As I noted in my last retirement update post, I have now passed five years in retirement.
I think this is a good time to look back and reflect on that time and what I’ve learned about retirement.
I have about a million thoughts on the subject, but since it’s been five years and because I like to focus on the biggest items with the most impact, I’m limiting my thoughts to my top five things.
I’ll probably write more on these (and other) retirement thoughts in upcoming posts, but today I want to share the highlights.
Here we go…in no particular order…
Retirement is Awesome
I have been reading a lot lately about two different retirement effects that I literally have no concept of.
The first comes from the book The Retirement Maze: What You Should Know Before and After You Retire where they list the four phases of retirement as follows:
- The Honeymoon
- Disenchantment
- Reorientation
- Stability
I haven’t read the book yet (I intend to after hearing the author talk on a podcast), but I did find this description of the Disenchantment phase online:
It is a period during which retirees may experience and emotional letdown and a decline in subjective well-being as they come face to face with the reality of day-to-day living devoid of direction. Situational elements, possibly unforeseen, may contribute to this letdown, such as a concern that financial resources are more limited than initially thought or that some activities are not as absorbing as they expected. Retirees may also feel the loss of the benefits provided by the workforce such as weakening of identity and self-worth, feelings of being disconnected and without a meaningful role in society, and a sense of living productively.
I’ll comment on this in a minute.
For now, the second thing I’ve seen a lot of are articles on people who fail at retirement.
Yes, they fail at one of the most awesome things ever.
The reason almost all of them fail is that they don’t have an adequate (or any) plan for what to do with their time in retirement. They either assume it will work itself out or they’ll figure it out when they get there. This lack of thought and planning generally leads to a massive failure and often a life crisis.
These two lines of thinking seem to imply that retirement is a bad thing fraught with potential downsides.
I guess if you try and make it bad or don’t plan, sure, it can be terrible, but my experience has been nothing like that.
To me, retirement has been AMAZING! It’s been AWESOME! It’s been EXTRAORDINARY!
What is so bad about doing what you want when you want to do it? I can’t find anything wrong with it. IMO, it would take a lot to really mess up something so incredible.
That said, let me address some of the failures noted above in case anyone else is having a hard time with retirement:
- I don’t know whether I’m still in the honeymoon phase or if I jumped from honeymoon straight to stability, but I have literally not had one day where I wished I wasn’t retired. In fact, I think I can say that the worse day in retirement is better than the best day at work. Hahahaha.
- There are two parts to having a great retirement: the financial side and the life side.
- To make sure the financial side is all good, be sure you know what you need to spend, have ways of funding that with savings, income, or a combination, and create several margins of safety in case things turn bad. If all those are covered, you should have a great retirement financially.
- On the life side, you MUST have several activities you enjoy in retirement. You need to have these worked out well in advance of retirement and have a general idea of how you’ll use them to fill your time. You also need to keep trying new things as some of the old activities will become boring and you’ll need something new to take their place. I’d recommend having five strong activities going into retirement. If all these are covered, you should have a great retirement life.
- I personally have the following activities: working out, pickleball, blogging/writing/managing the Millionaire Money Mentors, reading, traveling (once we get back to it), walking, video games, TV/movies, and family activities. These are the things I do on a regular basis — there are others that I participate in now and then that supplement these. FYI, I’m working on a post that will list a TON of possible retirement activities so if anyone is having a tough time, they can look at it and find some.
- The benefits of work and the loss of those is real for many people — much more than I thought initially (they aren’t as big of a deal for me, but to many they are). I’ll cover how to handle needs once covered by work in detail below.
- For those who are struggling because their identity/self-worth is/was tied up in their careers, you have three choices: 1) keep working in your career (either full time or part-time), 2) shift to a new job/career that can provide the self-worth/identity you need, or 3) get over it and move on with your life. I was a high-powered executive during my working years, rising to the level of being the president of a $100 million company. And even with that, work was something I did, not who I was, so moving on wasn’t a big issue to me. Hopefully many reading this are in the same boat.
- “Meaningful role in society, and a sense of living productively.” We’ll get to this line of thinking below when I talk about purpose in retirement. But my short response is you don’t have to be Mother Teresa to have purpose in retirement.
All that said, let me encourage you to retire as soon as you can.
It is amazing — dive right in!
Income Trumps Savings
This topic needs a much longer post so I’ll be covering it in the future, but if I had to do it all over again, I would focus more on income generation than savings in preparing for retirement.
Let’s face it, the 4% “rule” grabs all the retirement spotlight. I see article after article and hear podcast after podcast about it. If I read another piece on whether 4% is right or it should be 5% or it should be 3% or it should be whatever, I think I might lose it.
