As a working parent of young children, I sometimes find myself thinking longingly of retirement when I'll have more time to devote to my family and hobbies. Yet I've never found myself drawn to the Financial Independence, Retire Early (FIRE) movement. These individuals save significant portions of their incomes each year with the goal of exiting the workforce as early as their 30s or 40s.
It certainly sounds attractive, but it doesn't feel like the right fit for me. Here are three reasons I wouldn't even consider leaving the workforce before my 50s.
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1. Longer retirements are more unpredictable
You can do your best to accurately estimate your retirement expenses, but you'll never get it exactly right. You don't know how long you'll live. You don't know what unexpected costs will arise in the future, and you don't know how your investments will perform over time. That kind of uncertainty is challenging enough when talking about a 15- or 20-year retirement.
It's much more daunting when you're talking about a 30-, 40-, or even 50-year retirement, as is the case with some FIRE movement participants. Even a small miscalculation in their planning can stack up over the decades and eventually result in serious challenges.
They might even have to come out of retirement in their 50s or 60s to supplement their dwindling savings. That could be especially challenging given the large gap in their resume. With that in mind, I prefer to take this uncertainty out of my retirement plan by waiting until I'm at least in my 50s before quitting the workforce.
2. Saving enough to retire in my 30s or 40s would hurt my quality of life today
The FIRE movement encourages people to save aggressively with some advocating that you set aside at least 50% of your income for retirement. While I applaud the people who are able to do this, it's not something I'm comfortable with.
Saving that much of my income would mean downsizing my home, forgoing many enjoyable activities, and limiting the resources I'm able to provide for my children. I feel stressed out just thinking about it.
By delaying retirement until my 50s at least, I'm giving myself additional time to save. My investments will also have longer to grow before I need to tap them, so they'll be worth more.
3. There are penalties for accessing retirement accounts early
Most retirement accounts charge you a 10% early withdrawal penalty if you take your money out before 59 1/2. There are ways around this, though. The one that appeals the most to FIRE participants is substantially equal periodic payments (SEPPs) . This is where you agree to withdraw a certain amount from your retirement account every year for the longer of five years or until you turn 59 1/2.
If you follow the rules, you won't incur any early withdrawal penalties, though you'll still owe income taxes on withdrawals from tax-deferred 401(k)s or traditional IRAs. However, if you fail to make a SEPP after committing to this plan, the government retroactively charges you all the early withdrawal penalties you should have owed plus interest. That can get expensive quickly.
Rather than make a commitment like that, I plan to rely upon other strategies. I have some money in a taxable brokerage account that I could easily access before 59 1/2 if I choose to retire in my 50s. I also have an older spouse, so I can use some of his savings while I wait to gain penalty-free access to mine. I don't have a 401(k) or else I might consider using the Rule of 55 to access some of this cash early as well. These strategies feel more flexible to me than SEPPs.
None of this is intended to discourage you from retiring in your 30s or 40s if you can pull it off. But before you leave the workforce for good, make sure you've thought through the above challenges and have a plan for how to handle each of them. If you don't feel confident in your answers, consider waiting a little longer before retiring.
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