There are good times to retire early and then there are bad times to retire early. I'd like to highlight the worst times to retire early to prevent you from living a suboptimal life.
As someone who retired in 2012 and mentally un-retired by 2014, I feel it's my duty to share all the landmines I've come across before you step into the minefield. Retirement isn't all lollipops and roses.
To review some of my key findings, please read these posts before or after this post:
Not having to work is nice. However, if you retire at the wrong time, you will experience a lot of fear, doubt, and uncertainty. These feelings will eat away at the pleasantry of early retirement. The uncertainty might get to the point where you wish you had never left a steady paycheck behind.
Ideally, you want to time retirement perfectly so that you get to do everything you want to do with your newfound free-time without having to worry about money.
Please also be aware that the one constant in life is change. The key to a happy retirement is to be dynamic in your thoughts and actions.
The Worst Times To Retire Early
All else being equal, not having to work is better than having to work. However, let's review the top 10 worst times to retire early in order to maximize your overall well-being.
1) During a global pandemic.
Retiring during a global pandemic is absolutely one of the worst times to retire early. If you are a responsible individual, you likely masked up and spent most of your time at home, like the majority of the world's population in 2020 and 2021. Therefore, your life is not much different from regular working people.
Travel is one of the top activities on every early retiree's list. Unfortunately, many borders closed. If you are able to explore a new country, you will likely have to quarantine for 14-days. In China, Taiwan, and Hong Kong, you were literally not allowed to exit your room during the entire quarantine period. In Hawaii, you had to quarantine for 14-days as well or get fined or deported.
With fewer people to see and fewer things to do, you will slowly get bored with your early retirement lifestyle during a pandemic. Having a job will help keep you focused during times of maximum uncertainty.
A job will also make time go by quicker and potentially protect your mental health. Further, you can find jobs where you can work as little as two hours a day and still get paid full time!
With a job, you can only take 2-6 weeks of vacation a year anyway. Therefore, not traveling anywhere will feel more normal. However, if you are an early retiree, not being able to travel feels worse because you get all 52 weeks off.
Finally, if you catch the coronavirus while working, you'll still get paid your salary and receive benefits as you recover.
What went on with us:
Since we couldn't travel like normal, I spent more time writing on Financial Samurai, updating old posts, recording more podcasts, and finding business partnerships that fit with the readership demographic. If I couldn't have as much fun, then I might as well have been more productive. My wife is the CEO of our kids and has more than enough to do.
The problem with doing more business development on Financial Samurai is that it's not enjoyable. Therefore, my plan was to stop looking for business deals once I got the vaccine, once Biden raises taxes, or once there's herd immunity, whichever comes first! I'm exhausted.
During the pandemic, I ended up writing a Wall Street Journal bestseller called Buy This, Not That. I wanted to publish a new book with a major publisher as a way of making lemonade. This way, I can always look back on the pandemic and have something physical to show for the bad times!
I do plan to re-retire sometime in 2024. I've made enough money since the pandemic started to boost passive income to over $350,000 a year for the past three years. In fact, a bear market has boosted my passive income by about 10%.
2) While you or your spouse is pregnant.
Another terrible time to retire early or retire early is when you or your spouse is expecting.
One of the best benefits of work is parental leave. Obviously, some companies are more generous than others. The time to retire early is not while you or your spouse is pregnant. The time to retire early is after you've taken full advantage of your company's parental leave policy.
At many of the top firms, employees get three months of paid leave a year or more. Therefore, take three months of paid leave, come back for several months, and then retire.
I don't recommend giving your notice the week after fully exhausting your parental leave. If you do, you'll create bitter colleagues and burn bridges.
It's much better to come back to work for at least three months and see how things are. You might love taking a vacation from childcare by going back to work. And you might also find work to be much more meaningful once you have children.
If you plan to have multiple babies, then consider retiring after you have your last child. One of my former colleagues had three babies within five years. She was able to take off nine months plus all her vacation days. She still got promoted to Managing Director and is making big bucks.
What we did:
My wife and I got zero parental leave benefits because we had our children 2-7 years after retiring. If we did have a baby while working, I think at least one of us would have tried to negotiate a severance within 12 months of birth.
I sometimes daydream about what it would be like to get paid three months' salary to take care of my children. Surely, it would feel like a double-win. We are considering having a third kid. If we do, perhaps it is strategically wise for at least one of us to get a job.
3) When your children begin school full-time.