Why aren’t we talking more about income — how it can help get us to retirement faster and, I would say, better?
In the Millionaire Money Mentors forums I asked the question: “Why Withdraw 4% When You Can Make 4%?”
In other words, why wait until you save enough to withdraw 4% to fund retirement from a large account when you can make 4% (or especially more)? Because if you can make 4%, you have no loss of principal. And if you can make more than 4%, you can retire earlier.
The main counter-point responses were focused on either 1) inflation (which many said wasn’t covered in the “earning 4%” idea) or 2) people didn’t want to participate in the income-producing options most people use to earn over 4% (for example, real estate).
As usual, Apex cut through the naysayers with the following:
Actually the inflation protection is built in.
With stocks it’s a little less direct since they tend to be hurt in the short run by inflation but they eventually catch up. See the 1970s and then the 1980s.
Real estate on the other hand is much more direct. When inflation comes with a vengeance real estate goes up with a vengeance. See 1970s.
Over long periods of time the assets increase in value at least with inflation and usually exceeding inflation.
Stocks tend to go up 8-10% annually which means strong dividend payers should be going up 4-6% depending on the size of the dividend. That is about twice the rate of inflation.
Real estate tends to go up about 3% over long historical periods. That is about equal to the rate of inflation. Leverage is where real estate really outshines other assets on inflation protection. If your real estate is 75% leveraged then it will increase 12% on cash invested. That is 4 times the rate of inflation.
So stocks over long periods should beat inflation by 2 times and 75% leverage real estate will beat inflation by 4 times.
When the assets go up in value the dividends and rents go up too.
Cash flowing assets have all the bases covered.
I’ve come to the same conclusion. Cash flowing assets do have all the bases covered.
Plus they simply let you retire earlier/better.
Consider these options:
- If you need $50k in annual income to retire and if you withdraw 4% to pay for it, you need a nest egg of $1.25 million.
- If you need $50k in annual income to retire and you have income producers paying you $20k a year, you need a nest egg of $750k to fund the rest.
- If you need $50k in annual income to retire and can earn 7% income on your real estate investments (which is what many syndications pay these days), you need a nest egg of $714k.
- If you need $50k in annual income to retire and can earn 10% income on your real estate investments (which is what I made with mine) or your private loans (which is what I make with mine), you need a nest egg of $500k.
Which of these would you prefer?
Are you beginning to see how income can speed up your retirement? It’s because you can often earn much more than 4% with income investments. This eliminates having to save up a fortune over 30 years to retire. Instead you are effectively replacing your working income (in whole or part) with other income which allows you to retire sooner.
Wes Moss talks about a similar relationship to option #2 above in You Can Retire Sooner Than You Think. In 18 Traits of the Happiest Retirees (which is from Wes’s book) you’ll find that happy retirees “have at least $500,000 in liquid net worth” ($874k is average) and “they have at least two (sometimes three) different sources of income in retirement” (average is 2.6).
So the happiest retirees aren’t all about saving a gazillion dollars to retire — they balance it with income as well. This is what I think is a much more reasonable way to approach retirement as well — a balance of both income and savings.
All I’m saying here is that while we’ve focused on the 4% rule so much, we should probably give greater weight/consideration to income options.
Ok, so just what income ideas am I talking about?
Here are some posts that offer many different options:
- Ten Best Ways to Earn Money
- Ideas for Creating Income
- Three Ways to Make Money
- 28 Ways to Create Extra, Passive Income
- How a Side Hustle Business Can Get You to Financial Independence in 10 Years
- Five Categories of Passive Income and How to Evaluate Them
- Multiple Streams of Income: Helping You Get to Financial Independence and Beyond
- Seven Steps to Creating Passive Income through Dividend Investing
- How to Invest in Private Real Estate Lending
- How to Get Started Investing in Real Estate Syndications
Be sure you don’t miss the “How to Go from One Income Stream to Multiple Streams” section in Ten Best Ways to Earn Money. It gives a step-by-step plan for starting with your career income alone and using it to generate many streams of income.
Our income covers Fat FIRE retirement expenses and then some. My only regret is that I didn’t develop those sources of income sooner — otherwise I would have retired a decade earlier!
Taking the income idea a bit further, let me say that IMO, the gold standard of extra income is the side hustle. I say this because:
- It is relatively easy to develop a side hustle that earns you $20k or more a year — especially with the options the internet provides these days. If you want some ideas, see How to Earn Extra Income: Side Hustle Ideas Worth Considering, the side hustle interviews I’ve done here (which are in my earn category), and my series on creating a $25k blog.
