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.


  1. says

    “The rat race”? :) I enjoy my job, thank you very much!

    In all seriousness, though, I would be happy to work until I was 70 granted I could secure a job with a very low stress level and I felt that my position was helping the greater good of the organization. Three days a week doesn’t sound bad either!

    Since I’m not really sure what the future holds, I’m content with saving 40% of my salary just in case that dream job isn’t available down the line.

    I commend you, DM, on your impressive goal at retiring at 40! I wish you the best of luck and hope you find something incredibly meaningful and fun to do. In the meantime, keep up the good work!

  2. says

    Hey Mantra,

    Promise me one thing: when (yes, when and not IF) you retire at 40, please keep blogging. Your insights, posts, thoughts, frankness, and inspiration are too good to discontinue.

    Take care,


  3. says

    Good stuff Mantra! I’m also aiming to retire early and do some non-profit work afterwards. I’ll miss my work income, but the dividend income will hopefully be enough.

  4. says

    There is one benefit to not having to work at a job: travel options. You pay more for travel if you need to know in advance when you are going and where because you are probably going along with the crowd (spring break, summer vacation, etc) when demand is high.

    Even though I still work, I travel to random places using last minute flights and hotels to save money and have fun.

  5. says

    I recently found your blog and it is very inspiring. What really caught my attention is your savings rate. It’s very impressive and if you can keep it up you will surely achieve your goals. I also plan to retire in my 40’s, although for me the number is 48.

    You have a sensible portfolio, I own many of the same stocks: ABT, COP, CVX, INTC, JNJ, KO, PEP, PG, PM. I am looking to add MCD and WMT sometime, but they seem to be kind of pricey right now. Have you ever thought about investing in MLPs or REITs? They have been nice sources of income in my experience.


  6. says

    Mantra you ask a good question, becuase in reality you will likely already be retired when your 40 – thanks to your investments – and your savings strategy :) Whether you like your job or not, you still have the option to choose… How nice is that?

    I know in 10 years I can collect my pension. Although I like my job, count me out of the rat-race – thank you :)


  7. says


    That’s really admirable that you love your job. I’m a bit jealous of that. I’m happy for you. By the way, I wasn’t attacking anyone who happened to like their job. I think that’s a great quality to have. Rather I was simply pointing out that trying to retire early in life isn’t as risky as people make it out to be.

    Saving 40% of your income is great. You’re not far behind me and I’m trying my hardest at budgeting every expense I have. So, that’s pretty great.

    Keep up your great work as well!

  8. says


    Wow. I don’t know what to say. That’s probably the biggest compliment I’ve every received. Thank you for that. I’m glad that you enjoy the blog and I hope to continue it for many years to come.

    By the way, I’ve tried to read your blog and it says I’m not invited. Is there a way to get invited?

    Thanks so much for the encouragement and support! It really means a lot.

    Best wishes!

  9. says


    That’s an excellent goal to have; to do non-profit or volunteer work after retiring from paid employment. Good for you! I may do a little of that myself, depending on what kind of situation I find myself in at that particular time. You’re doing great on your journey. I’ll meet you there!

    Thanks for stopping by!

  10. says


    You nailed one of the biggest advantages of being financially independent, and that is being geographically independent. Once you no longer have to live in a particular city due to being employed there the world becomes a pretty big place all of the sudden. I’ve also considered how great it will be to be able to visit family in the middle of March or mid-August instead of on the holidays when it’s expensive like I do now. I recently paid over $500 for a plane ticket to visit family in Michigan for Christmas. If I was financially independent I would have flown up on an off-time and paid much less. Or, I would have taken a leisurely bus ride or train ride and saved even more.

    Thanks for stopping by!

  11. says


    Thanks for stopping by and commenting. I’m glad you found the blog. I certainly hope I reach my goals and I hope I can maintain my savings rate. I think my ability to keep saving 60%+ of my net income will revolve around earnings more than anything else, as I’ve become pretty proficient at living frugally.

    48 is a great retirement age. I think that’s really nice. That’s a lot younger than most people, as every retirement article I read lately keeps stressing people to work into their 70’s now. The constant barrage of information on how underfunded baby boomers’ retirement plans are is troubling as well. 48 would be fantastic, in my opinion. That’s at least 15 years younger than most people.