For stay at home or work from home parents, retiring once your kid starts school full-time at age 5 or 6 is a mistake. Unless you plan to home school, you now have 6 – 8 hours of free time to do whatever you want. Therefore, you don't need to retire early.
The time to retire early is during the first five years of your child's life before they go to school full-time. Every single pediatrician and child psychologist believes the first 3-5 years are the most formative years of a child's life. Therefore, spending the most time with your children early on is most important.
What we're doing:
I entertained going back to work in 2022 and 2023 now that our son is in kindergarten and our daughter is going to preschool three times a week. But it's just so hard to go back to the grind. It does seem like more workers have more flexibility and aren't grinding as hard by quiet quitting. In fact, the FIRE movement could be getting obsolete due to all the flexibility. However, having a boss just stinks.
I'm always open to new opportunities, especially since work is more fun if you don't need to work. However, I really like the idea of homeschooling while traveling the world.
For now, I’ve decided to remain a fake retiree and just do my own thing. I will probably publish another personal finance book after Buy This, Not That became an instant Wall Street Journal bestseller. My publisher is offering me another book deal and I’ve taken a pickleball as a hobby. As a result, I don’t want to work full-time anymore for anybody.
4) Near the top of a bull market.
A bull market makes many investors feel like geniuses. The problem with feeling like a genius is that there is a tendency to extrapolate bull market returns well into the future. If you're counting on aggressive return assumptions to fund your retirement lifestyle, you may be sorely disappointed.
Instead of retiring in a bull market, it's much better to retire in a bear market. If you retire in a bear market, your finances will be better stress-tested.
Chances are higher you will be able to stay retired because bear markets tend to last less than two years. If you can survive off your investments when times are bad, you can most certainly survive off your investments when times are great.
Retiring several years after a bear market isn't bad too. Because your memory of devastation is still fresh, you will be more rational and conservative in your investment return assumptions.
In other words, retiring in 2023+ may not be so bad because we've recovered from the 2022 bear market. Therefore, retiring now versus right before the correction is better.
What we did:
I retired in 2012, two and a half years after the stock market bottomed. The economy was still very uncertain, however, my severance package gave me the confidence to leave. Please read How To Engineer Your Layoff, if you want to learn how to negotiate a severance and walk away from a terrible job. It's in its 6th edition.
My wife retired at the beginning of 2015 when the economy was strong and I had found my groove with Financial Samurai. It took her six months to leave because the company agreed to pay her a full-time salary after she negotiated to work for only three days a week.
The bull market seems like it will continue due to an accommodative Federal Reserve and Federal Government. We've got stimulus checks, low mortgage rates, and rebounding corporate earnings. However, if you are planning on retiring soon like me, I would suggest reviewing your asset allocation.
Personally, I decided to take some profits and sell into strength once the S&P 500 breached 4,100 in 2021 and spend it on life. This turned out to be a good move because the S&P 500 declined to about 3488 in 2022. However, the S&P 500 has rebounded again.
5) When you've just taken out massive debt.
Massive debt usually means taking out a mortgage to buy a home. I would not recommend retiring early until you pay off your mortgage or have enough capital to pay off the mortgage if you want to.
Back in 2008 – 2011, the people who were the most mentally distraught were those who lost their jobs and had a mortgage to pay and children to feed. Many of these homeowners not only experienced depression but also lost their homes due to foreclosure or a short-sale.
Fast forward to today, most of these homes have rebounded in price. Many home prices have even far surpassed their 2006-2007 highs.
If you are unlucky and buy a home before the beginning of a multi-year decline in prices, you should at least work for as many years as it takes until your home price gets back to even.
Living in a mortgage-free home feels amazing. If you have a mortgage, knowing that you can easily pay it off if you want to may feel more amazing if your home's value is going up.
What we did:
We took on more debt two years after I retired by buying a fixer-upper in a less expensive neighborhood in San Francisco. I viewed the purchase as a money-making opportunity in addition to changing things up. Then we rented out our larger, more expensive house to boost passive income by ~$4,700 a month.
We weren't willing to pay market rent of $8,000+ a month for our house at the time. Therefore, we figured we might as well rent it out and economize.
In 2020, we decided to take advantage of better real estate deals soon after lockdown. Thankfully, I found a sweet house that would have sold for $250,000+ more than we bought it for if it had listed before the pandemic! Given we have more debt, it's time to work more to pay it off.
6) Before you've worked as many years as you've gone to school.