- A side hustle on the way to retirement can fast forward your freedom date. Just think of what an extra $20k a year could do invested in anything for 10 years. Even if it’s only savings, it will make a HUGE difference. If you don’t believe me, run your own numbers with and without a side hustle using the ESI Scale calculator.
- Side hustles tend to be enjoyable — work you actually like. I know mine have been. It’s so much fun to do something you like that also earns money!
- You can take a side hustle with you into retirement. This helps 1) enable you to afford retirement sooner because the side hustle income covers a good part of what you need and 2) provide some sort of worklike activity in retirement to be happy (see below for my thoughts on work). It’s a win-win proposition!
There will be naysayers and excuse makers on this subject. Yeah, but this. Yeah, but that. Go ahead and make your excuses. See what they do for you.
My answers to the naysayers are as follows:
- I was able to create a side hustle (several actually) as well as multiple streams of income. And if I can do it, you can too (at least in part, for sure). Let me remind you that if you want what I have, you have to do what I’ve done.
- You don’t have to spend 100 hours a week creating a side hustle or extra income streams. Simply make small progress every day and after awhile your efforts will add up. For additional thoughts along these lines see Atomic Habits to Become Wealthy and Improving Your Finances with The Slight Edge.
Ok, off my soapbox. For now. LOL.
Need Some Form of Work and Social Activity
We talked about work a bit above and now I’m adding social interaction to the mix for this point.
The truth is these are two areas I underestimated the value of in retirement and both need to be accounted for to have a happy retirement.
Let’s discuss each of them separately…
For those retirees who fail at retirement because they lose the “benefits” from work like social activity, sense of status, etc., there’s a simple solution.
They miss (and need) what I call work or worklike activities in retirement. To replace these lost needs they simply need an option to fill some time in retirement. This could be working one day a week at the job they left, getting a new, part-time job they enjoy, a side hustle, or a volunteer activity. All of these (and more) address many of the needs people have that are met by working. For me, writing on my site and spending time with the Millionaire Money Mentors covers this (these also help to keep me sharp mentally, another vital part of having a good retirement).
I had dismissed the need for “work” in retirement when I retired, but I can’t imagine my life without it now. I LOVE writing posts, talking with members in the forums, and learning new things about technology, web marketing, and the like. “Working” like this in retirement adds enjoyment to my retirement — it doesn’t take away from it. (BTW, I put work in quotes because I don’t consider it work — it’s that fun. I consider these hobbies that have the awesome side effect of creating income. LOL.)
Also let me address the topic that some members of the retirement police reading this are thinking right now: “If you are working, you’re not retired.”
My response to them is: “Get over it.” Hahahaha.
Seriously, I never have been about anyone else defining my life or how I view it and I’m certainly not going to let others define my retirement for me.
BTW, I find that many who have this opinion are 1) older than I am and 2) still working themselves. So there’s that as well.
As for social activity there are a couple issues.
First, most people need a good amount of it. I’m an introvert and don’t need much, but even I need interactions with others. And even if you’re Hermit McHermit, you do too.
Second, most people get a good amount of their social interactions from work. So when they leave work, they lose a lot of these connections without a way to replace them. This causes problems for some.
There’s no right answer for how much social interaction a given person needs or how to get it. These are very personal situations based on many factors that are unique to a given individual. But you do need social interactions to have a happy retirement.
The great news is that both work and social interactions can be combined with other activities so you get them while doing things you enjoy.
For example:
- Many side hustles, part-time jobs, and volunteer options provide for the needs to work as well as have social interactions.
- Many sports (golf, pickleball, tennis, etc.) and exercise activities (like classes) have social aspects to them.
- The internet is as useful for social connections as it is for work. I have made a TON of friends in the forums and I know I’ll see many of them in person one day. Even if I don’t, the interaction with them provides a social need for me.
I like activities where I can get a double bang for my buck — accomplishing more than one thing at a time (like having fun, working, and creating social interactions simultaneously), so I look for those opportunities. Fortunately there are a lot of options if you are creative.
Purpose is in the Eye of the Beholder
Ok, here’s another rant…
I’ll hold back a bit as I’m covering this in other posts, but if you read enough retirement books (and I’m up to over 50 now), you’ll come upon the idea of “fulfilling your purpose” in retirement.
Some books ignore this idea completely, but others take it to the nth degree.
Their idea of “purpose” (they sometimes call it your “passion” as well) is doing something sacrificially with your life/time in retirement. Their point of view is that you need to be working on something meaningful in retirement that changes the world. Otherwise you will be purpose-less and your retirement will be less-than-amazing at best and downright terrible at worst.
