Some people aim to retire early so they can enjoy their post-work years while they're still in pretty good health. But there's a big difference between retiring at, say, age 57 versus retiring at 38 or 42.
Proponents of the FIRE (Financial Independence, Retire Early) movement often aim to exit the workforce for good in their 30s or 40s. They'll live well below their means, bank a lot of money, and set themselves up with investments so they can live off of that passive income without needing to report to an office or punch a clock.
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It's a nice idea in theory, but there are some serious drawbacks to the FIRE movement. One is having to figure out health insurance in the absence of a job. Medicare eligibility doesn't kick in until age 65, so if you retire at 43, you'll need to pay for 22 years of health coverage on your own.
But embracing the FIRE movement might also leave you with a really small Social Security benefit. And that's something to consider before you aim for a super-early workforce exit.
You may end up sorely unhappy with your future benefits
The monthly Social Security benefit you'll be eligible for in retirement hinges on your specific earnings history. But Social Security takes your 35 highest-paid years of wages into account when calculating your monthly benefit. So if you don't have anywhere close to a 35-year career, you can expect a smaller monthly benefit, even if your wages were relatively high when you worked.
For example, let's say you started working at age 22 and retired at age 39. That means you put in 17 years of work, which should give you enough credits to qualify for Social Security beginning at 62 (the earliest age at which you can sign up).
But it also means that in your personal-benefits calculation, you'll have 17 years of wages accounted for, but 18 years of zero income to counterbalance that. All told, you might end up with a lot less Social Security than you'd expect.
Make sure a super-early retirement is really what you want
It's easy to understand the appeal of the FIRE movement. But retiring in your 30s or 40s comes with challenges beyond Social Security.
When people talk about retiring that early, they like to imagine a lifestyle that's devoid of the stress that comes with holding down a job. But they tend to forget about the boredom factor.
It's not easy staying occupied day in, day out in the absence of a job. That's something retirees commonly struggle with. So imagine how much you might struggle if you have to keep busy for 47 years instead of 27.
Remember, too, that work keeps you busy without having to spend money (other than commuting). You may be able to set yourself up with enough passive income to be able to retire at age 45 without having to go to a job every day. But will you have income to pursue different hobbies during the week? Or will you have to live more on a budget?
These are things to consider carefully before you decide to exit the workforce at a very young age. While the impact on your Social Security benefits may be secondary in your mind, it's an important thing to think about.
