The pitfalls of early retirement

EARLY retirement may have been forced upon you, or perhaps you are lucky enough to purposefully choose to leave the workforce early. Either way, if you retire early, you might find it challenging to make your money and saved income last as long as you need it to. This is easy once you understand and learn how to avoid several common mistakes often made by early retirees.
Relying on factors outside your control
The chances of everything working to your favour for a lifetime are slim. You must set your financial situation up to minimize any reliance on factors outside your control. These include inflation, money supply, interest rates, insurance, medical aid or strength of the dollar against major currencies.
How to avoid it: Count on your ability to adapt. Be willing to adjust spending and lifestyle if some of the outside factors don’t turn out just as planned. Keep current on skills you can use to earn part-time income on the side. Set aside extra savings, not just the bare minimum that makes your plan work. Review your plan and income projections annually so you know if adjustments need to be made.
Spending too much too soon
Spending more than planned is like taking an advance on your paycheck. It will catch up with you later. Your early retirement plan should specify exactly how much you can withdraw from savings or investments each year, and you must stick within those limits. Many early retirees spent too much too soon, and now they are headed back to work.
How to avoid it: Develop a detailed budget before you retire early. Make sure you add in all the “one time” expenses that seem to occur each and every year; things like home and auto repairs, medical expenses and travel.
Some people create a “replacement fund” and set aside monthly income into a separate account that they can use when so-called “unexpected expenses” come up. If you withdraw funds from investment accounts, set up your monthly or bi-monthly withdrawal as an auto deposit and treat it just like your paycheck–as if there no additional money available–only the amount that is deposited.
To help you prepare, don’t forget to utilize a retirement expense worksheet and go through the steps to estimate retirement expenses as soon as possible. Although no plan is foolproof, realistic expectations will help prepare you for an outcome within your control.
Taking social security too early
Although available at 62, new research shows, particularly for married couples, working out a strategy where one of you delays the start of your Social Security benefits to a later age makes your money last longer. Taking Social Security early can often hinder your overall retirement plan.
How to avoid it: Develop a plan as to how and when to collect your Social Security benefits. Run an analysis on Social Security benefits before you collect. The best way to do this is to play around with an online Social Security calculator that shows you how to optimize benefits or find a financial advisor who has an intricate knowledge of Social Security to help you with this.
Too many people take Social Security at age 62 and leave money on the table. They look at it as “take the money and run” instead of viewing it as a way to protect themselves from running out of money at an older age.
Too much time, too little money
Having a lot of free time sounds like a dream come true, which is why most people shoot for early retirement in the first place. For some, though, extra time means more time to spend money carelessly. Shopping, travel, arts & crafts, home decorating, and expenses associated with hobbies can add up.
How to avoid it: Make sure you know what you want to do with your time before you retire. Do you have a list of things you have always wanted to do? See? Learn? Help out with? Write all these things down. You may not be able to do them all at once, but perhaps each year of early retirement can be devoted to a new item on your list. The key is finding things you can be passionately involved with; things you care about.
Having time is a real joy, and it only makes sense you use it to do things you enjoy and can reasonably afford. This includes hobbies, volunteering, helping out family or doing something new, even part-time.
Retiring too early
Although a tough conversation to have, are you retiring too early? Many people dream of living the retired life long before the retirement age but most will not get that luxury without severe and drastic changes to their lifestyle.
What if you worked another five- ten years and aggressively saved? What if you worked part-time rather than full-time? Early retirement doesn’t have to be an all or nothing thing. Maybe scaling back is better than complete retirement for now. Don’t put yourself in a dire situation later in life when you no longer have the ability to work. – thebalance.com