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Early Retirement Is Almost Always a Bad Idea

Unless you have a trust fund that could pay for all your living expenses or an asset manager who will ensure you gain maximum returns on millions of dollars you have parked in the stock market, early retirement could be a curse.

However, even for high-income earners, retiring early could be a bad idea. Ask the people who lost their jobs during the 2008 financial meltdown. Even the most ‘well-placed’ executives out there had issues with their finances, and there was nothing that could possibly offer them redemption. Here is the deal- working till you are 60 is still the soundest financial decision of your life.

Let’s understand the math behind this. Let’s say you start working at the age of 20 and wish to retire by the age of 30. That gives you a small 10-year window to ensure that that you live comfortably till you are 75. That means that you need to earn enough in 10 years to support a good lifestyle for the upcoming 45 years.

If you earn $10,000/month, your annual income will be $120,000, and your 10-year income will be $1.2 million. Even if you save 50% of your income, you will only have $60,000+ returns on your investments to help you navigate through life for the next four decades.

If you earn $12 million a year, you $120,000,000 in 10 years. Save around 50% to get $60 million to sustain for the next 45 years.

In the first case, retiring at 30 is a strict no-go. In the second case, you have a lucrative $60 million sum. However, considering emergency expenses, inflation, rising cost of health care, etc., the sum may not be enough to sustain a lifestyle you like for the next several decades. You will have to put enough time and energy into creating a portfolio that doesn’t let your wealth depreciate quickly.

As the world is becoming more dynamic, changing at an unfathomable pace, it is important to stay in the workforce for longer, earn more and save more for the future. People who are retiring from traditional 9 to 5 jobs early are still invested in several pursuits that use their skills and provide value to the world. Retiring at 30 from your job with no intentions of keeping the money coming would only mean trouble.

Mike Lynch, the vice president of strategic markets at Hartford Funds puts this perfectly. He says, “It’s not our parents or grandparents’ retirement anymore. “Chances are I might spend 20, 30 to 40 years in retirement if I retire in my 50s. That’s a lot of time, so if I retire in my mid-30s, that money will have to last me 50-plus years, and I just don’t see how it happens.”

As you grow, so does your expenses. Since, one needs to take into account inflation, return on investment, and savings. So, leave radical ideas behind and ensure that you plan your finances better. Work as long as you can, save more, invest more and think about retirement after the next 30 years.

Peter Berry
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