5 Obstacles to Early Retirement

People who engage in certain behaviors will never be able to retire early.

Man using cell phone and laptop in bedroom
Getty ImagesEarly retirement typically requires that you start saving at a young age.
By Joe Udo

Early retirement is a dream for many employees toiling away at dissatisfactory jobs. But that doesn't mean these workers are planning their escape. The 2014 Retirement Confidence Survey by the Employee Benefit Research Institute found that half of all workers have less than $10,000 saved for retirement. That's not enough to retire at a normal age and makes early retirement an impossible dream. Here's why retirement in your 50s or earlier is out of reach for most people:

Spend too much money. The American consumer lifestyle dictates that we buy a lot of depreciating junk. Almost every consumer item loses its value over time. A $1,500 60-inch smart HDTV will be worth nothing in just a few years. A new car loses value moments after it's driven off the lot and about 20 percent after the first year. That's a lot of loss for the new car smell. We think of these things as assets, but they are just sitting around depreciating.

Most of us think it is fine to spend money because we work hard for it and there will always be another paycheck. This is a huge barrier to early retirement. If you want to retire early, you need to plan for the day that the paycheck stops coming in. Buying less stuff and getting rid of unnecessary services is a good start.

Didn't start saving early. I am forever grateful to my dad who convinced me to start saving for retirement as soon as I started working. After a few years, I maxed out my 401(k) and I've been adding to my retirement fund ever since. Time is your best friend if you start investing early. Compound interest will make a huge difference over 40 years. If you invested $5,000 per year from age 25 to 35 and then stopped, you'll have over $600,000 by the time you turn 65, assuming 7 percent annual gains. Putting off retirement investing until you're in your 30s will drastically decrease your chances of achieving an early retirement.

Didn't save enough. Saving early is great, but you also need to save more. Financial planners recommend saving 10 percent of your salary, but that's not nearly enough for early retirement. The earlier you retire, the less time you have to save and the more time you will need your nest egg to last. If you want to retire early, you need to save much more than 10 percent. This is where spending less money helps. Reducing your expenses will enable you to save more and compounding will work in your favor.

Didn't invest consistently. Individual investors are notoriously bad at timing the stock market. Many investors sold off their stock investments during the 2007 and 2008 financial crisis and missed much of the recovery. If you're a genius investor who can consistently beat the stock market index, then by all means do it. However, if you're a regular investor, it's better to figure out a target asset allocation that you're comfortable with and invest with low cost index funds. Keep investing through the downturns and you won't miss out on the recovery. The bear years are great buying opportunities for young investors.

Have a large family. Kids are another huge obstacle to early retirement. The USDA calculated it will cost almost $250,000 to raise a child from birth to age 18. This doesn't even include college, which will probably cost more than that in 18 years. It costs a lot to raise a family, so if you have three or four kids, then early retirement might be out of reach.

Early retirement is a possibility for some savers, but it won't be easy to get there. Keeping lifestyle inflation down is very difficult in our culture, but once you figure out to buy Apple (AAPL) stock instead of the latest iPhone, you'll be well on your way to early retirement. It's best to buy income generating assets and minimize depreciating consumer goods as much as possible. Living below your means and investing consistently for many years can bring you closer to your desired early retirement.

Joe Udo blogs at Retire By 40 where he writes about passive income, frugal living, retirement investing and the challenges of early retirement. He recently left his corporate job to be a stay at home dad and blogger and is having the time of his life.

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Spend less time playing golf and more time finding money solutions.

July 29 2014 at 2:13 PM Report abuse rate up rate down Reply

The social security trust fund trustees reported Medicare is solvent until 2030 up 4 years from last years report. Social security is solvent until 2034 up one year from last years report. S.S. disability will be in trouble 2016 where they will receive a 19% cut in benefits if nothing is done. The republicans if they still control congress will take money from social security to shore up the disability fund. This is not a good idea, best idea is to change the formula which I feel the democrats will do and the republicans will not.

July 29 2014 at 12:05 PM Report abuse rate up rate down Reply

So much pinching from SSI takes place as well as with the unemployment fund to fund other government projects.

Cancel all these aid packages to foreign governments like the $814 million to Mexico, Let Carlos Slim pay for the illegals.

July 29 2014 at 10:39 AM Report abuse rate up rate down Reply
1 reply to Iselin007's comment

All Foreign combined is under 1% of our entire Federal budget, Federal employee's account for 3% of the Federal budget. The rest, split evenly between the military and Social net programs. Plenty of money, if we make careful cuts to the military and Social programs bringing both down from almost 50% of our Federal budget a apiece. Skip the quoted 700 billion quote for the military, thats boots only, no VA, no Tri-Care, no military retirement, no NASA, no NSA, no Nuclear Program etc.

