What Is The Difference Between Resignation And Early Retirement?

What is the difference between resignation and early retirement?

Is there a difference between resignation and early retirement? 

To most people, these terms are fairly similar.

However, to the company you work for (and in the eyes of the law) these are two entirely different things.

Not only are they completely different legal terms (specifically with regards to employment law), but whether you choose to retire early or resign has huge consequences. It will determine whether or not you receive continuing benefits, early monthly pay cheques, or earn a lump sum pay out at the end of your employment.

Sounds pretty important right?

Since there are significant financial and legal implications… it’s important to know the difference between resignation and early retirement.

Discussion points

Early Retirement

what is the difference between resignation and early retirement?

Let’s start by delving into early retirement. 

If you haven’t read our “Is it better to retire early, or take early retirement” blog, I suggest you do that too. It hopefully offers some good insight into what early retirement entails.

The standard age for retirement in most Western countries (United States, Canada, United Kingdom) is either 65 or 66. It is at these ages that retirees start to receive pension benefits, old age securities, or various other medical benefits.This means that early retirement is technically retiring at any age before that. 

When most people think of early retirement, they often think of millionaires, trust fund children, and rare cases of individuals retiring in their 20’s. However, early retirement for the rest of the population often doesn’t mean retiring in your 20’s. Sorry everyone…

Additionally, retirement doesn’t mean that you stop earning money. It simply means that you choose to permanently leave the workforce. You may still earn money through passive income streams or investments, but you don’t have to work for your money.

So, How Can You Retire Early?

To be able to retire early, there is a lot of planning and prep work.

You need to set up passive streams of income (blogs, investments, websites, etc.) that consistently grow your nest egg. This needs to generate enough money to support your living expenses every year.

As I mention in my “Can you retire early with 10 Million” blog, this is a number that has to be planned out carefully. However, if you’re curious as to how much you need to retire early, then head over to our Early Retirement Calculator. It can be liberating to see just how big (or small) your nest egg needs to be.

Early retirement is most often achieved by those who hold down a full-time job and grow a passive income stream on the side. This allows them to save and invest their money, while still earning money to live today.

Having these multiple streams of income allows you to earn ‘spending money’ today, while still putting away lots into investments and retirement funds. This includes index funds, making use of compound interest (the 8th wonder of the world).

Of course, there are some considerations for retiring early that you have to consider, like how much more you need to save each year, how much social security pension you will earn by retiring early, and how much income tax you pay on the money you earn after retirement.

Nevertheless, early retirement can be defined as just that: retiring early.

What Does Early Retirement Mean For You?

Retiring early means that you can focus more on things in your personal life – family, travel, leisure, your health, and even starting new side hustles or money-making projects.

You should also consider the fact that if you retire early, there could be some drawbacks. Your pension savings will have to last you longer, you might have to find additional health insurance coverage, and you might even get bored (unlikely).

So, before you retire early, do your homework. Make sure it’s the right choice for you, and always make sure you have a side hustle lined up. Something to earn you money and keep you busy (that you enjoy) in your early retirement.

What About Resignation?

what is the difference between resignation and early retirement?

Let’s now flip to the other side of our proverbial legal coin.

What is resignation?

Simply put, when you resign from a role, you are voluntarily quitting or leaving a role in the workforce.

Unlike retirement, resignation does not mean that you are leaving the workforce as a whole… All it means is that you’re leaving a single role.

Resignation takes a lot less planning and preparation than early retirement. This is because you don’t need to really plan anything in advance. Rather, all you are legally required to do is to draft a resignation letter and give your employer a short notice period.

Generally, this ‘period of resignation’ is usually stipulated in your employment contract and could last anywhere between 2 weeks and several months. This depends on your role and the benefits that you have received from the company.

If you’re not sure how much notice you have to give, it is important to review your employment contract to confirm this.

It’s also important to remember that if you resign – as opposed to retire – you’re usually not eligible for pension, health, or other benefits from the company because you are voluntarily leaving.

This means that when you resign, you won’t have a monthly source of income. It’s therefore essential that before you resign you have either a new job lined up or have a sustainable side hustle.

The Difference Between Resignation And Early Retirement.

At the end of the day, early retirement and resignation both lead to you leaving your current role before the legal retirement age of 65. 

The main difference is that early retirement leads to you leaving the workforce, leaving you eligible to receive a pension, extended health benefits, and even a lump-sum. On the other hand, resignation means you’re only leaving a specific role, and you typically are not eligible for the same benefits.

In either case, it is important to make sure that you have a side hustle or passive form of income lined up to not only keep you busy, but to make sure that you can continue to earn money to support yourself.

An enviable and advisable alternative is to have enough of a nest egg that you’ve reached Financial Independence. The Financial Independence Retire Early (FIRE) route is often to invest heavily into index funds. Once you’re able to withdraw 4% and still cover your yearly expenses, you’re officially financially independent! Anyway, let’s not get distracted. You can read more on this in our other posts. 

Hope that helps!

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