For many Americans, the idea of retiring early continues to hold a special allure. Many of us heard tales of the “Microsoft millionaires” who joined that company early on, rode the wave of skyrocketing stock prices, and retired in their forties or early fifties with seven-figure nest eggs. There’s something enticing about the notion of walking away from the workplace, financially secure – and 20 or 30 years younger than most traditional retirees.

But is the dream 0f early retirement all it’s cracked up to be? While no doubt there are many who successfully make that transition from “employed” to “retired” decades earlier than most of us, there are certainly others who chose early retirement only to change their minds a few years in. To explore this topic further, we present this 2022 NextAvenue article in which writer Jennifer Nelson examines the dream of early retirement and gives us half a dozen reasons why it might not be the best idea after all. (This article first appeared on the NextAvenue website back in mid-August.)

The Novelty Wears Off Quickly

Nelson begins the NextAvenue article with the story of Robert Johnson, a finance professor at Creighton University, who retired from his career in 2018. But Nelson notes that Johnson became quickly uncomfortable with the idea of spending his retirement years on what amounted to “perpetual vacation.”

Nelson writes, “Johnson says that while playing golf, reading for pleasure and having completely unstructured days sounds terrific, the novelty wears off quickly, particularly for people who find purpose in their work.”

Does this mean you shouldn’t consider retiring early? Johnson says no, but he adds that “you need to map out how to occupy your days. A non-financial reason for one to rethink retirement in their fifties concerns purpose.”

Not only that, but Nelson warns that without careful planning, your early retirement could include some additional expenses you hadn’t initially expected, and that you wouldn’t have if you waited. Perhaps, in these cases, a pre-retirement, sabbatical, or part-time work situation could be a better fit before you pull the plug on your work life completely.

With that context, Nelson provides the following six reasons why you might want to rethink an early retirement.

Reason #1: Lack of Fulfillment

Boredom is one of the major reasons why early retirees get restless, says NextAvenue. Taylor Jesse, financial planner and investment advisor at Taylor Hoffman in Virginia, explains, “You might enjoy doing nothing but sipping margaritas on the beach for a year or so, but after the initial ‘honeymoon’ period wears off, I’d be willing to bet that you’ll want more out of life.”

Jesse’s thoughts on this are more philosophical than simply practical, as he believes that humans have “an innate desire” to find purpose through fulfilling work. Jesse continues, “Maybe that means cutting back your hours at work starting at 55 or changing careers in your fifties to pursue something you’re more passionate about or volunteering more with a local charity, but thinking that you’ll quit any kind of work cold turkey and be happy for the next thirty years should give you pause.”

For Robert Johnson, this meant founding a business with a handful of friends who were also early retirees looking for purpose. “I work only with people I like,” he says. “I believe if people worked with people they liked, doing what they loved, they wouldn’t consider it work.”

Reason #2: Health Insurance Dilemma

Health insurance is a major consideration for those considering early retirement. Nelson writes, “Once we leave the workforce, most of us will lose health insurance through employment. And most people aren’t eligible for Medicare until age 65 unless they have a long-term disability. If you retire in your 50s, that leaves quite a gap in health care coverage, one you will have to shoulder.”

She adds, “While the Affordable Care Act (ACA) did enable people under 65 to find health insurance even with a pre-existing condition through their state marketplace, the policies available are typically high-deductible plans. They could tide you over a few years before Medicare eligibility, but when thinking about a gap of 10 or more years, your health insurance and related out-of-pocket expenses could add up quickly. The good news is that the ACA recently changed under the Biden administration to limit the cost of health insurance to 8.5 percent of your income.”

Louise Norris, a licensed broker and analyst, explains, “You may also qualify for subsidies (premium tax credits) that make self-purchased coverage more affordable than a lot of people expect it to be. If you’re retiring early, you might find that your income dips enough to make you eligible for substantial subsidies.”

Finally, there is COBRA, a program that lets you keep your former employer’s health care insurance while you pay the premium yourself. But access to COBRA benefits expires after 18 months.

Reason #3: Insufficient Savings for the Long Haul

Cash flow is vital in retirement, and even more so if you’re retiring early. After all, the amount of money you’ll need for retiring at 70 is far less than if you retire at 55. “According to a study by the Employee Benefit Research Institute,” Nelson writes, “only 42 percent of workers 55 and older have confidence that they will have enough money to live comfortably in retirement.”

Confidence is key, says the article, and if you don’t feel confident in your retirement savings, it’s wisest to delay for a bit. “Working longer postpones the need for you to start withdrawing your savings,” Nelson explains, “and gives you more time to contribute to and grow your nest egg, which can help provide greater financial security in retirement.”

Reason #4: Untouchable Retirement Accounts

The rules around withdrawing from your retirement accounts also come into play when considering early retirement. Nelson explains, “You will have difficulty withdrawing money from your retirement accounts if you retire before 59 1/2. Early withdrawals from IRAs and 401(k)s result in a 10 percent tax penalty unless you qualify for one of a handful of exceptions.”

She adds, “Recent IRS rule changes make it easier for people below 59 1/2 to withdraw from some retirement savings accounts without a penalty by using a strategy called a Substantially Equal Periodic Payments (SEPP) plan, but just because you can withdraw doesn’t mean you should.”

We won’t go into detail here, but the SEPP plan can allow you to take money from qualified accounts before 59 ½. However, such transactions are complicated and risky, and using this strategy may lead you inadvertently to withdraw too much of your money too early. This can trigger a hefty tax bill, since you’re still responsible for ordinary income tax on withdrawals.

Even if you were able to successfully make these early withdrawals, you will have significantly depleted much of your retirement account before you even reach what might be a more traditional retirement age. That will leave you with too little savings to last the two or three decades of retirement you likely have left. Make sure you get the right financial advice before counting on an early-withdrawal plan to fund your retirement.

Reason #5: Your Social Security Benefit Will Take a Cut

Nelson explains, “Since benefits are based on the average of as many as 35 years of earnings, retiring early is likely to prevent your highest earning years from being used to calculate your monthly benefit. At the same time, Social Security will reduce your benefit if you ask to receive benefits before what it considers to be your ‘normal retirement age,’ which is based on the year you were born. If you apply to receive benefits three years before your normal retirement age, your monthly check will be reduced by 6.67 percent; if you apply four or more years early, your benefit will be reduced an additional 5 percent for each year.”

Reason #6: Faster Decline, Physically and Mentally

Early retirement has been linked to some pretty alarming things, such as shorter life span and earlier cognitive decline. Maria Shriver, journalist and author, says, “Continuing to work into your sixties, seventies and even eighties, keeps you active and engaged in society, warding off cognitive decline. Studies show that working and sharpening our skills as we age decreases people’s risk of dementia, including Alzheimer’s disease. The forced interactions we encounter in workplace settings, such as team meetings, watercooler talks and meeting customers, help boost our well-being and mental health, which is vital at any age.”

Nelson’s conclusion should give early retirees pause. “Before thinking of retiring in your 50s,” he advises, “weigh all financial and emotional issues carefully.” We say “Amen to that.”

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