The Dark Side Of Early Retirement Might Surprise You

Undeniably, if you've achieved all of the financial milestones required for early retirement, there are huge benefits calling it quits ahead of time. However, not being prepared for retirement and pulling the trigger too early can have a dark side. The ability for you to max out your savings, or even just have your investment income impacted by early withdrawals, taxation, or stock market volatility become that much more real. Your investment strategy may require you to take on more risk for potentially higher returns on investment. Your Social Security benefits can be heavily impacted by when you choose to retire. Economic headwinds that are a pain for a working American become real liabilities; the impact of inflation on the power of your savings, or the rising cost of healthcare for yourself or a partner (without the benefit of employee healthcare plans), become heavier burdens in retirement. Not to mention your general financial ability to assist family members with needs becomes more questionable. There are reasons for all of this.

The earliest anyone can access their Social Security benefits is 62 years old. According to Fidelity, the average salary for someone 55 to 64 years old is $67,704 annually. As per Edward Jones, someone 55 years old earning less than $100,000 salary could be expected to have $330,000 to $385,000, or if earning $100,000 salary, $660,000 to $775,000, in retirement savings. Either way, retiring at that age or earlier would come with risks.  

How much retirement savings do you really need to retire before age 62? According to the Bureau of Labor Statistics' most recent Consumer Expenditures report, the average expenditure for Americans, per year, is $78,535. As per BPM wealth management, to secure enough financial stability to retire at 55 years old, with a 3.5% withdrawal rate on annual expenses of up to $80,000 per year, you would need an estimated $2 million in savings to last you 30 years. By comparison, if you have a side gig or assets that could provide the equivalence of $100,000 per year, you can lower those required savings to $700,000. The average life expectancy in the U.S., as per the U.S. Centers for Disease Control and Prevention, is 78.4 years. Even if you only survived about 25 years from age 55 at an equivalent $66,667 per year, that's $333,335 off of $2 million, still requiring around $1.6 million in retirement savings.

A 2025 Empower Personal Dashboard survey in The Currency found that the average retirement savings for an American in their 50s is $1.03 million and the median is $453,413. It's fair to assume that the $1.03 million average would be saved closer to 60 than 55 years of age, since there's less than a $200,000 difference in savings between those decades; the average retirement savings for the latter is $1.2 million. 

An investment portfolio in your 50s that can set you up for a successful financial retirement should be everyone's goal. However, someone who starts their investment journey later in life, or in this case, attempts to retire earlier than the norm, may require investment strategies that require a higher level of risk. This risk, called "sequence risk", refers to the possibility that the market will take a downturn just as you retire. This could negatively impact your investment income, and counts as a loss you're unlikely to recoup. Cashing out your portfolio and placing all that money into a cash savings account doesn't maximize your earning potential since savings accounts typically earn less compounding interest than the stock market, and won't necessarily compete with inflation.

Typically, long-term investment provides investors with a higher level of financial security since they usually lead to better return on investment through periods of volatility. Pulling from your investment portfolio early doesn't just leave your retirement income unguarded from market fluctuations, it lowers your ability to recoup positive returns on what you've lost.

Aside from a market downturn, you'll also have to worry about the taxman. Early withdrawals of retirement income, as per the IRS, are penalized with an additional 10% withdrawal tax. If you begin pulling from your retirement income before you are 59 ½ years old, you are subject to this tax, and it affects your 401(k), IRAs, employee pensions (with the exception of the government), profit sharing retirement plans, and cash balance plans. If you have a simple IRA, it's even worse, as the first two years of your withdrawals will be subject to a 25% tax levy. While there are certain exemptions to be had if the withdrawals are related to serious medical expenses, emergencies, children, educational costs, disability or demise, these are avoidable tax-related changes retirees should think twice about.

If you're intent on early retirement, you're better off preparing for the years between your retirement and 59 ½ years of age, when your savings are under threat of taxation. Not thinking about a financial cushion in early retirement is a big emergency fund mistake early retirees should avoid at all costs. If you planned to retire at 55 years old, for instance, compounding the interest on an emergency fund saved in a high-yield savings account could be a lifeline, and protect at least some of your retirement savings from costly, unnecessary taxation. 