Examples of what qualify:
- Saving the turtles by volunteering to raise a gazillion dollars to protect their habitats.
- Working at a soup kitchen for the homeless several days a week.
- Selling your possessions, giving them to the poor, and moving to deep Africa to start a free hospital.
Ok, so maybe those examples are a bit over the top, but seriously, there are those out there who claim you need to have a purpose in retirement similar to these or else your retirement is doomed.
I call BS on this. The millionaires in the forums do as well (I asked them).
Our general consensus is that if you like to do any of the things above or anything similar to them, then fine, have at it.
But conversely, if you are not saving the world and instead simply have interests that get you up in the morning and keep you going in retirement (what author Wes Moss describes as core pursuits and I just call retirement activities), these will be more than enough for you to have a great, happy, awesome retirement.
You don’t have to save the world to be happy. You might just need to play a lot of tennis to have a great retirement.
So yes, tennis could be your “purpose” in that it gives you something to be excited about. It fills your days with joy and happiness. This is what you really need.
Purpose in retirement can take many different forms and have totally different meanings to different people.
As such, purpose in retirement is most certainly in the eye of the beholder.
Retire as Soon as Possible
Here’s my final bit of advice. I saved it for last so you’ll remember it: retire as soon as you can.
There are a couple reasons I say this.
First of all, have I mentioned how great retirement is? Why wouldn’t you want to retire asap?
Second, life is short and nothing is guaranteed. So grab the gusto while you can.
The more I read about retirement the more I run into stories where people waited to retire only to be hit with a terrible disease shortly thereafter. They worked those extra 1, 5, or 10 years simply because they needed “just a bit more.”
Here’s an example from the book Top Five Regrets of the Dying: A Life Transformed by the Dearly Departing. The author tells the story of an elderly gentleman she was caring for as follows:
Out of the afternoon peace John stated, ‘I wish I hadn’t worked so hard, Bronnie. What a stupid fool I was.’ From the other lounge chair on the balcony, I looked across at him. He needed no encouragement to continue. ‘I worked too damn hard and now I am a lonely, dying man. The worst part is that I have been lonely for the whole of my retirement and I need not have been.’ I listened as he told the whole story.
John and Margaret had raised five children, four of whom now had children of their own. The other one had died in his early thirties. When all of the children were adults and gone from the home, Margaret had asked John to retire. They were both fit and healthy, and had enough money to retire well. He always said they might need more. Margaret replied each time that they could sell their huge, now almost empty house and buy something more suitable, freeing up more money. For fifteen years this battle went on between them, while he kept working.
Margaret was lonely and longed to discover their partnership again without children or work. For years she devoured travel brochures, suggesting different countries and regions to visit. John shared the desire to travel and was open to wherever Margaret suggested. Unfortunately, he also enjoyed the status his work gave him. He told me he didn’t particularly like the work itself, just the role it gave him in society and among his friends. The chase of closing a deal had also become a bit of an addiction.
One evening with Margaret in tears, begging him to finally retire, he looked at this beautiful woman and realised that not only was she desperately lonely for his company, but they were both old people now. This wonderful woman had waited so patiently for him to retire. Looking at her, she was still as beautiful as the day he had met her, but it was the first time John considered they were not going to live forever.
Although petrified for a reason he could now not justify, he agreed to retire. Margaret had jumped up and hugged him, her tears switching from sadness to joy. But the smile didn’t last long, disappearing the minute he added ‘in one more year’. At that time, there was a new deal being negotiated in the company and he wanted to see it through. She had waited fifteen years for him to retire; surely she could wait one more? It was a compromise, but one she reluctantly agreed to. As the sun dropped from view, John told me he felt selfish about his choice even then, but he couldn’t retire without doing just one more deal.
Having dreamt of this time for years, things started to become real for his beloved wife. She made some actual plans and was on the phone to the travel agent regularly. Each night as he wandered in, she would be waiting for him with dinner prepared. As they are at the table that had once accommodated their whole family, she shared her thoughts and ideas with great excitement. John was starting to warm to the idea of retirement now too, although he still insisted on seeing out the twelve months if Margaret ever suggested otherwise.
With four months gone since he agreed to retire and eight still to go, Margaret began feeling queasy. At first it was a bit of nausea, but after almost a week it hadn’t passed. ‘I’ve made an appointment with the doctor tomorrow,’ she told him, as he came in from work. ‘I’m sure it’s nothing though,’ she said with attempted cheerfulness.
