Retiring Early vs. Retiring Rich: Which Is Better?
When it comes to retirement, most financially-conscious individuals aspire to two things: retiring rich or retiring early. But which is the better choice?
For many people who have not yet retired, the idea of early retirement may sound enticing, especially considering the high levels of disengagement in the workplace. On the other hand, retiring with a substantial amount of wealth is also an attractive goal. However, achieving significant wealth often requires working for many years or experiencing a stroke of luck with investments or career opportunities.
As someone who semi-retired early at the age of 34 in 2012, I can confidently say that retiring early is far superior to retiring rich — assuming that retiring rich entails retiring much later in life.
Over more than 13 years on my retirement journey, I have seen a significant increase in my wealth since my initial retirement at 34. Comparing my financial situation at 34 to what it is at 47, I can unequivocally state that the time and freedom I have enjoyed during my early retirement have been invaluable. I would not trade them for the additional wealth I could have accumulated from working during that time.
In essence, I would gladly exchange all the extra wealth I have amassed in the past 13 years for the priceless benefits of not being tied to a job during that time.
The Math Behind Retiring Early and Retiring Rich
Let’s delve into some numbers to illustrate why retiring early is more favorable than retiring rich and older.
Let’s say, after 17 years of working, saving, and investing, you have a net worth of $1 million, comprised of $400,000 in home equity and $600,000 in the S&P 500. By the age of 40, living in a major coastal city, you could be considered “Coast FIRE,” with a modest lifestyle sustained by a 4% withdrawal rate.
If your net worth grows at a rate of 6% annually for the next 20 years without additional work on your part, by the age of 60, your net worth could reach $3.2 million. With a 4% withdrawal rate, you could potentially spend $128,000 per year before taxes, although inflation would affect the purchasing power.
On the other hand, if you continued working and saved over $20,000 annually to accelerate the growth rate of your net worth to 10% per year, by age 60, your net worth might reach $6.7 million. This would allow you to withdraw $268,000 annually.
The difference in net worth between working for an additional 20 years and not working would be $3.5 million ($6.7 million – $3.2 million). So, the question to ask yourself is whether spending an extra 40,000 hours working for that additional $3.5 million is worth it if your basic needs are already met.
Considering that a large number of American workers do not find fulfillment in their jobs, the answer becomes quite clear. Spending approximately 40,000 hours engaged in work that doesn’t resonate with you is not a worthwhile trade-off. Most jobs tend to become monotonous after a decade, and by age 40, you would have already invested 17 years post-college in your career.
It is far more logical to choose early retirement with less wealth than to delay retirement for a more substantial financial portfolio. Sacrificing years in unfulfilling work is likely to lead to profound regrets in the future.
In Conclusion
When weighing the options between retiring early and retiring rich, the scales tip in favor of early retirement. Prioritizing time over money allows for a more fulfilling and purposeful life, free from the constraints of traditional employment. The true value of time is immeasurable, and once your basic needs are taken care of, the regret of sacrificing precious time outweighs the desire for additional wealth.
Ultimately, the ideal scenario is to retire both early and rich, but even if early retirement is the chosen path, there is always room to pivot and earn income if needed. Time is a finite resource, and cherishing it above all else can lead to a more gratifying and rewarding life.
Reader Engagement
What are your thoughts on early retirement versus retiring rich? Why do you think many individuals continue working despite accumulating sufficient wealth to live comfortably? Share your insights and perspectives in the comments section below.
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