Sunday, November 20, 2011
Considering The Downside To Early Retirement
In all facets of my life, I always try to calculate my potential upside and downside to any decision I make. This is never more of a truism than when I consider investing. If you invest $2,000 in a company, the worst thing that can happen is that you lose that $2,000 investment if the company goes bankrupt and you're last in line after assets are sold. That's your downside: $2,000. What's the upside? Well, the upside is that the company can become phenomenally successful and you make a ton of money. In theory, your upside is infinite. That's why I love investing in the stock market.
Let's translate this a little to my ultimate personal finance goal: becoming financially independent and retiring from full-time work at a young age; preferably by 40 years old.
You can go back if you have to!
What's your downside to retiring early? That's an important question. If you share this goal and you tell friends and family that you want to retire early in life they'll give you all kinds of reasons this is a bad idea. You could get sick, you could run out of money or you might get bored. What if the stock market goes to 0? Well, you'd have to go back to work. And, really my friends, that's the ultimate downside. You'll have to go back to work. But..think about that for a second. Your downside is everyone else's upside and regular everyday reality. So, in essence this is a limited downside. If you run out of money or get bored there will always be a way to find work, whether it be in a different industry you were in before, part-time work or even freelancing.
The upside is what you make it. What do YOU want to do with your life?
What's your upside to retiring early? With your new found freedom from having to trade massive amounts of your time for a paycheck this will be up to you to answer. You could travel, albeit cheaply if possible. You could engage in hobbies you never had time for when you were working full-time. Perhaps you enjoy reading, woodworking, building things, engaging in volunteer work or maybe you want to educate yourself. Perhaps you'd love to find more idle time and would enjoy sleeping in and relaxing by the beach. Maybe watching movies is something that you cherish and wish you had more time for. Movie rentals can be had pretty cheaply. Maybe spending more time with your loved ones is what you really want to do, but when you were working 50 hours a week you found yourself worn out and too tired to fully devote yourself to being involved with your husband/wife, children, parents, siblings, etc.
The point is this: the downside to retiring early is that you'd have to go back to work. That's what you'd be doing anyway if you retired in your late 60's like everyone else. But your upside is, like investing, infinite. You can explore life and enrich yourself with everything this planet has to offer you. Remember this the next time someone asks you what you'll do if the stock market goes to 0 (which isn't going to happen, anyway).
Personally, I'd love to travel. It's tough to find the time and money now...and it's extremely difficult to do it like it should be done with a full-time career to attend to. It's hard to spend a year or so in Ecuador or the Philippines living like the locals do when you're working 51 out of 52 weeks a year. Most American's idea of traveling involves taking an expensive trip to (insert exotic locale here) for a week, staying at a trendy hotel and eating catered food. They spend a ton of money on this trip to reward themselves for working hard and tell themselves they "deserve it". Meanwhile, they have to immediately go back to work to pay for this vacation they just took. That's when the cycle starts all over again.
The rat race isn't going anywhere. I promise.
The downside to retiring early in life is limited. If it doesn't work out, if you get bored or if you just happen to really love working you can always go back to the rat race. Believe me, the race isn't ending anytime soon as there is no finish line. But, your upside is up to you. You can make it a dream come true and you can be the person you really want to be. So, get a plan, start budgeting and get ready to explore your life!
Thanks for reading.