While John was concerned she was not feeling well, it didn’t cross his mind it could be serious until the following night, when Margaret said the doctor had suggested some tests. Even if the results had not said so, in the following week her discomfort increased and the pain told them something was wrong. They just hadn’t suspected how wrong. Margaret was dying.
We spend so much time making plans for the future, often depending on things happening at a later date to assure our happiness or assuming we have all the time in the world, when all we ever have is our life today. It wasn’t difficult to understand the deep regrets John was living with. I understand how people can love their work and there is no need for guilt in doing so. I loved my work too, despite the sadness that often accompanied it.
When asked if he would have enjoyed his work so much if he hadn’t had such a supportive family life, John shook his head. ‘I liked the work enough, sure. And I definitely loved the status, though what’s the point of that now? I gave less time to what truly kept me going through life: Margaret and my family. My dear Margaret—her love and support were always there, but I wasn’t there for her. She was a lot of fun too. We would have had such a good time away together.’
Margaret died three months before John was due to retire, though he had retired by then due to her health. John shared how his retirement had been plagued with guilt ever since. Even when he was able to come to a certain place of acceptance about his ‘mistake,’ as he called it, he longed to be traveling and laughing with Margaret now.
‘I think I was scared. Yes, I was. I was petrified. My role had come to define me in a way. Of course now as I sit here dying, I see that just being a good person is more than enough in life. Why do we depend so much on the material world to validate us?’ John thought out loud, his random sentences filled with sadness for both past and future generations who wanted everything, basing their importance on what they owned and what they did, rather than on who they were in their hearts.
‘There’s nothing wrong with wanting a better life. Don’t get me wrong,’ he said. ‘It’s just that the chase for more, and the need to be recognized through our achievements and belongings, can hinder us from the real things, like time with those we love, time doing things we love ourselves, and balance. It’s probably all about balance really, isn’t it?’
I listened to this book on audio.
I can remember where I was (walking home from the gym) when I heard it.
I could feel the regret and sadness in the reader’s voice and I felt the pain as well. It was deeply moving.
Yes, this specific example is about someone putting off retirement because of work. But the reason for not retiring could be anything.
Here are a couple related thoughts from the millionaire forums. We’ll begin with this one:
I can really appreciate the Retire As Soon As You Can sentiment. Just today we learned that a really great guy from town, who has been sick for a while, is in the final stretch of his battle with cancer. He is maybe 58. I will be 56 this year.
We are close. The money works now. Hanging on for a while to get the last kid a little deeper into college and give my dear wife some time to digest our move to FLA. However, it is incredibly hard to grind away while you know the money works. Increasingly hard. Really twisted on when to say “F” it.
And another:
I had a battle with colon cancer 3 years ago at age 50. They removed 12 inches of my intestines, and I had 6 months of chemo. It was truly awful, and unbelievably scary.
I’m healthy now, thank goodness. But that experience helped me realize that I really, really don’t want to die without the opportunity to stop and fully enjoy my life. Retiring was the best decision I ever made.
If that’s not enough to sway you, check out this short video from personal finance author David Bach:
My suggestion: don’t wait. Grab the bull by the horns. Retire as soon as you can.
Anyway, those are my five learnings from five years in retirement. For others who have been retired for some time, anything else you’d add?
Paul says
Wow! This just reinforces the fact that I should retire this year. Unfortunately, I’m locked in my job for 5 more years to lock in the pension\healthcare. I guess thats why they call it the “golden handcuffs”. Depressing…….
Kevin Lyles says
I enjoyed this post but think you are missing the point about having a purpose in retirement. It’s not (necessarily) about changing THE world; it’s about changing YOUR world. No grand designs are needed. You just need to make a difference in a person, place or thing that you care about to give you a sense of purpose. Humans need to feel useful and significant in order to thrive. Playing PickleBall all day may help get you up in the morning, but if that’s all you do, if no one depends on you, if you aren’t improving something in your world, then you will likely end up feeling unsatisfied. Is this all there is? I do agree with you, though, that there need not be any element of sacrifice in purposeful activities. In fact, the best ones do not require you to sacrifice at all. They are activities that you want to do, that are important to you, and that make you want to get up in the morning, just like your PickleBall does.
ESI says
I think we disagree, but am not sure.
So what sort of examples would fall into the group of “there need not be any element of sacrifice in purposeful activities. In fact, the best ones do not require you to sacrifice at all. They are activities that you want to do, that are important to you, and that make you want to get up in the morning, just like your PickleBall does?”
