Is Early Retirement Slowly Killing You?

The 21st century has brought many great ideas and multiple illusions shaping human perception & understanding. One such “great” idea is the glamorous concept of early retirement. People are now way more eager to exit their workspaces for good, that too, as soon as possible.

When earlier the ideal retirement age was over 60-65, many today want to stop working in their 40s-50s, and even 30s! 😲

Sounds awesome, right? Or is it just a flash in the pan?

Now, don’t get me wrong; I completely understand the wish to never work in life, especially after having a tough day at my job. The multiple videos, reels, and articles explaining the “bliss” fan the flames even higher. Just try googling the keyword “early retirement”, and you will also be intrigued.

There’s even a phenomenal term for it called the FIRE movement: Financial Independence, Retire Early. The term was first introduced by the authors Joe Dominguez and Vicki Robin in the book ‘Your Money or Your Life’ in 1992.

The whole idea of early retirement was introduced in the late 20th century. However, it gained massive popularity in the last few years, courtesy of the GenZ.

This movement is all about people believing in the concept of earning a sh** ton of money and retiring early to enjoy living a specific type of lifestyle, say partying and travelling to all kinds of places.

Apart from the enjoyment, other reasons also contribute to the rise of the FIRE movement’s popularity:

• Burnout due to excessive work hours,
• Lack of fulfilment,
• Striving to present a more lavish lifestyle than others.

In general, there are two distinct types of individuals wishing to retire early. The first group are the ones who take a proactive approach to financial planning. They invest in various instruments such as mutual funds, IPOs, equities, and pension plans like the National Pension System (NPS) & IRA.

Recent data from National Stock Exchange (NSE) backs this trend: the presence of young investors under 30 years old has increased from 22.9% in March 2018 to 40% as of August 2024. Furthermore, the median age of investors has decreased from 38 years in 2018 to 32 years in 2024.

This growing interest has positively impacted India’s retirement index, which increased from 44 to 47 on a scale of 100 in 2024. This survey reflects a positive trend in retirement preparedness among young people aged 30-35, who represent over 66% of India’s population.

The survey not only highlights this demographic's growing awareness of retirement planning but also sheds light on their evolving “priorities” for retirement.

Now comes the 2nd group of retirement planners who are driven by the fear of missing out (FOMO) & often have incomplete or misguided notions about retirement. These people fail to understand that the idea of early retirement is not as perfect as it's portrayed on social media.

The glamorous images shared online often end up creating unrealistic expectations about life after work. Along with mental complications like depression and anxiety, the danger of the prevalence of chronic diseases also increases. People also feel a loss of purpose in life, making retirement more like a burden than a blessing.

Think I am exaggerating? Let me prove it to you with a relatable example!

The Dark/Hidden Side of Retiring Early

Akash, a software engineer, decided to retire by the age of 45 and prepared for it by saving diligently & investing smartly. However, he made a few critical mistakes:

• Akash didn't account for rising healthcare costs, property taxes, and unexpected expenses.
• He failed to adjust his spending plan for inflation, leading to a reduced standard of living over time.
• Without a strict budget, Akash indulged in frequent vacations and luxury purchases, draining his savings.
• He didn’t think it necessary to keep an emergency fund worth 6-12 months of expenses, making him struggle to cover unexpected costs.
• He hadn't considered how he'd spend his time or find a new sense of purpose, leading to boredom and dissatisfaction.

The outcome of the many blunders and overconfidence led to a stressful & unsatisfied life. He faced financial stress, health issues due to inactivity, and a sense of emptiness, making him regret his decision to ever retire.

Many studies have been done to identify the causes of the trending FIRE movement; both bad and good. From the Health and Retirement Study conducted on 50 year olds, it was found that people who retired after 65 years had their mortality rates dropped by 11%.

Another survey conducted by HDFC Pension revealed that half of India's population aged between 30-55 believes that the ideal retirement age should be around 59 years.

Does this mean the idea of retirement before 50 is stupid?

