This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
I think that one of the main things that people would question about a retirement plan where you retire at age 45 is how you could afford to do this? Economically speaking, there is a significant opportunity cost to retiring in your 40’s, which in the past has been prime income-earning years. In my case, I could be giving up hundreds of thousands of dollars in income that I very well might need at some point (for whatever reason). Not only that, but in order to retire, I have to save a significant portion of my income – giving up on a lot of “stuff” and experiences that this income could buy.
The riskiest part of retiring early is outliving the savings that have been accumulated. It would be very undesirable to be in my mid-eighties and find out that I have very little money left. The potential for bankruptcy is something that needs to be examined prior to leaving the workforce and something I will have to monitor while I am no longer bringing employment income in, as I would not like to live off of cheap cat food in my retirement years. 😉
For me, I will accept this risk. I would like to control my own day, rather than having to go to work in order to pay my monthly expenses. I would rather do what I want to do. This freedom is worth a lot to me and I am willing to give up my prime earning years, as well as “stuff” now (a second car, a bigger/fancier house, an 80 inch television) to be able to do what I want to do from my 40’s on.
The risk of running out of money can be mitigated by (a) saving enough in the first place and (b) ensuring that money withdrawn from investments is done so safely, which depending on what you read is around 4% per year. Additionally, as long as I monitor my budget compared to my investment earnings, I would hopefully be able to curtail some expenses in order to stay retired and not have to re-enter the workforce.
On a whole, the goal of early retirement is still fairly small-scale, when you look at the population as a whole. Most people haven’t put much thought into it, and if they do happen to stumble across someone like me (in my experience) tend to dismiss the goal and are quite skeptical on whether I can do it or not.
If you’re on an early retirement path, how do you deal with the potential risks that come with exiting the workforce at a relatively young age? Are you comfortable taking this risk?