Kevin Lyles says
I know retirees who like to hike who pick up trash as they hike through their local parks. They take pride in keeping the parks beautiful. Another one watches their preschool age grandchild while the mother works. This helps their daughter out not needing to pay for daycare, but more importantly, lets the grandmother form a strong bond with her grandchild. I know a retired CEO who serves on the board of her favorite nonprofit. This allows her to use year substantial knowledge and judgment to help an organization whose mission she supports while allowing her to maintain and build social connections and remain significance in her community. I could cite dozens more examples. These retirees are doing things that help others and are enhancing their own retirements. None of them feel like they are sacrificing anything.
ESI says
Yeah, we disagree.
I agree that the examples you cite do work for many people, but also know that many also don’t have activities like this that impact others…unless you really expand the definition (like watching grandchildren) to a point where it really becomes “just being human.” Is watching your grandchildren really a “purpose”. Maybe, if you really want to water down the definition of purpose IMO.
For instance, do I make my world a better place by being nice to the waitress at a diner? Some might call this making their world a better place. I would call it just being a nice/decent person.
Kevin Lyles says
I think watching a grandchild five days a week while the mother works a full time job definitely qualifies as a purpose. We’re not talking about babysitting on a Friday night while the parents go to a movie.
I will concede that not every retiree needs a purpose in order to enjoy retirement but the vast majority do. And I strongly believe that all retirees can improve their retirement experiences by including activities that give them meaning and purpose.
Phillip says
I think this blogsite counts. IMO ESImoney is a tremendous public service that helps a lot of people, self included.
The Bludger says
Just wow!
Powerful post – “Retire as soon as you can”. I love it. It is so easy to add just a little more contingency here and there. Forgetting you have now put contingency on the contingency.
BSue says
My sister’s mantras for all are to “carpe the heck out of that deim” and “the time to take a cookie is when the plate comes by”.
She had a life-threatening car wreck when she was in her early 20s and has felt that she won a second chance. She’s now in her 70s and still living out those mantras.
Financial Samurai says
For sure. My philosophy is: Do what you want!
I am always impressed with the people who have enough money, who hip-hop and grinding so hard. What is the point if you’re not truly doing what you want?
And people might find out that post work, life has a different adventure. We had two kids after retirement, and it’s been a whole different life being a full-time parent. It’s going quick and I wanna make the most of it before they go off on their own.
Do what you want!
Congrats on 5 years!
Sam
Middle Aged Investor says
Wow, this is probably the most emotional post I have ever read on ESI. If this doesn’t make readers think or become motivated towards the retirement planning effort, then I don’t know what will.
The video was especially moving, and convincing that we must all plan for the best, but expect less than optimal situations in our retirement years.
Thank you for posting this.
Dave @ Accidental FIRE says
Wow, that last story is really sobering, sobering indeed
Steven says
Hi,
I would like to see an article comparing your thoughts on the income investing approach described above compared to a total return investing approach.
Total return has worked for me earning 13.8% a year since 1996 (when I started keeping track, and including 401k contributions).
In retirement, 3 years with no additional contributions, I have earned 15% per year average.
So I spend 3% and keep 12% to continue growing. To me that appears better than earning 7% (of a smaller pot as the result of investing for income) and spending it so that I don’t have to touch my principal.
Seems to me that over many years my “pot” grows very substantially more than an income investors will. Your thoughts
Thank you
Apex says
What happens when your pot goes down 50%, stays down for 4 years, and you are still taking 3% off a year which is now 6% after it got cut in half. After 4 years of that you are now down 75%. That isn’t ever coming back, and your stress just went through the roof.
That is the risk with relying on “pot” 🙂
Dan says
😀
ESI says
Hahahaha. Apex beat me to it.
In the end, there’s not a “right” answer (like paying off your mortgage versus investing), people have already made up their minds, the results could be impacted by the selection of various variables suitable to one option or the other, and the pool is currently tainted by the enormous run up in the market.
So writing an article on it would be pretty frustrating since there’s nothing to be gained. And Homey don’t play that.
But there will be a day of reckoning for stock prices — you can bet on that. It could be five years from now or tomorrow, but it will come. So if you can withstand a possible long-term slide and/or period of no gains, then there’s no issue. But if you can’t, you should consider at least some income investments since as long as the income is stable (like with rental real estate), the underlying value doesn’t matter.
I personally have done both, but would have gotten into income investments (and a more balanced approach) sooner if I had to do it over.
Phillip says
Homey D Clown. What a blast from the past. Love it! https://www.youtube.com/watch?v=YxYvzVxJtYM
IMO, diversification is the right way to go. Real estate (I’m inclined to go via syndicated funds, REITS, primary residence), total market index ETFs (domestic, international, emerging) and some bonds/cash (corporate, short-term, MM). I’m personally staying away from crypto, NFTs, commodities, art, farmland, etc.