Most of us will go to school for 13 years, from kindergarten through the twelfth grade. Some of us will add on four years for college. If you work for less than 13-17 years, you may regret never maximizing your education, especially if it is a private school one. You may also regret not maximizing your full work potential.
Thirteen years after high school puts you between 30 – 31 years old. Seventeen years after college puts you between 39 – 41 years old. It certainly seems too young for high school graduates to retire at 30 – 31 years old.
Retiring at 39 – 40 years old as a college graduate is more reasonable as it is close to the ideal retirement age range of 41 – 45.
The people most at risk of retiring too early and feeling lost are those with graduate and doctorate degrees. For these people, retiring early means coming to terms they made an educational mistake as an adult.
The double whammy of making an educational mistake and not fulfilling their work potential could lead to depression.
What we did:
My wife and I worked for 13 years each before retiring. Therefore, we were four years short of the number of years we went to school. Because I went to business school while working, I still only count being in school for 17 years.
I justified my earlier departure because my severance package paid for 5-6 years of normal living expenses. Meanwhile, I had already promised my wife that she could also retire by 35 if everything turned out OK with me. She saw how much happier I was and wanted to join me ASAP.
In retrospect, it would have been best if I had worked for one or two more years. If so, I could have planned my departure even better. Here are some things I'd do different if I could retire again.
7) During a tumultuous relationship that leads to a divorce.
When things are bad at home the virus tends to spread to your work and other relationships. When you're fighting, it's easier to start thinking irrationally.
You start indiscriminately selling all your assets because you're no longer building wealth together. The more you lose, the more your partner loses! You may also start slacking off at work because you no longer care what your colleagues think.
Don't retire early before or right after a divorce. Not only will you not be thinking straight, but you will also likely have to rebuild much of your assets.
What's up with us:
Still going strong since first meeting in college in 1998. Less work stress has made home life better. However, raising kids during a pandemic is zapping our energy away.
One of the great things about meeting in college is that we both had no money. As a result, money has seldom ever been an issue for us because we've been on the same page for so long. If we lost everything, we would certainly feel distraught. However, we were so happy when we had nothing that I'm sure we'd make things work no matter what.
All this said, any marriage takes work. The pandemic has really tested my patience given we're all always at home. I can't wait for California to fully open back up due to herd immunity.
8) Before taking a sabbatical.
Before retiring, I highly encourage you to take a sabbatical, if your company has such a policy. Perhaps taking a month off is all you need to get motivated to work again.
Don't feel guilty about taking a sabbatical either, especially if you don't have kids. Think of a sabbatical as the childless worker's parental leave equalizer.
What we did:
Neither of us took a sabbatical, even though both our companies allowed them. Not taking a sabbatical is one of my biggest regrets. I was with my company for 11 years and could have taken two, 1-3-month long sabbaticals.
It would have been hard for me to take the first sabbatical after five years of work because I would have only been 29. I had recently graduated from business school that was 80% paid for by my company. However, taking a sabbatical before negotiating a severance would have been a no-brainer.
During the sabbatical, I would have received 1-3 months' worth of salary, healthcare benefits, and 401(k) profit sharing. The extra 1-3 months of sabbatical would have also given my severance package a slight boost. Finally, I wouldn't have used five vacation days, which were worth five days of pay.
Taking a sabbatical probably would have extended my work career for at least one, if not two years. As a result, not taking a sabbatical may have cost me as much as $500,000 in net worth.
9) Before getting a big raise and promotion.
It usually takes a certain amount of years before you can be considered for a raise and a promotion. In banking, for example, the promotion cadence is usually every 3 – 5 years once you reach Associate. In other fields, you may be eligible for a promotion every year.
If you are more than 60% of the way there to your next big raise and promotion, I recommend gutting it out until you get it. More than status and money, the biggest reason for staying is to prove to yourself you could do it.
What happened to us:
After three years as a Director (one above VP), I was shooting for Managing Director. After not getting promoted to MD at 33, I realized that it would take me at least another three years to ascend since the head of my desk in NYC wasn't even an MD. Our MD had just been let go, so I had to wait my turn.
I didn't want to wait around, so I plotted my escape. In retrospect, I probably should’ve stayed on for one or two more years to bank more money. Looking back now, I see that retiring at 34 years old was crazy early.
My wife was able to get promoted to the title she wanted before leaving a year later. She had previously been passed over for two guys. She was so mad about getting passed over that she finally came around to the idea of negotiating a severance. But first, she had to get promoted.
