Do you dream of life with no alarm clock, no commute, and no boss? Then you might be one of the many Americans who aspire to retire early. But for many, the dream of early retirement leads to a rude awakening when the reality of living on a limited income sets in. Today, we examine early retirement and the challenges it brings.

Usually when people ask questions about financial decisions, it’s difficult to answer without having more detailed information about their situation. “How much do you earn? Do you have consumer debt?” and so on. But if you are asking, “Should I retire early?”—whatever your situation—we would say, “No, please don’t!”

This is an especially important conversation to have now, because many have been forced out of work. Millions of jobs have been killed by the Covid response, and many aren’t coming back.

So if you’re already out of work and nearing 65, you might think… “Wait—should I just retire now!?” You may even be calculating your social security, adding up your retirement and investment accounts, and crunching numbers to see if you can cover your monthly nut.

Unfortunately, that’s your first mistake. And it’s the first of 5 considerations that may change your mind about retiring now—or anytime soon!

5 Things to Consider Before You Retire Early

Perhaps you imagine early retirement would be much like a never-ending vacation. And who doesn’t love vacations? But before you book your trip to the land of no-returning-to-work, there are five things to seriously consider. The truth is, the reality of early retirement might not be what you think.

#1: The Truth about Inflation.

Most people dramatically under-estimate inflation. They under-estimate the rate of inflation, the number of years their money must last, and the impact of inflation on their lives.

If you have calculated for a 2.5 or 3% inflation rate, you have likely under-estimated the real and future inflation that will affect you. The actual inflation rate for many expenses is far beyond the Consumer Price Index—a misleading calculation at best. The CPI’s “basket of goods” is ever-changing—often leading consumers to believe inflation is lower than it really is.

It is true that you can buy a much better TV for less money than 10 years ago. But the costs of food, your home, your child’s education and the supplemental healthcare you desire (not covered by Medicare) are dramatically higher.

And how long will inflation impact you? Whether you stay in your home or move into an assisted living situation, it will affect you for the rest of your life. And that may be longer than you think!

A growing number of people are living to age 100 and beyond. Are you healthy? Life insurance policies are now written until age 121. People will begin to live long enough to see their policies endow. (I.e., if they own whole life policies—not universal life—policy owners will receive their own death benefit while still living!)

The idea that most people can retire at age 65 after working 40-ish years with enough to get them through the NEXT 40+ years is, well, ridiculous! Look back over the last 40 years and see how the price of homes, rent, food, entertainment, etc. has increased. Often, it’s by a factor of 8 or 10! Now project the same inflation into the future. Still confident you’re prepared?

And surely you have noticed the bailouts and rampant money-printing in response to our current crisis! The money supply has been dramatically inflated to historic levels, as the chart below indicates. (You can download it here.) And this is what inflation actually is—inflation of the money supply. When you have more dollars chasing the same goods and services, prices rise. So get ready for historic inflation. The future is going to be expensive.

There is also lifestyle inflation, which has to do with the choices we make. Perhaps you used to spend your vacation time camping or backpacking. Now you prefer a nice hotel. You used to eat at the burger drive-thru. Now you prefer finer dining.

Then there are the “must-haves” that you don’t know about yet! Did you have a cell phone with a data plan 25 years ago? Probably not! The future will bring many new inventions—some you will want for yourself!

#2: The High Cost of the Unexpected

Why do people have an emergency fund? For unexpected expenses, of course! In retirement, those unexpected expenses won’t stop. As a matter of fact, they may get worse!

If most of your money is in traditional 401(k) or IRA accounts, you’ll have one huge expense you have no way of budgeting for: TAXES. What will future income tax rates be? We predict, in a word: Higher! Especially as the country seeks to rebuild our economy and our cities after this year’s devastation, taxes are likely to rise.

When working people drain their emergency fund to replace a leaky roof, save the family dog, or attend a wedding overseas, they replace the money with income. (And since you never know what nature your future expenses will be, it’s ideal to have an all-purpose fund you can use when expenses arise.) But how will you replenish your fund in retirement? Perhaps you won’t—and that’s a problem.

#3: The Joy of Serving!

My father has “retired” more times than I can keep track of! The truth is, it’s not really a money thing. He still has gifts to offer and he LOVES staying productive, contributing and making a difference!

A former school principle, he first returned to work to help an ailing charter school he had a relationship with. These days, he does statistics for the Oregon State University football team, supervises student teachers, and volunteers at an elementary school!

My mother-in-law still works 3 days a week at a hospital lab and has no plans to quit, even though she is far beyond the “traditional” retirement age of 65. For many people, work provides them with structure, purpose, continuity of relationships and the pride of productivity.

A few years ago, I wrote an entire book about re-thinking retirement. It’s called Busting the Retirement Lies and it features many stories of people who choose to stay productive and keep contributing. Some have changed careers and some work part-time. But all of them love what they do!

There’s nothing magic about age 65. It’s an arbitrary number and it’s just a number. And as life expectancy rises, it’s an increasingly irrelevant number.

One of the definitions of the word retirement is “to take out of service.” No thanks! I love staying active and doing what I was born to do: make a difference.

#4: Your Best-Earning Years!

Productivity and contribution are wonderful. So is earning money in return for the value you bring to others!

Who decided that older people should be “put out to pasture”? Why would people in the F.I.R.E. Movement (Financial Independence, Retire Early) want to miss out on their best-earning years?

As we highlighted in “Redefining Aging,” 95% of Warren Buffet’s wealth was made AFTER age 60! As people grow in wisdom, experience, and specific knowledge, most find that their highest-earning years are beyond age 50. And yet, it is the aim of many to leave the work force right at this time!

If the thought of going to work is painful, chances are, it has nothing to do with your age. You are probably doing the wrong job. And it’s never too late to make a change! Find what you were born to do and do that instead!

(Allow me to unabashedly recommend a talented coach—who happens to be my sister—and her BluePrint Process. Tammi helps people discover what gives them joy and transition into new careers.)

#5: Living a Prosperous Life!

Our first Principle of Prosperity is to THINK with an abundance mindset. Yet I observe the opposite usually happens when people retire early.

Too many put themselves on a fixed income too soon. Possibilities fade and the future becomes limited. “I can’t afford that” becomes the mantra of those who must tighten their belts and make their money stretch for many years to come. And that’s no way to live!

Give yourself an unlimited future by finding ways to keep earning—even if it’s part-time or through projects such as an online Etsy shop or investing in real estate. Allow yourself the joy of splurges vs. the tightened belt. Allow yourself to keep dreaming beyond your current budget, keep growing beyond your current knowledge, keep giving beyond your current capacity.

Retirement might not be the right goal at all—early or not. And yet, our culture brainwashes people into thinking that’s what they “should” do! But it’s not how the truly prosperous live.

So stop asking yourself if you should retire early. Instead, ask yourself instead how to live the rest of your life PROSPEROUSLY—while LOVING how you spend your time! That’s the secret to real wealth.

Finally, adopt a long-term view of your finances. This is what we specialize in at Partners for Prosperity! Explore who we are and how we serve our clients.

For more on the F.I.R.E. Movement, listen to Kim Butler share on this episode of The Prosperity Podcast: “Does the FIRE Movement Work?”

—By Kim Butler and Kate Phillips