Early retirement is good, but here's why you shouldn't hurry

As the job landscape is rapidly changing and the employment scenario is constantly evolving, early retirement has become a part of financial planning for many employees. Early retirement has been gaining more popularity among the youth. With the advent of more avenues to earn money many people are not planning to continue with regular full time employment till the retirement age of 60.

With changing times many employed people are considering early retirement at the age of 40 or 50. While it has several benefits, the risks can’t be ignored. Early retirement also needs meticulous financial planning and you should have created a corpus fund for your retirement years.

It's essential to evaluate potential benefits and risks before making a decision.

Why could early retirement be a boon?

Pursuing passion: People often have to part with their passion to survive in today's competitive world. However, early retirement can open the gates for pursuing their passion in the later years of their lives.

Choosing an alternative job: It's not necessary to stop working after retirement. You can always choose to find part-time jobs that are flexible and aren't too stressful. It'll be a good source of income in your retirement years and would save you from boredom. In addition, you can pick the job that you really love to elevate the experience.

Freedom from work schedule: After years of work and tiresome schedules, one can be free from such restrictions by not having to think about work or reporting to their boss. Early retirement enables them to explore the other world by travelling and living their life to the fullest.

Why shouldn't you be in a hurry for early retirement?

Reduced retirement income: Since you opted for early retirement, you might have lost several years wherein you could invest efficiently for better retirement planning. As a result, your retirement income could be way lesser. In addition, since you have more years ahead of you, there are high chances that the income may fall short to meet your financial needs due to numerous external reasons, including inflation.

Higher tax liability: If you decide to retire early, then you might have to pay higher taxes on the amount you receive while leaving the job. Income tax would be levied on employment benefits, such as leave encashments, bonuses and even gratuity. Further, the income from sale of assets, such as Employee Stock Option Plan (ESOP) would require you to pay Capital Gains Tax according to the tax slab applicable. These liabilities can be an added pressure on you while you would be trying to ensure your retirement years are financially secure. Additionally, you will also not get the tax benefits that senior citizens get after retirement.

Losing on retirement benefits: Most of the retirement plans are long-term savings schemes. With a longer period of investment there is a higher chance of creating a larger corpus fund for retirement. Also, the employee benefits like gratuity, EPF, pension and long service bonus, among others are directly linked to the service period. Once you take early retirement, the amount you receive as retirement benefit could be substantially lower