    Great portfolio there. We have a lot of the same stocks. I try to maintain a pretty conservative portfolio with a few outliers, TEF being the biggest. I’m currently considering selling TEF for a tax loss and picking it back up early next year as a smaller position perhaps. MCD and WMT have both become expensive. WMT was ripe for the picking for quite a while there as it hovered $50-$53. I figured it’d still be there, to be honest so I didn’t jump on any more as I figured it lacked a catalyst.

    On MLP’s and REIT’s I still don’t completely understand the tax structure of them, so I have stayed away. It seems that the high dividend payouts are somewhat of a return on your capital gain, as the payouts reduce your cost basis, correct? So, when you sell you’ll owe a huge tax bill as with some of those investments your cost basis could theoretically go below 0. That’s my understanding on it, but I could be wrong. It seems the REIT’s a bit risky right now due to the low interest rates we’re experienicing right now…especially the mREIT’s like AGNC and ANH. I know a lot of dividend growth investors are keen on MLP’s, due to their profitable business model, but again the structure of the investment gives me pause. What’s your take on them? I guess if you never sell, you’ll probably be well off.

    Thanks for stopping by! I hope you keep in touch.

  12. says

    Dividend Ninja,

    You nailed it there. It’s all about choice. Financial independence gives you the freedom of choice. You no longer “have” to go to work, but you can certainly “chose” to. And I think that simple choice probably makes working a lot easier to swallow. I can imagine someone who achieves financial independence finding it a lot easier to go to work simply because they know they could go home at any time and never come back.

    Good on you for collecting a pension in 10 years! That’s great to have that little countdown going…just waiting to collect that check. The only “pension” I may be able to look forward to is Social Security if it’s still around when I’m old enough to collect. We’ll see.

    Thanks for stopping by Ninja. Best wishes!

  13. Anonymous says


    Retiring at forty is a worthwhile goal. However I see a couple of downsides to your plan

    To give you my mindset let me tell you a little about myself. First off I am 50. I own my own farm, homestead really, and can/do produce a large percentage of what I eat, meat, eggs, veggies, etc. I work as a computer programmer. My investment income could cover my bills as my current spending is.

    So why don’t I quit today. Two things really.

    Being a computer programmer in a job environment like we currently have if I were unemployed for a couple of years my skills would go stale. Yes if necessary I could be a greeter at Walmart but I currently earn in a couple of weeks what it would take me a year to earn at that type of job. Thus if I leave my job I have to assume I can’t go back. I have a friend who did this to be a home inspector a couple of years ago and has been seeking computer pgm jobs since the housing mkt has dried up and with it his income.

    Second is health insurance. With a job I pay $30 every 2 weeks. Without a job its like $30 every 2 days. Thats the unexpected expense I don’t know how to handle. At 65 if things continue then I can go on med-care but at 50 its private insurance. Maybe O-Care will save the world. I don’t know and will see what 2014 looks like.

    Not to burst your bubble I just wanted to point out a couple of things you didn’t mention in your post


  14. says

    On MLPs-

    First of all the bulk of my portfolio is dividend growth stocks such as PG and JNJ. I also consider companies with higher yields in the same way that you bought TEF.

    The way I see it, the biggest benefit of MLPs is the way they are taxed. Instead of a dividend it is a return of capital. A ROC is not a taxable event, instead it reduces the cost basis. What that means to me is that I can defer paying taxes on the distributions until I decide to sell it (hopefully never). I think of it as something like an IRA within my taxable account. If I can defer taxes, it means extra compounding (this would be especially amazing if the Bush tax cuts expire). The basis cannot go below 0, any distributions would be taxable at that point. Also as I’m sure you are aware most MLPs have high yields that increase over time.

    MLPs have downsides. The biggest being tax preparation in that they send a K-1 which can be confusing to some people plus the fact that you might have to wait to get that K-1 near the end of tax season in some cases. A risk is if the government decided to change the tax code. They wouldn’t be as enticing.

    You would need to spend some time reseaching these to get a good understanding. In general they payout more than earnings due to huge depreciation of pipelines or other assets. I look at cash flow, not earnings. They are not required to payout 90%+ of earnings (it seems most do), but they must recieve 90% income from certain activities. E.g. a pipeline MLP must receive 90% income from operating pipelines. They are quite unique and a lot different than REITs.

    I bought my first MLP in January 2011 and have since added one more. It’s a little experiment to see for myself how the K-1’s work. I have been pleased with the distributions so far.

