While it is best to start your early retirement journey as early as possible, but it is not always possible. So is it possible to retire early if you started late, say in your 40s? Can you retire in another 7-10 years? Let’s figure out what are some things that will work in your favour and what will work against if you started late.
Things in your favour
- Less time in retirement – As someone who retires at 40, they probably have to sustain for ~40 more years. But if you retire at 50 or 55, that time period goes down to ~25-30 years. What that means is you don’t need more savings to fund more years.
- You can keep less buffer – Early retirees, who retire in 30s or 40s, have far more time and hence more uncertainties. They need to keep extra buffer for those uncertainties. If you retire in you 50s, then you probably need to keep a lower buffer for uncertainties.
- Lower family obligation – The older you get the lower your family obligations are. The kids have grown up and are most likely not dependent on you. It might be much easier for you to downsize and move to a place with lower cost of living. Of course, the older you get the more resistance you have to any change.
- You are in your prime earning years – As a 40 year old you are just entering what people consider the golden years in terms of earnings. So even though you might have lost the opportunity to save early, you can make up for it as you earn more and spend less.
Things not in your favour
- Compounding benefit is lower – This one is a no brainer, we all know how compounding works and the more years it has the better.
- Equity becomes riskier – You may have heard that long term is best for equity. If you start in your 40s, you still have time to be invested in equity market for what is considered as a long term (>7 years). However, if you would have started earlier the chances of recovery from a bad market cycle are much higher.
- Lower ability to change – If you have spending too much, then it would be difficult to scale down your expenses. Additionally, your kids might be in their teens and making them understand why they need to change their lifestyle is going to be a mammoth task.
Those were some of the advantages and disadvantages of starting late on the path of early retirements. In my opinion, even if you start in your 40s you can still retire in 10 years. The only catch is that you need to follow basic principles of F.I.R.E. like buy what you need, not what you want.
Read my post on how to retire early to understand the basics.