Enjoying that aperitif by the fireplace while checking out Airbnbs in Cyprus? Who doesn't dream of an early retirement?

You may have been successfully building up a large nest egg of wealth. Or perhaps you intend to take advantage of the ability to draw on your AHV pension up to two years early, or in large lump sum payments from Pillars 2 and 3 of the Swiss pension system.

Unfortunately, while these may seem like solid strategies to future-proof your financial future, the reality is that there are many pitfalls for unsuspecting early retirees. Avoid nasty shocks by reviewing this checklist of all of the things no one tells you about securing an early retirement.

1. You will spend more money than you think

When people retire, there is often a spending surge as they go on that holiday they’ve always dreamed of or buy that car they’ve always wanted to own. Many retirees also help out their children financially when they retire.

Past that initial surge, retirees are often surprised by how much they spend on a regular basis in retirement. Expect your spending to be around 80 percent of pre-retirement levels. While you may no longer need to pay the costs of commuting to work or payroll tax, but while you are still young and active, you will want to enjoy life. Now that you’re no longer working 9 to 5 every day, you will finally have the time to experience all of those activities, restaurants, and holidays you never had time for before.

Retirement is wonderful if you have two essentials: something to live on and something to live for.

2. Healthcare is more expensive than you think

While you don’t go into early retirement expecting to suffer a major health crisis, it’s important to be mindful that ill health can happen. Even if you only have a few minor issues to deal with, the medical bills can pile up.

The Swiss medical system is relatively expensive. Globally, only Americans spend more on healthcare as a percentage of GDP than the Swiss. On average, Swiss citizens spend 10 percent of their salary on health insurance. This percentage only increases for retirees as income drops and medical issues increase in frequency and severity.

3. Inflation is a killer

Inflation has been so low for so long that many retirees overlook it. But over the last year, with the global economy hitting persistent supply bottlenecks as a result of the COVID-19 pandemic, inflation has shot up to its highest levels in over 30 years.

Inflation makes your expenses more expensive. An inflation rate of 3 percent over 25 years, a typical retirement span, will see your expenses double. But unlike wage increases to account for inflation when you're working, you don’t receive any automatic offset when you’re retired. Instead, you must invest in assets that are either positively correlated with inflation or outperform it.

4. Extra income is hard to come by

All this talk of higher-than-expected expenses and inflation underlines the point that extra income is hard to come by when you are retired. Unless you establish passive sources of income during your working years, you will be stuck with your pension or will be forced to watch your lump sum or investment portfolio diminish over time as you keep drawing from it to fund your retirement lifestyle.

On the upside, with an aging population, there may be more opportunities for part-time work for older workers. But that may not sound like the early retirement you had planned for, and it may not fit with your schedule. The growth in remote work and freelancing may provide you with a better chance of achieving the combination of income and flexibility that you need.

5. Don’t forget to rebalance your portfolio

Just as you switch to a different type of car once the children have left home, you also need to change your investment vehicles as you approach retirement.

When you are younger, your investment focus will be on growth. But as you approach retirement, the focus shifts to preserving your years of gains and guarding against sudden market corrections that could decimate your wealth. To do this, it is important to rebalance your portfolio towards assets with less volatility and higher liquidity, such as cash, certificates of deposit, or defensive stocks like industrial blue chips or healthcare stocks that offer high dividends. Diversification can also reduce your risk to any one sector. A defensive-focused ETF is a great choice to protect against nightmare scenarios, such as retirement during the 2008 to 2009 financial crisis or the March 2020 COVID correction.

6. You will have lots of time on your hands

Work can take up to a third of your weekday hours, with another third taken up by sleep. When you retire, you are suddenly awash with free time. For some, this is a dream. They may already have hobbies, activities, and relationships that can expand into their newfound free time. In contrast, others may struggle to fill the gap, especially when many of their friends are still working. For many, work provides both intellectual stimulation and social interaction, which can be difficult to replace upon retirement. If you fall into the latter category, consider the types of activities you enjoy doing or join in with activities a partner or a friend enjoys – you may discover you like them too. Early retirement is an ideal time to be bold and try something new and unexpected. Catherine Valega, a certified financial planner based in Winchester, Massachusetts, reminds us that it is healthy to include activities that encompass the physical, intellectual, and spiritual spheres.

Retire from work, but not from life.

7. You may not be as happy as you think

Like many things in life, the anticipation of retirement is often greater than the reality. Many people work hard and make sacrifices so they can retire early. But when they get there, they do not know what to do with themselves, or they soon discover that they do not have the funds to enjoy the lifestyle they have become accustomed to throughout their working life. Even worse, they may find that many of the personal issues they had while working have not magically disappeared once they retire. The hard truth is that retirement can be a major disappointment.

This is why it's essential to be realistic about your retirement. Work with a financial advisor early to ensure you are able to achieve your target lifestyle. Try new activities that can carry over into retirement. Start working on your personal issues and relationships today – don’t wait until your retirement.

The trouble with retirement is that you never get a day off.

8. Working a few extra years makes a huge difference

Compound interest remains your friend even as you approach retirement. By working a few extra years, you are able to support your future retirement income in the following four ways:

  1. You earn more wage or salary income.
  2. You delay the time until you start eating into your retirement income.
  3. Your retirement nest egg has more time to compound its value.
  4. You can increase your Pillar 1 pension (AHV). You incur a 6.8 percent penalty on your annual pension if you retire one year before retirement age and 13.6 percent if you retire two years early. However, if you defer your pension for one year after attaining retirement age, you receive a 5.2 percent increase, rising up to 31.5 percent if you defer for five years.

Final thoughts

If you're not adequately prepared, you could be looking at a loss of Social Security income, healthcare issues, and mental and physical decline. There are also a few challenges that can occur if you've been emotionally invested in your job for years, such as loss of social interaction, boredom, loss of identity, and a lack of challenge or purpose.

Early retirement can be a minefield, but with the right approach and advice, you can realize your dream retirement.

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