  15. says


    Thanks for stopping by and adding your thoughts. I appreciate it!

    Everyone’s situation is different, of course. You didn’t list or comment on your income/expenses so I don’t know how possible it would actually be to retire early. You made a comment on being a greeter at Wal-Mart. I could actually do that and pay all my expenses and still invest. That’s the great thing about living frugally. Even in a worst case scenario I could still get by.

    Medical care can be had cheaply in America if you’re interested in a HDHP. Get one with a $5,000+ deductible and your monthly payments will likely be around $100, which is comparable to your current payment. If I got really sick I’d probably move to another country with much cheaper health care.

    Again, my plan does not apply to everyone. And, I’ve said a few times that early retirement or quitting full-time work isn’t necessarily a great or noble goal to have. It’s just something that works for me and something I’m compelled to do. This blog is more about providing inspiration and documenting a journey than it is a platform to “convert” or “convince” people that this is the right thing to do. I only try to provide inspiration to like-minded individuals with posts like this one.

    Best wishes!

  16. says


    Thanks for sharing that information on MLP’s. I certainly like the business model as they’re cash cows.

    One company I’ve looked at a few times is KMI, as they own the general partner to the MLP Kinder Morgan Energy Partners (KMP). They also own the incentive distribution rights. It looks like an interesting play, but my lack of knowledge in this sector has kept me on the sidelines up until now. It does look interesting due to the fact that it is incorporated and won’t produce any tax headaches.

    I wish you the best of luck with all your investments! Keep in touch.

  17. Jack Harris says

    To each and everyone, their satisfaction in life can come from a different source. I wouldn’t want to stop working a it gives me some kind of balance in my life that is fulfilling. When I was working in a company, though, I did not like going to work in the morning and leaving my home to go to some ant colony to work off my hours. As I do not really need much money to live, I have found that the best solution for me is working in a half time job from home, namely some decentral call center functioning through a cloud database (see here: Means that I need some self-discipline, but then I have a lot of free time and I am at home at once when my shift is done. And I have lots of free time every week.

  18. says

    EFT and others, the tax issue with MLPs is managable. One of my investments last year sent me a detailed visual diagram that exactly told you where to report on your tax return all the info on the K-1! (I will post info on this soon when taxes come due).

    But another thing you should know that is important is how sales are accounted for. Let’s say you own 100 shares. Then you buy another 100 shares cheaply. You can’t simply sell those shares for a quick gain because the MLP will account for an average buy price not the last price.

    So, this means that your tax bill will likely be higher than you expect.

  19. says

    “Going back to work” isn’t as easy as it might sound. A multi-year hole in your resume can make it difficult to get back to the same job you used to have.

    Also traveling assume you don’t have kids, because if you don’t have a work to go, they have school to attend. So you end up being tied to their schedule anyway.

    Lastly I think time is like disk space : no matter how much free time you have, or how big your new hard-drive is, it’ll eventually end up being filled one way or another. It’s amazing how fast a day can go by even when you have nothing to do!

  20. says


    I completely agree. Leaving your career to pursue other interests will make it difficult to reestablish a position doing what you were before. That’s why I mentioned seeking work in other industries, part-time work or freelancing. I think some of it depends on what you were doing, how qualified you were and your experience level. If you’re particularly experienced and qualified and there is a shortage in your industry I would argue that even with a multi-year break from your career you could get back in. Experiences will vary here.

    Children definitely complicate things. I suppose I wrote this piece based on my own aspirations and I don’t ever plan to have children. Although, traveling with children is certainly possible and I’ve actually seen a few blogs out there where full-time travelers globe trot with children. I would say it isn’t something I would wish to experience, however. Also..”traveling” is a very generalized term. When I say I’d like to travel I would like to stay in a place for a year or two or three and move somewhere else. I’ve never had a desire to hop from place to place, never getting to know the local scenery.

    I agree with you on the last part as well. This rings very true when I have days off and the days still fly by even without work. Of course, my experience largely depends on the fact that in the back of my mind I know that the weekend is short and I’ll have to go back to work on Monday. I suppose things would slow down a bit when I’m not trying to cram all my relaxation/entertainment time into two days or less. Some of it psychological as well, I’m sure.

    Thanks for stopping by! I appreciate your comments. Good stuff!

    Best wishes.

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