ESI says
Hahaha!
Your link led me to this one:
https://www.youtube.com/watch?v=ZIJC_aTFo80
JayCeezy says
This 6 second clip is something you might feel, because ESI is about that life! https://www.youtube.com/watch?v=c7AL44keDZw
freddy smidlap says
i’ll second the notion from steven of a total income approach to building a retirement paycheck. sure, it involves selling appreciated shares and that puts some people off. it just takes a little practice to get used to it and long term gains are taxed the same as qualified dividends.
to each his own but i feel you can do better this way.
ESI says
See my response above…
Steven says
Sorry that you decline to do an article homey.
We probably could all benefit from it.
All I know is that I have blown away my friends (in terms of net worth) who are solely income investors, but I still don’t know if there is something I am missing.
I protect against a long term downturn by keeping 3 years of spending in cash or cash equivalents and with a home equity line so I don’t have to sell in a down market.
Paulz says
I would not count on the home equity line. During the 2008 downturn there was a significant number of those closed by the banks to limit exposure. Just my opinion, a long term downturn is more than 3 years. I would have 5-7 years.
I think the past two decades have allowed many to forget what a prolonged downturn looks like. We’ve had those that stretched from a few days to a year, but I remember times where the uptrend was slow and painful.
MI-75 says
Very moving post and timely for me as well.
I have 3 points to make:
1st the funny
I call BS on this. (Saving the world in your retirement) The millionaires in the forums do as well (I asked them). — Totally Agreed! #I_Concur_Captain
2nd – Life is unpredictable so if you can retire, you should consider it.
Our company lost our president this year. He was 18 months into the tenure. This guy had everything going for him. Had the career, the education; after all he was the president of the company. He had the brains to pull it off too: he put the company on a growth path. Had a loving family with 2 kids (his kids are my kids’ age)
He suddenly quit for health reasons and 3 weeks later passed away. Our beloved president was MY AGE! … And I tell you I’m wayyy to young to kick the bucket. So YES, if you can retire, you should consider it.
3rd point is I’m about to start an indefinite break from work in about 4 weeks time. I’m really looking forward to it, and have a few things planned but I’m remaining flexible. This article has been like a check that to-do-list twice.
Thank you for your words of encouragement.
Carlos
steveark says
I am living in a parallel universe. I ran a billion dollar company but it wasn’t my life, I had a dozen hobbies I liked just as much as working. I’ve also been retired five years, going on six now. And retirement is amazing. I haven’t had a single day of regret or a single day when I wished I could go into the office. I do significant nonprofit support on boards and by mentoring college students and through my church and still get paid for random consulting assignments, though I do not pursue those anymore, just do a few for my friends if they are in a bind. I also don’t regret not retiring earlier than 60, it was the perfect time for me. I love pickleball and tennis and running and fishing and hiking much more than working or volunteering but those still add some structure and purpose, even though I realize they aren’t for everyone. I’m not saving the world but I am using hard earned skills to help others, and that just plain feels good. I’m in it for me, not that altruistic, but if it makes me feel better then it is just another hobby and it certainly isn’t hurting anyone. In fact it helps others, so even though I agree with what you are saying I think having a bit of it in my life is a small plus. Maybe.
I do not feel the need for any income generating investments even though I do receive a nice amount of dividends and bond interest. Dividends are no better or worse to me than stock growth and the only real estate I do is totally hands off, if I wanted another job, being a landlord would come in way behind ditch digging for me. I’ve tried it, and didn’t like it. I agree you can probably get by with a smaller net worth if you are focused on income generation but if you have more than you need, which I do, then keeping it simple is fine with me. I can go the rest of my life with essentially zero return on my investments.
I consulted enough to pay 100% of our household expenses and fund ROTH’s for the first five years of retirement. So that was definitely an income bridge to Social Security. I didn’t do it for the money so much as a ramp down to not earning, and I think it helped me slide into not working without any big speed bumps. It was only eight hours a week anyway so it did not crimp my style or crowd my calendar.
As always you said it much better than I could. I think the risks of retiring are way overblown if you are a happy guy before you retire. If you are a miserable guy before you retire then you’ve got a problem that’s pretty much independent of your employment status and its one you need to resolve. Great post as always!
MI 228 says
Sounds like you had many interests and dimensions to your life before retiring and did not miss a beat upon retirement. Inspiring!
Weldon says
OMY…one more year syndrome drove me to “retire” early from my defined benefit pension career…no regrets at all.