There are a few causes of inflation, but one thing you can count on is that you will live through periods of high and low inflation. If you're planning for a 30-year retirement, you need to consider the impact of inflation on your savings. From 1995 to 2025, according to the U.S. Bureau of Labor Statistics, $2.16 in January 1995 is equivalent to one dollar as of December 2025. That's a cumulative inflationary loss of over 100%, meaning you would have to spend over twice as much to have the same spending power today, as you would in 1995. For anyone, inflation means living with the possibility your money will do less for you as you age, but when you're trying to pay for a potential 30-year window of retirement, that impacts you immediately.

According to the Federal Reserve Bank of St. Louis, the rate of inflation as of January 2026 is 2.36%. While the current interest rate of 3.6% could be a boon to a retirement savings account today, there's no guarantee interest rates will keep pace with inflation. In April 2022, inflation was almost as high as 3%, and again in October 2025. Add a current sitting President continuing to pressure a Fed Chair to lower interest rates, and it should be apparent that counting on inflation staying moderate would be a big mistake. 

A study by the Employee Benefit Research Institute (EBRI) found that the cost of health insurance and the rising cost of healthcare were third and second highest place concerns among workers, with 50% and 55% seeing either as a serious concern. Those concerns aren't totally unfounded according to Boldin, which puts the cost of unsubsidized healthcare between 62 years old and 65 years of age at between $800 and $1,200 per month. But retiring early, at say 55 years old, has an even steeper cost. As per a 2024 Peterson-KFF study, Americans 55 years of age and older accounted for 55% of all healthcare expenses in 2021, even though they represented 31% of the total population. As part of the top 5% of all health spending, those 55 years old and above spent an average $71,067 per year on healthcare. The study found that the cohort in the top 5% of health spending had to cover 55% of that out-of-pocket. Prescription drugs are another big expense, with Americans in the 55 year old and above cohort spending $834 on prescription drugs on average, compared to the seven dollar average for the bottom 50% of healthcare spenders.

One of the best reasons to think about delaying retirement revolves around healthcare costs, especially since, as per Fidelity, this also becomes a reason for one-third of early retirees to claim their Social Security benefits at 62 years old, which further limits their retirement income.  

While there are reasons why the best age to set up your Social Security to maximize your benefits is your 50s, claiming them at the earliest possible time, 62 years old, would be costly. According to the Social Security Administration, a $1,000 benefit claimed at 62 years old instead of full retirement at 67 would be lowered to $700, while a $500 spousal benefit would be lowered to $325. Typically, claiming your Social Security benefits early could result in a retiree losing as much as 30% of their retirement income, with five-ninths of 1% lost for every month over 36 months before standard retirement. Aside from the upfront loss of retirement income based on when you claim Social Security benefits, keep in mind that the benefit is based on your 35 top income generating years.

If you're on an upward trajectory in your career with a decade or more on the clock, there's a good chance you could be giving up money where benefits are concerned. If you take on a part-time job to make up the difference, you may still lose since, as of 2025, you will lose $1 for every $2 you earn over $23,400. A 2022 study by T. Rowe Price found that 20% of retirees in 2022 had part-time or full-time employment, with 60% noting they had to work and 48% pointing to financial reasons as to the reason why.  

Although it may be tempting to try and make up for lost time with early retirement top of mind, it's best to look at what a sensible level of risk looks like for you at this stage in your life. The first sign of an investor in their 50s with a too-risky portfolio is nagging discomfort. This is where having a financial advisor can be a great help, particularly where a more conservative portfolio is concerned. Also think about how and when you're going to need and spend that money, with a goal of living off the interest from your investments as opposed to the principal.

