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Smart Investing
Early retirement: dreams versus realities
 January 9, 2008
Robin Bowerman
The dream of spending the rest of your life on a beach in between travelling around Australia and perhaps overseas on occasions may seem pretty luring at times. And it is often enough to encourage many people age 50-60 into an early retirement.
But perhaps anyone contemplating such a monumental lifestyle change as leaving the workforce in their fifties should seriously ask themselves whether life behind the wheel of a campervan and on a beach – if that is an individual’s great dream – will remain attractive for many years of retirement.
Putting aside retirement dreams for a while, here’s a more practical question: How long will your retirement savings really last if you cut up to 10 years off your time in the workforce?
The retirement-savings calculators on the websites of the Australian Securities & Investments Commission (ASIC), fund managers and super funds show that much more should be set aside in retirement savings if you intend to shorten your working life by a decade.
And keep in mind that while the life of an early retiree can be wonderful for many – allowing them to pursue interests with even greater compassion and become more personally fulfilled – reality often does not match a dream.
Some family lawyers report a rise in marriage breakdowns after 30-year-plus marriages when both spouses retire and suddenly spend 24 hours a day together, which doesn’t suit everyone and can really put relationships to the test. And then there is the practical concern of the money simply running out much soon than expected.
A recent article in USA Today by Kathy Chu contains several case studies of early retirements that have gone horribly wrong. Ray Lirette, for instance, retired in 1997 at 52 to follow his dream of buying a campervan to drive across America. At the time of retirement, he had almost paid off his home and had $US335,000 (about $A380,000) in a retirement fund.
Lirette bought a huge campervan, took a mortgage on his home to pay off credit-card and car loans. And within eight years, his nest-egg had dwindled to $US43,000. Lirette and his wife have returned to the workforce, earning much less than before – and the campervan sits on their front lawn.
Early retirement can be wonderful for some but surely a decision to leave work early is one of life’s toughest decisions and should be taken with the utmost caution.
More articles from this edition of CompareShares:
Trader profile: Life as a full-time trader - Fay Benjamin offers her survivor tactics
Stocks: A stock for a lifetime
Resident Trader: 2007 was a good year to trade Aussie microcaps
Investing: Rivers of cash from sovereign funds to impact equity and currency markets
Smart Investing: Early retirement - dreams versus realities
Expert Panel (Futures): Ask the expert - how do I predict commodities prices?
Forex: Australian Dollar - to parity in 2008
Housing: Recovery emerging in housing sector
Whatever your views, you can discuss this article - or any of Robin's articles - on our message board Your 2 Cents.
Robin Bowerman is Head of Retail at index fund manager Vanguard Investments Australia and the former managing editor of Shares and Personal Investor magazines. To receive this column by email each week go to http://www.vanguard.com.au/ and register with smart investing.
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