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BlueSky Wealth Advisor, Madeline Valente, CFP® Professional, is located in our Pleasanton, California office. 

The thought of early retirement is appealing to many people.  Perhaps we are too easily enticed by the pull of idealized visions of leaving the workforce early: walking leisurely on a white-sand beach, enjoying a sunset at some far-off destination, spending time with family and friends.  These romanticized depictions of early retirement can be appealing even to those who still get great fulfillment from their avocations. It’s no surprise, then, that early retirement in some form can be a common goal.

Workers eyeing early retirement likely understand that their assets would need to sustain them longer. Decreasing your number of working years naturally extends the number of years of non-employment, all things being equal. However, there are other, perhaps less apparent, things that should be considered by anybody who is contemplating an early exit from the labor force.

Longer years in retirement have a natural corresponding flip side of fewer years of employment. These reduced years of employment mean fewer years of contributing to an employer-sponsored retirement plan (like a 401k) and receiving any corresponding employer match, fewer years of contributing to individual retirement accounts, and fewer years of growth on accounts before having to begin withdrawals. Having to stretch your retirement dollars over more years, while simultaneously reducing your years of contributing to your retirement nest egg can be a one-two punch.

Fewer working years may also mean a reduction in your possible Social Security benefits.  The reduction in the income stream that Social Security provides could ultimately mean that you would need to pull more money from your portfolio to cover your expenses in retirement.

For most early retirees, there would also likely be a higher added health care cost, as early retirees often need to secure private health care insurance coverage for more years before Medicare eligibility at age 65. Additionally, more years of good health and high energy levels in the early years of retirement may lead to a more active and expensive retirement overall.

This discussion is not intended to discourage those who may have early retirement as a desired goal. It can be a realistic and rewarding goal for many, though, be aware that there are more components to that goal than simply needing your assets to support you for more years.

If early retirement is a goal that simply seems out of reach, creativity may open up alternative options for you.  Gradually downshifting your working years by stepping away from your regular vocation, but transitioning to a slower, perhaps parttime or lower-stress position, can still provide you with years of retirement savings and health care coverage while giving you a bit of the retirement lifestyle that you may crave.

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