retirement. Multiply your annual estimated retirement expenses by the number of years of your retirement, adding 3% annually for inflation. Use a calculator to do this and to factor in your investment rate of return. Stick to 5% or 6% for this to be conservative. Once you have your total, subtract any money you expect from Social Security, a pension, or a 401(k) match to figure out how much you need to save on your own. Try to delay retirement until you've hit this amount.

2. You expect to live a long time

If you're healthy and people in your family tend to live a long time, you could be looking at 30-plus years of retirement even if you don't quit work early. So retiring early could push this up to 40 or even 50 years. That means you'll need money to cover even more years of living expenses, so what seemed like plenty of money before might not be.

To reduce your risk of running out of money prematurely, plan for a long retirement from the start. Expect to live to at least 90 unless you have a medical condition or another reason to believe you won't. Save until you feel pretty confident that you have enough to last your entire life.

3. You could cost yourself Social Security benefits

Retiring early could cut your Social Security benefits in two ways. First, working less could reduce your average benefit check because it's based on your average monthly earnings during your 35 highest-earning years adjusted for inflation. If you work less than 35 years, you'll have zeros included in your calculation, which will bring down your average. Working longer than 35 years is best because your lower-earning years will be replaced by higher-earning years.

If retiring early also means starting Social Security early to help you get by, you could cost yourself even more. You're entitled to your full Social Security benefit at your full retirement age (FRA) -- 66 to 67, depending on your birth year. Starting early reduces your benefits, while delaying past your FRA increases them. You'll only get 70% of your scheduled benefit per check if your FRA is 67 and you begin benefits at 62 or 75% if your FRA is 66. Conversely, if you wait until 70 to claim benefits, you could get 124% of your scheduled benefit per check if your FRA is 67 or 132% if your FRA is 66. These larger checks could reduce your reliance on your personal savings, helping them stretch further.

There's no clear-cut answer to whether you should retire early or not. It's best to err on the side of working longer to avoid running out of money. But if you understand the risks involved, early retirement could be worth it.

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