I am working another job, drawing my pension, and considering businesses to start while my wife draws nearer to her pension as well.
Super Stocker says
This is a great post! I don’t normally see a post that calculates the retirement you need when you HAVE a side income still coming in. In most cases, you would need a nest egg and withdrawal 4%. However, if you can find some investment with cashflow, then you might be able to retire with a smaller amount. I rather retire with my money “continues to work” for me. There are real estate investments that pay a preferred 8% so if you can get these investments you can retire sooner!
MI 228 says
ESI – thank you. This post is another example if your multidimensionality. You have many interests, many sources of intellectual, social and physical stimulation and you have never looked back. Because of you I have set a far earlier date for retirement than I otherwise would have. I love and applaud that you “call BS” on the need to be Mother Theresa in retirement. While I enjoy serving others, I also get fulfillment from walking, reading, yoga, tennis, visiting friends and family and watering plants. I am an introvert who has to play an extrovert at work all day so giving that up won’t be hard. Great post!
Sam says
John and Margaret’s story about retiring when you are able to and getting your priorities about the people in your life is truly powerful. I’m planning on retiring in less than a year but will be a widower and a single dad still raising a school age child. I lost my wife 5 years ago when she had a sudden cardiac arrest at the age of 41. So, like the post has mentioned, you never know what tomorrow has in store for you so make the best of today. I too had many plans for what I would do with my wife during retirement which is now no more. However, I was fortunate enough to be able to go on an Alaska cruise with my dear wife and family for a week to celebrate our 20th anniversary 6 months before her death not knowing it would be our last anniversary. The year before she died I also had made a conscious decision to take more days off from work to do things with her and the family. I’m not sure why I suddenly felt like doing that but I think it was God’s divine guidance and so haven’t felt the regrets that John in the story above felt. My point is to those who are not yet retired, don’t put off your travel and activity plans with loved ones until retirement. Do them now. Make time for them now, even if it means giving up some status/promotions at work. You are not guaranteed that your spouse or you will be around when you plan for that eventual retirement. And, YES, retire as soon as you are able to in order to focus on life outside of the 9-5 work and expand your horizons.
Mike says
Love this!! So true!
Mike says
Maybe this is a bit off topic, but what about the other side of the coin? I’m hoping to be able to retire by 59.5, I believe I”m on track for it. But I also am not waiting for it. I am one of those people who don’t have any vacation time leftover at the end of the year. I take vacations now and try to enjoy life as much as possible. This likely means I’m putting off retirement as I choose to only work 40 hours a week in my job and have avoided more profitable advancements such as going into Mgmt because I believe I’d hate it and have more fun doing what I’m doing. I guess my point is we shouldn’t focus on retirement to “start living”. Focus on your purpose now outside of your job.
Sam says
I agree. Its all about balance and not making work or earning more your “idol”. There is a saying that on your deathbed no one will wish that they had earned that “one more dollar”.
Accidentally Retired says
I’ve come to the conclusion that my version of early retirement is simply being able to work how I want, when I want, with whom I want. I enjoy productivity, which is why I started my site. I enjoy writing. But if I don’t want to sit at a computer any longer, I simply get up and walk away.
I will say it is a bit harder with little kids. They demand a lot of time and attention. They deserve it. But as such, I feel like a stay-at-home Dad at times. I am not so much enjoying not working as just doing another full-time job.
But I am sure all of that is fleeting, and I hope that my kids have nothing but a memorable childhood where Dad and Mom were around A LOT, went on some amazing vacations, made friends, etc. etc.
I also agree. Income producing asset are key to both lowering sequence of return risk, but also the actual nest egg you need. If I was 20 again and had more energy, I would certainly pull together more investment properties and have planned a bit better.
D says
Great article! I was able to retire at 57 and my husband at 60… so grateful for that. We invested aggressively, but also did not hesitate to spend on our children’s life experiences as they were growing up… no regrets!
I am very glad I had the knowledge and insight to plan and invest. Also, extremely blessed to have a spouse with the same mindset… 💗
Retirement is delightful… 🙂
Jim says
This does apply to me. I dispise coming into work. There are any number of things that I would rather be doing, many of which don’t cost much or anything. I want to pay off my real estate investment (about 380K to go) and then I can retire in financial safety. Im paying off the mortgage an extra thousand a month and I have a retirement date picked out (hasn’t changed in 5 years; 10/1/27). I always say that a target is a lot easier to hit if you know what it looks like.
The article also reminds me of an introduction to one of my quilting books. The author was experiencing the “half/double” retirement. Half the money and double the husband. I don’t want to be that husband.