As per 247Wallstreet, most people planning to retire early will have their savings in funds that are known to do well over time, but aren't necessarily the best vehicle for a short term strategy, with the potential to take losses as high as 40% on stocks. With everything from the impact of tariffs to the effect of global politics on markets creating volatility, it should concern investors thinking about early retirement that, as per Shroders, 59% of investors between the ages of 55 and 64 noted significant losses in 2022. Those people surveyed also admitted that 31% of their retirement savings were in those stock portfolios, which means as much as 31% of their retirement savings could be affected by a market downturn. 

There are money moves you can make sooner rather than later to prepare you for early retirement, but even in that scenario, lifestyle creep can still ruin your plans. That's as simple as not living within your means, often driven by, according to Westoba, a dopamine rush related to making a purchase. Doing this while employed is enough of an issue, but at least in that case, there will be another paycheck down the road. As a retiree, specifically an early retiree on a fixed income without access to Social Security benefits or Medicare, this is a serious danger to your retirement. Money you're spending recklessly is money not compounding interest or otherwise being added to savings. Ultimately, with a 2024 AARP survey finding that one in five Americans 50 years old and above have no retirement savings, with 30% carrying credit card balances of $10,000 or more from month to month, it's obvious that overspending in your 50s both limits your financial hopes for the present and the future. It leaves you less prepared to manage economic downturns or market fluctuations. 

Early retirement might be the beginning of your tax woes, especially if you begin making withdrawals from your retirement accounts. For instance, withdrawals from brokerage of savings accounts are subject to capital gains tax, while 401(k)s, IRAs, and 403(b)s are subject to income tax. While everyone, regardless of when they retire, will have to manage taxes, the need to take more money upfront for a longer period of time creates a disadvantage to the unsavvy. For instance, withdrawing all of your retirement income from cashed out investments could raise your income to a level that pushes you into a higher tax bracket, resulting in you facing higher taxes. Combine that with an IRA, and you could face the same situation, where you're bumped into a higher tax bracket, paying capital gains and income taxes.

While states where there is no income tax and places like Mississippi, Illinois, Pennsylvania, and Iowa exempt IRA withdrawals from taxation, an early retiree will have to be very careful about how much money they withdraw in order to avoid a tax snafu.  

According to a 2025 AARP survey, 75% of older parents are providing financial support to their adult children. The surprising cost of raising a child now apparently includes financially supporting them into adulthood to an average of $7,000 per year. At around 55 years old, that would very likely put you in the crosshairs of being a parent needing to provide support for your family in some way. With 42% of these parents suffering financial pressure due to this assistance, and 35% feeling emotional distress over it, it becomes easy to see how a scenario like this could impact your early retirement plans. It's also more common, with the overall percentage of parents, as per Savings.com, the highest percentage of support along the category of 18 to 44 years old are for groceries and housing in the form of rent or mortgage assistance. Worse, some 47% of parents claimed to have sacrificed their own financial future to help out their children.

A CNBC story demonstrates the burden this could create for early retirees, with one pair of parents spending $5,000 a month to support their adult daughter, while a realtor in Salt Lake City, Utah told the New York Times that parents were giving their children average down payments between $10,000 to $25,000. 

If you live with a spouse suffering a critical illness, that will also place pressure on early retirement savings. According to The Federal Long Term Care Insurance Program, with an annual estimated inflation of 2.54%, in 20 years, the cost of care in a nursing home will rise from $112,420 to $186,000. This is essential healthcare boomers won't be able to afford in 10 years, much less 20. According to Forbes, Critical Illness insurance could offer some reprieve from the overall cost of covering your partner's healthcare costs. That said, you may still have to pay the deductible which, looking at the cost of long term care, could cost you thousands of dollars. 

According to a 2024 study by Peterson-KFF Health System Tracker, Americans 50 years old to 64 years of age carry the second highest percentage of medical debt. Unsurprisingly, the highest share of medical debt is carried by people in poor health with lower incomes. With the average cost of long term care slated to rise from a current base of $112,420 per year, even with critical illness insurance, Medicare and Social Security are years away, and many of these costs will be the household's to cover.