Why Retiring Early Could Be the Best (or Worst) Financial Move You Make

Americans are increasingly shifting how they view retirement, including when it should begin. Instead of waiting until 65 or older, some now see 58 as the ideal age to retire, according to a recent Empower study.

But before making the leap to early retirement, it’s necessary to understand the financial and emotional implications that come with retiring early. While the benefits are real, early retirement also comes with tradeoffs that need to be carefully considered.

Early Retirement Could Be Your Chance To Try Something New

Early retirement can be a great opportunity to reset your lifestyle. For some, it means downsizing or relocating; for others, it means traveling the world or focusing on health and wellness. You get the chance to design your days in a way that aligns with your values and priorities.

This new phase of life can be deeply fulfilling, but it also comes with a major shift in how you structure your days and spend your money.

“Retirement is a huge life shift, not just for your money, but for your time, energy, relationships, and mindset. You go from having a social structure—routines for breakfast, lunch, even bathroom breaks—to all of it going away, often overnight,” said Erika Wasserman, certified financial therapist and CEO of Your Financial Therapist.

Leave Work Stress Behind

Many employees go above and beyond for their employers, often at the expense of their own well-being.

According to Headspace’s 2025 Workforce State of Mind Report, 71% of respondents said they work outside their expected hours weekly, and 75% stay available even during time off. This lack of boundaries contributes to stress, with 92% saying work negatively impacts their sleep.

Early retirement can remove daily pressures like deadlines, office politics, and long commutes, potentially improving your well-being. With greater control over their time, many retirees use this freedom to stay active through part-time work, often to stay busy or explore interests they didn’t have time for earlier.

“I see many early retirees go on to do more fulfilling work that is oftentimes paid. I think reaching financial independence is what they needed to give themselves permission to pursue this work,” said Madison Sharick, a certified financial planner (CFP) and founder of Madi Manages Money.

A Lower Income In Retirement Can Mean New Tax Advantages

The higher your income, the higher your tax bracket and rate. But one of the key financial perks of early retirement is the ability to optimize your tax situation in ways that aren’t possible during peak earning years.

With little to no wage income, early retirees often fall into lower tax brackets, creating opportunities to access investment income at reduced or even zero tax rates. This is especially true for long-term capital gains, which can be taxed at much lower rates than ordinary income, depending on your total taxable income.

“A major financial advantage of retiring early is being taxed at the lower, more favorable long-term capital gains tax rates. If you’re an early retiree living off of your taxable brokerage investments only, it’s likely that you could squeeze into the 0% long-term capital gains tax bracket. When it comes to tax strategy, this is the holy grail! This is only possible when your total taxable income is $48,350 or below,” Sharick said.

Possible Risk of Outliving Your Savings

While early retirement offers freedom and flexibility, it also comes with challenges that are easy to overlook until you experience them. Without careful planning, the drawbacks can outweigh the benefits, especially over a longer retirement horizon.

The expectation is that people will retire at 65 with enough retirement savings to last 30 years. But if you retire at 55 or earlier, your savings may need to last 40 years or more. That’s a long time to fund your life, including healthcare costs, which would be out of pocket until Medicare kicks in at 65. And faced with inflation, market fluctuations, and unexpected costs, your money may not last as long.

To avoid outliving your savings, it’s important to carefully plan when and how you’ll start using your retirement funds. For example, Social Security benefits are available as early as age 62, but by delaying your claim until full retirement age, you can increase your monthly payments and help stretch your savings over a longer period. Either way, it’s best to look at this income as supplemental.

“The biggest risk is that if you run out of money later in life, you may not be in a position to return to paid work,” said Sharick. “A way I see clients mitigate this risk is to consider future Social Security income as supplemental to their investment accounts from which they will withdraw 4% per year.”

This also applies to retirement accounts, such as 401(k)s, traditional IRAs, and Roth IRAs. Understanding how required minimum distributions (RMDs) work for each account and how this will affect your strategy later on is key to long-term financial stability.

“I advise early retirees to save their Roth assets for unexpected major expenses later in life. Because Roth assets are fully tax-free when withdrawn, there are no tax surprises if you need them to cover the cost of a big expense, like long-term care,” Sharick said.

Could Have Trouble Embracing Different Mindsets

Not embracing the shift can quietly undermine even the most well-funded retirement. After years of saving, investing, and delaying gratification, many people struggle to transition from accumulating wealth to spending it with confidence. This hesitation often stems from fear.

“This can make or break the way people spend the rest of their retirement. For some clients who have spent years worrying over their finances, it has led to sleepless nights, missed family events, and moments that they can’t get back. Money is a tool; in fact, it is a thing, a noun, yet it carries so many emotions with each dollar. Understanding your emotions around money will be key to a happy retirement,” Wassermen said.

While early retirement might sound ideal, the reality can be more complicated. Without the structure and purpose that work provides, some retirees struggle with boredom, loneliness, or a lack of identity. Social networks often shrink after leaving the workforce, and it can take effort to rebuild those connections in retirement.

“If your entire life has been focused mainly around work and work friends, take some time before you retire to try a new hobby; build out your social circle so when the day arrives, you aren’t sitting alone on the couch after the first few weeks of novelty wear off,” said Wasserman.

How To Decide If Early Retirement Is Right for You

If the goal is to retire in your 30s or 40s, this requires a high level of discipline and a well-thought-out planning. It often involves saving a significant portion of your income, making smart investment decisions, and being intentional with every dollar. You may even have to live well below your means while you’re young, sacrificing short-term comfort in exchange for long-term freedom.

Plus, saving the traditional 10× your income may not be enough, since you’ll have to fund many more years without a paycheck. Early retirees must make up for both the extra years of living expenses and the lost time to grow their savings.

How much you’ll need depends on when you retire, but you can start by calculating how much you’ll need. In the Financial Independence, Retire Early (FIRE) community, they recommend calculating this number by multiplying your total annual expenses by 25. This assumes a 4% withdrawal rate, allowing your savings to last about 30 years; however, retiring earlier might mean needing to save even more.

And once you reach early retirement, your financial plan must include a realistic budget, contingency funds, and strategies for income during this phase of your life.

“Start living on your retirement spending plan a few months before you decide to retire and see how that feels; does it need to make adjustments?” said Wasserman.

The Bottom Line

Retiring early offers a unique chance to enjoy life on your own terms. However, it also requires careful planning and mental and emotional readiness to manage finances and adapt to a new lifestyle. Understanding the benefits and challenges is key to creating a retirement that’s not only financially secure but also truly rewarding.