Instead of having to wait another year, she got promoted six months later because she demanded one. She chronicled her severance negotiation journey here.
10) When you've become accustomed to telling yourself lies.
One of the worst times to retire is when you've been fooling yourself about your financial health and true desires.
We tell ourselves lies to make bad circumstances seem better. We also tell ourselves lies to help make up for our deficiencies. When it comes to retiring early, the most common deficiency is not having enough passive income to cover living expenses.
As a result, here are some common lies we may tell ourselves:
- I'll have no problem withdrawing at a 4% or higher rate (while frantically trying to make more money through a second career)
- I don't expect medical expenses to be a problem (while ignoring the fact that healthcare costs increase by 8-10% on average a year)
- I'm OK living extremely frugally (while a spouse or partner works to pay for healthcare and general living expenses so you can live comfortably)
- I've got enough in my investment accounts. Thus, I don't need to contribute another dollar to take care of my 65-year old-self 30 years from now (while counting on historical rates of returns and disliking your job)
- I'm happy with what I have (while trying to build a business for the sole purpose of making more money)
- I'm totally fine with not having kids so we can be more free (while secretly hoping to have someone keep you company when you're old)
- Everybody else is retiring early, therefore, I deserve to retire early too (while not coming close to putting in your dues)
Lying is a temporary coping mechanism that ultimately hurts you. It is much better to recognize reality and take steps to achieve your goals. There's no need to pretend everything is hunky-dory all the time. Just keep working, saving, investing, and striving towards your goals. We're never going to get everything we want.
What happened with me:
Before retiring, the lie I told myself was that I was happy enough at my job. It paid well and I could eat free Kobe beef if I took clients out for dinner! But my wife told me later on that I would often come home and complain about something that happened at work. I didn't realize how unhappy I was until I left!
The reason why I no longer told anybody I was retired a year after leaving my job was because I felt stupid saying so. It also felt disingenuous because I was spending 2-3 hours a day on Financial Samurai. Once I landed a job as a high school tennis coach, for three months a year, I proudly told anybody who asked that coaching was my job. I longed to assimilate back into the real world.
Although funny enough, as soon as I mentioned online that I was a tennis coach, I got a lot of backlash from the Internet Retirement Police. After the incident, it was fascinating to see the same types of people who judged me online were very similar to the people calling the cops on innocent folks having a BBQ in a park, confronting a resident for decorating his own home wall with chalk, calling the cops on a girl selling cookies on the side walk, and calling the cops on a man birdwatching at a park! I’m not sure what propels people to be so nosy?
The psychology of money and human behavior is a wonder to observe and write about. So many people think that once you do the math, retiring is easy. In fact, running the numbers is the easy part. Living a life that consistently makes you happy is the biggest challenge.
Be Patient With Retirement
So there you have it. These are the top 10 worst times to retire early or retire normally. Don't be in a rush to retire early. There are many worse things in life than working at a job that provides a steady paycheck and healthcare benefits.
Sure, your work might be stressful and your manager might be a two-faced backstabber. However, if you don't have enough investment income to cover your living expenses, you simply cannot retire early comfortably.
If you truly hate your job and don't have enough investment income, make it your mission to find another job. And engineer your layoff while you're at it. The luckiest people are those who've found something they enjoy doing that also pays them money. Nobody retires from a job they love!
I retired from finance after 13 years because I no longer enjoyed the work. But if I could retire all over again I would probably have worked for six more years until age 40. If I did, I would have built more wealth, gotten parental leave, and had less regrets.
I tried to find a new career in tech or at a startup, but couldn't find the right fit. Therefore, all that was left was writing on Financial Samurai. Thankfully, Financial Samurai grew and brings me joy every day.
With a Democrat as President, it has become incrementally better to retire given more financial support from the government. At the end of the day, the best time to retire is when you have enough passive income and you are mentally ready to let go. Once you do, enjoy the ride!
Free Tool To Help You Retire
If you want to retire early, I suggest signing up with Empower. Empower is a free online tool I've used since I retired in 2012. Before Empower, I had to log into eight different systems to track 35 different accounts. Now I can just log into Empower to see how my stock accounts are doing. I can easily track my net worth and spending as well.
Empower's 401(k) Fee Analyzer tool is saving me over $1,700 a year in fees. Finally, there is a fantastic Retirement Planning Calculator to help you manage your financial future. I frequently use the Retirement Planner as a coach to keep me on track. There's no better free tool on the market.
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