Early retirement has become a dream that many professionals pursue, as it would mean financial freedom and escape from the conventional workweek. It has even become a movement named FIRE, which means Financial Independence, Retire Early, and has caught on with young professionals. But while the idea sounds good, it’s not as easy to achieve or as easy as it may seem. Early retirement is possible, but it’s more than just having a million-dollar cushion and leaving your job. Most people are not prepared for the challenges they face since they do not have a wholesome, disciplined strategy and they end up dependent on a money lender Singapore.
If you pursue early retirement, you should know that it isn’t easy, and it won’t happen overnight. The decision to retire revolves around a comprehensive assessment of your financial circumstances and the risks and drawbacks of leaving the workforce earlier than planned. To help you with that, here are the common mistakes that ᧐ften end up derailing an early retirement, and how to avoid them.
Not Consistently Saving Enough
The key to achieving financial independence is patience and consistent savings over time. Early retirees often save a huge percentage of their income, 50% or greater, throughout their working lives. You don’t need to do this if you work until retirement, but many wannabe early retirees don’t do it either, which could be a problem.
The secret to retiring early is the mindset of planning to do it eventually. Instead of pursuing short-term financial goals, early retirees need to budget and work hard to save more. This means living frugally, putting savings first, and investing regularly. But how do you implement that consistent savings level? It often takes a real lifestyle transformation — scaling back on spending, avoiding debt, and being intentional about how to spend money. Although this is a difficult task, the sooner your savings are disciplined, the sooner you will achieve your goal of early retirement.
Confusing the Essence of Financial Independence
The goal of never working again is something the early retiree has in mind, but even a casual observer knows work goes beyond earning. Early retirees may still find work again in some form or another because they miss what they were doing when they left the workforce, as it gives them life structure, meaning, and mental stimulation.
Then there are others who follow a “hybrid” retirement, in which they continue to work only on their terms. It can be engaging in passion projects, working as a consultant in their area of expertise, or running their own business. On the other end of the spectrum, some utilize retirement as an opportunity to spend time volunteering or immersing themselves in leisure activities that provide personal fulfillment.
Failing to Consider Long-Term Implications
Many early retirees are so focused on the immediate satisfaction of quitting their jobs that they do not consider the long-term financial and legal consequences of their early retirement. Although you may be able to live reasonably well early in retirement, your financial situation will likely change over time. Healthcare costs, inflation, and life events are all factors to think about, one that could affect your financial security.
One of the most common mistakes people make is not adequately preparing for healthcare costs. Unlike other countries, those under 65 years old in Singapore are not entitled to government-subsidized healthcare, so early retirees must fund their health insurance. Health needs are likely to grow as they get older and the cost may become unaffordable. Although Singapore’s public healthcare infrastructures are more inclusive, retirees should expect to incur higher medical expenses as they age, especially with the rising costs of specialized treatment and healthcare services. Hence, retirement holds considerable financial stress, and people must proactively plan their finances to accumulate enough resources for these foreseeable healthcare expenses during retirement.
Another angle to look at is inflation on top of healthcare costs. Although your current expenses might be reasonable, inflation will push costs up for goods and services over time. If your savings and investment strategy doesn’t take inflation into account, chances are your purchasing power will drop as you grow older. This is why investing in an asset that grows over time — like stocks — is that it is growing faster than inflation, ensuring that your retirement income will hold up.
Expecting Too Much from Passive Income
Another misconception is that passive income will be the solution for early retirement. Hundreds of thousands of individuals believe that creating passive revenue streams (things like rental properties, dividend-paying stocks, or digital products) will provide them with a never-ending supply of income with very little work. Though passive income can be an important piece of early retirement, it’s not as “hands-off” as you might think.
Passive income requires a lot of initial investment in both time and money. For example, purchasing, maintaining, and if needed, renovating a rental house requires a much financial and time investments and energy. Similarly, creating a profitable piece of digital content can take time to develop. Even more traditional investment assets, like dividend stocks and bonds, which are often considered a consistent form of passive income, also involve much research, patience, and risk-taking.
If you plan to depend on passive income for the majority of your post-retirement earnings, you need to be sure that you have a realistic view of the work needed to establish it and the risk that it might not pay off. Passive income is not a guarantee, and that’s something you need to consider if you want to live comfortably and avoid employment after retirement.
The Psychological Effects of Early Retirement
Most people who plan to achieve early retirement don’t consider its negative psychological effects. Work creates a sense of structure, social interaction, and a sense of identity to many people. So if you retire early, there’s a chance that you could miss it because you feel unproductive and lacking in purpose.
In case that happens, what will you do to keep yourself engaged and active? Would you volunteer, launch a business, or get a new hobby? Thankfully, if you do miss employment, you can always return to it.
Conclusion
Though early retirement is an attainable goal, it takes careful planning, as well as knowledge of the financial, legal, and emotional complexities that come with it.
Many things can threaten your retirement plan, such as a lack of proper savings, insufficient understanding on how to achieve and maintain financial independence, ignoring long-term financial planning and legal matters, overly banking on passive income, and the psychological aspects of having retired too early.
