Like most people, I'm guilty of idealizing early retirement from time to time. I love my job, but I still wish I had more time in my schedule for other activities. The reality of a long retirement isn't all hobbies and travel and family time, though.
Retirement -- especially one that lasts 20 to 30 years -- can have some unexpected drawbacks too. Here are three downsides you may not have considered and how you can prepare for them.
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1. You could outlive your savings
This is most people's biggest concern when they retire, and there's no way to guarantee it won't happen to you. But there are things you can do to reduce the likelihood of it occurring.
First, you should have a clear idea of how much you'll need to save for retirement and try to set aside at least that much during your working years. It's best to make regular monthly contributions if you're able to do so.
When you get to retirement, have a safe withdrawal strategy in place to ensure you don't drain your savings too quickly. The 4% rule is one common approach. This says you can withdraw 4% of your savings in your first year of retirement. Then, you increase this amount slightly each year to counter inflation. It's supposed to make your retirement savings last 30 years, but it doesn't always work out that way.
That's why some people prefer to be more conservative and use a 3% or 3.5% rule. Or you can create your own custom withdrawal strategy based on your plans for retirement. You might plan to spend more in the earlier, more active years of your retirement, for example, and less as you age.
You should also schedule regular checks with yourself at least annually in retirement to make sure you're following your plan. If unexpected expenses derail your budget, you may have to rethink your withdrawal strategy going forward to combat this.
2. You might miss your job
It's easy to get caught up on the negative aspects of our jobs, but they often provide a lot of benefits, apart from a salary and insurance. Working gives a lot of people a sense of purpose, and some end up feeling lost when they retire, especially at first.
Many jobs also provide the opportunity to get out of the house and socialize with others. You can find opportunities to socialize on your own, but some people find this easier to do when they have a job.
Try to anticipate how you might feel when you retire and have a plan for what you'll do if you miss your job. You could return to work part-time, or you could look for a different job that's more in line with your interests.
3. You might have trouble accessing your savings if you're under 59 1/2
Most retirement accounts charge you penalties if you tap your retirement savings under 59 1/2 without a qualifying reason. If you plan to retire before this age, you'll need a strategy to avoid this.
You can withdraw any Roth contributions you have tax- and penalty-free at any age. Or you could save some money in a taxable brokerage account to use until you're old enough to access your retirement savings.
Keep in mind that you can't apply for Social Security until you're at least 62, and you can't apply for Medicare until 65. So you'll need to be able to cover all your retirement expenses, including health insurance, until then.
None of this is meant to discourage you from a long retirement if that's something you really want. But in order for it to be a good experience, you need to anticipate and prepare for the challenges that could arise. Think about any other potential issues you foresee and brainstorm ways to overcome them, so you know what to do when you get to retirement.
