The idea of leaving work behind years before your peers can be tempting. More time to travel, pursue hobbies, or just slow down sounds great, but early retirement isn’t only about what you gain. Asking yourself these three key questions below can help you figure out if now is really the right time to step away from work.
Can You Afford to Stop Working?
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Money is the backbone of retirement, and retiring early stretches that responsibility even further. A common starting point is the “4% rule,” which suggests withdrawing 4% of your savings in the first year and adjusting for inflation afterward. While not perfect, it can give you a ballpark estimate of whether your savings might last.
Beyond that, it’s essential to look at all your income sources. This can include Social Security, pensions, investment dividends, rental properties, or even part-time work. On the flip side, don’t forget significant expenses like healthcare, which can creep up in retirement. If your numbers don’t add up yet, even working one or two extra years can make a noticeable difference.
Are You Ready to Stop Working?
Work often gives people structure, a sense of purpose, and a community. Retiring early means you’ll suddenly have a lot more free time, and if you don’t have a plan, that freedom can feel overwhelming. While some people thrive when they leave work, others struggle with boredom or even depression.
Think about how much your job still means to you. If you’re counting down the days, retiring may be the right choice. But if you enjoy your work and it continues to give you purpose, there’s no rule saying you have to walk away early. Staying a little longer can also help your savings grow and increase your Social Security benefits.
Can Your Portfolio Handle the Ups and Downs?
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The markets have delivered strong returns for years, but that doesn’t mean they’ll always cooperate. Retiring during a market high can be risky, especially if the value of your portfolio drops early on. This is called “sequence of returns risk,” and it can deplete your funds much faster if you’re not prepared.
One strategy many financial planners recommend is bucketing. That means keeping a few years of living expenses in safer assets like cash or short-term bonds while investing the rest for long-term growth. Having that cushion protects you from needing to sell investments at a loss during market downturns and gives you confidence that your money will last.