July 29 2014 at 4:20 PM Report abuse rate up rate down Reply
worried man

The government is broke and so is the rest of America

July 29 2014 at 10:36 AM Report abuse rate up rate down Reply
1 reply to worried man's comment

Speak for yourself, I've invested since I cut my first lawn, carried my first golf bag, thus retired at 42 with a six figure income.

July 29 2014 at 4:21 PM Report abuse rate up rate down Reply

The government needs to pay into the SSI when workers age 40 and up lose their jobs Because age discrimination is so rampent the older unemployed can't get jobs to pay into their SSI funds.

Thanks to age discrimination and large numbers of people forced out of the labor force older people are added to the 92.1 million not in the labor force.

July 29 2014 at 10:08 AM Report abuse +1 rate up rate down Reply

Trillions of dollars were taken out of the social security trust fund and replaced with federal treasury notes. Now the republicans in congress wants to forget the debt saying "we can better spend the money in different areas of government." The treasury notes carry very little interest. Now if you are on social security and medicare or soon to be thank a democrat. If you want to end these 2 fine programs vote republican.

July 29 2014 at 4:26 AM Report abuse +1 rate up rate down Reply
1 reply to toosmart4u's comment
Tom Wilson

According to the institute’s data, a two-earner couple receiving an average wage — $44,600 per spouse in 2012 dollars — and turning 65 in 2010 would have paid $722,000 into Social Security and Medicare and can be expected to take out $966,000 in benefits. So, this couple will be paid about one-third more in benefits than they paid in taxes. If a similar couple had retired in 1980, they would have gotten back almost three times what they put in. And if they had retired in 1960, they would have gotten back more than eight times what they paid in.

Fixing Social Security solely with higher taxes or cuts in spending would mean a 16% increase in the payroll tax or a 13% cut in benefits. You can't keep promising FREE stuff in trade for votes with the expectation of future generations paying for them and not find that you’ve dug a hole that you can’t crawl out of.

July 29 2014 at 9:45 AM Report abuse rate up rate down Reply
1 reply to Tom Wilson's comment

Thanks to the trade deals and high corporate tax the older people who lose their manufacturing jobs are thrown into competiton with young people in the crap jobs at the bottom of the ladder.

People can't pay into social security if they can't get a job due to age discrimination and and excess of younger people and foreign nationals flooding the job market. In just a few short years since the Great Recession there are now a record 92.1 million people not in the labor force.

The experiment with Trade deals has failed. HIgh taxes add to the amount of corporations going off shore. The SSI fund is being underfunded because of lost employment, Visa workers, and Age Discrimination and theft by the goverment!

July 29 2014 at 10:19 AM Report abuse +1 rate up rate down

#1 O
#2 B
#3 A
#4 M
#5 A

July 28 2014 at 3:46 PM Report abuse rate up rate down Reply
1 reply to MISANTRHOPE's comment

Dream on, our country, and lifestyle have been dropping since Reagan began the switch to supporting business, and screwing the citizens.

July 29 2014 at 4:23 PM Report abuse rate up rate down Reply

6. Voted against Medicare for all.

July 28 2014 at 10:51 AM Report abuse -1 rate up rate down Reply

Are you kidding? They are taking away our Social Security and foreclosing on our homes which is our nest egg! That's the problem not our alleged laziness. Give me a break!

July 27 2014 at 8:02 PM Report abuse +1 rate up rate down Reply
1 reply to MMORROWFARRELL's comment

A property is only foreclosed upon if one fails to make the promised payments under the mortgage contract. If YOU sold a property to someone, carried the paper yourself and the buyers stopped paying, would you "forgive" their debt, walk away and give them the home? I doubt it.

July 28 2014 at 8:35 AM Report abuse +2 rate up rate down Reply
1 reply to jpfmtka's comment

Should illegals take jobs away from Americans forcing them to go broke and lose their homes because the flooded job market creates intense discrimination against older workers?

July 29 2014 at 10:43 AM Report abuse rate up rate down

The corporations are do a hell of a job making sure people don't retire with a pension or funded SSI. They fire older people just when they get near age 55 thus making sure their not fully vested in 401k plans or build up their SSI accounts.

I think we had enough problems back in 2001 with the companies laying off manufacturing workers and sending their orders to be manufactured in China.
Lucent one of the customers of the Manufacturer I was working for cancelled 17,000 power supplies, layed off over 20,000 workers, and sold out to a company in France! My employer had begun laying people off over several months in 2001 an most of the jobs are in China. The millenium has been one big kick in the butt and I don't know went the troubles will stop.

The retailers are crying, right all the way to the bank as they cut jobs , pay, and benefits

July 27 2014 at 7:08 PM Report abuse +2 rate up rate down Reply