Let’s look at it this way. Having surplus money saved to last a lifetime and having the freedom to do whatever and whenever you want sounds fantastic. But that’s only true if it's done right. If not, early retirement can even reduce a person’s life cycle by causing drastic mental and physical issues.

Here’s are the "downsides" of not planning retirement properly:

a. Insufficient Savings:

Many people underestimate the amount they need to save. To achieve early retirement, it's essential to save aggressively, ideally 30-50% of your income, especially if you plan to retire before age 50.

Calculate the amount you need to save before retiring by using this retirement calculator.

b. Overspending in Early Retirement:

The newfound freedom in retirement can lead to increased spending on travel and hobbies, which may jeopardise long-term financial stability. In the case of retirement, retirees often miscalculate their budget and spend over 50% of their saved capital on leisure activities (mostly travelling).

This, in turn, leads to a potential financial instability.

c. Neglecting Investment Growth:

Simply saving money without investing can lead to missed opportunities for growth. Keeping large sums in cash instead of investing can significantly reduce overall returns.

On the other hand, relying solely on one type of retirement plan or investment instrument can limit access to funds and increase tax liabilities. It’s crucial to have a mix of tax-deferred, after-tax, and taxable accounts to ensure financial flexibility.

Check out some other options available in India in addition to normal retirement plans, such as the National Pension Scheme.

d. Over-Reliance on Employer Benefits:

Building a retirement plan that heavily depends on employer benefits like gratuity, pension, etc., can be risky. It's important to ensure your financial independence through personal savings rather than relying on specific job-related perks.

e. Ignoring Health Care Costs:

Medical expenses can escalate quickly in retirement, and many underestimate these costs. Healthcare can take up a significant portion of retirement budgets, with retirees aged 65 or older spending an average of ₹3.6 lakh per month, translating to about ₹43 lakh annually.

Hence, planning for healthcare with good insurance plans is vital to avoid financial strain later.

f. Underestimating Inflation:

Failing to account for inflation can decrease purchasing power over time, impacting your retirement income strategy. For instance, if inflation averages 3% annually, a retiree's purchasing power could decrease significantly over a 20-year retirement period.

Let’s understand this with an example. If you plan to live on ₹50,000 per month, after 15 years, you would need approximately ₹78,000 just to maintain the same standard of living. This oversight can significantly diminish your financial cushion.

This is a more dangerous scenario for FIRE retirees since the duration of the retirement is increased by over 10-15 years.

g. Failing to Develop a Withdrawal Strategy:

Without a clear plan for how and when to withdraw funds from various accounts, retirees may face tax implications and risk depleting their savings too quickly.

A well-thought-out strategy can help manage withdrawals effectively while minimising tax burdens.

The need for a growing awareness about retirement planning among younger generations is an urgency. However, many still prioritise immediate financial needs over long-term savings. Avoid making such mistakes, dear reader, and get on with your retirement planning this very second.

To know more about how to plan your retirement wisely and save a huge surplus, check out this video by Pranjal Kamra:

The Bottom Line

The world-renowned novel Ikigai: The Japanese Secret to a Long & Happy Life also supports the concept of never retiring.

The below excerpts from the novel explains the theory of not retiring early or being active throughout an individual’s life.  

"Whatever you do, don't retire!

There is, in fact, no word in Japanese that means retire in the sense of "leaving the workforce for good" as in English."

To retire early and save more, we compromise on our present lifestyle, stretching our present budget, mental health, and even our families’ well-being. This results in stress failing to meet unrealistic goals and unnecessary cost-cutting (sometimes essential ones) which can cause us to lose desire to continue working.   

Look at it this way. Renowned investors like Warren Buffet, Charlie Munger & Ratan Tata were still active in their 90s despite having secured finances. Wonder why? Because they loved what they were doing and never stopped striving for more goals.

So, how about you take a moment to think about why you want to retire early? If it's because of work-related burnout, then maybe you need to change that.

After all, you don’t want to regret your freedom, right?

What do you think should be the ideal age for retirement?