The following is a guest post from my friend, Jim, at Route to Retire.
When some readers here noted they had enough money to retire but were afraid to take the leap and wanted a post on the topic, I knew Jim was the man for the job.
Why is that? Because he’s right on the edge himself. He is just about to jump into retirement. And who better to write about an issue than someone in the middle of it right now?
So with that said, let me turn it over to Jim…
There’s a funny thing that seems to come up in the FIRE (financial independence / retire early) community. You get on the right track, learn that it really is possible to retire early, and then bust your hump to get to that point.
But then once you reach that safe number, you lose your nerve to pull the trigger.
Some folks just continue to work for years longer than they need to. It’s not that they enjoy working in their regular job – it’s just that they’re afraid they don’t have enough money even if the math says they do.
Maybe they don’t think they’ll have enough money to last until they die or they want to have enough to pass onto their heirs.
So…they just keep working.
Just One More Year
It’s become such a commonplace event in the community that it’s been dubbed as “One More Year.” It’s the calling card for a lot of people out there and it doesn’t need to be.
ESI recently wrote a post titled “When Can I Retire? When Will I Be Financially Independent? A Retirement Calculator Guide” and he got some interesting feedback from it:
Would be great to hear how others got the ‘nerve up’ to exit the workaday world. That is my biggest barrier. Math says one thing (next year) but I’m not sure I can get my head around that.
“You’re already there!” – and yet, I just don’t feel that way! I’m hardwired to worry. Getting over the mental hurdle is the next challenge.
Exactly where I am. Would be great to see a dedicated thread on this subject – how others knew they were ready (not the financial part but the mental part).
Believe me – I know it’s scary. The closer you get to reaching your goal, the more nervous you get about the unknown. Unless everything you have is in certainties like annuities, thoughts of the stock market crashing the day after you retire fill your mind.
Or possibly worse – what if the costs of healthcare rise even further!
Yeah, these are legitimate fears for sure. But at some point, if you’ve tested your parachute you just gotta quit hanging out on the airplane and jump out. That’s how you truly live!
Who are you to tell me to pull the trigger?
Good question. I’m the 43-year-old guy who recently told his boss that I’m leaving at the end of this year. On top of all those same fears that you might have, I have something else that some of you have to worry about as well – I have a wife and daughter counting on me. That means if I failed to plan right, we could really be up a creek.
But you know what – I’m not that worried (anymore). In fact, I’m exactly the opposite – I’m confident that we’ll be successful in our early retirement. So confident that I’ve continued to move my FIRE date up over the past couple of years. It was a big surprise to my wife when I told her that I felt good that I’d be able to quit at the end of this year.
It’s not that we have an excessive amount of money saved either. I look at some of the bloggers out there that have retired early who share their numbers and absolutely wish I had that much money! For a family of three, we’re planning to live pretty modestly. Don’t believe me? Check out our net worth page that I keep up-to-date on my site.
And just for a little more authority on the matter, I brought in some other blogger friends that have retired early to give their take as well.
Each of us is in a different situation in planning out our future. For me personally though, it was important to accept some realities to help me understand why it was ok to pull the trigger on early retirement:
1) I don’t enjoy my job anymore and need to be done with it. I’ve been at this company for the past 19 years and it’s time. I’m willing to take a calculated chance in order to be able to move on.
2) Every minute longer that I’m working means I’m missing out on other things. Call it FOMO or whatever you want, but I have so many projects and hobbies that I want to be working on. In other words, I want the time to be able to chase our dreams.
3) We’re going to make money. Yes, it’s early retirement and yes, we’re planning on not needing to work. But guess what – we’re still young (no comments from the peanut gallery, please!). Even though our numbers have been run through the wringer every which way and we should be good-to-go, we’re still going to make more money. It’s almost inevitable.
It’d be nice to just sit on a beach all-day-long seven-days-a-week, but I’ll be honest – even that would get boring after a while. So remember those projects I mentioned that I want to do in #2? I’m sure that one or more of those will end up bringing in some additional income. I’m not going to rely on it for my plan, but it’s going to happen.
Moreover, it seems that the opportunities seem to creep up out of nowhere once you’re no longer stuck in the daily grind. I’ve seen that happen with almost every early retiree I know. In fact, here’s what Steve at Think Save Retire had to say:
[…] opportunities expand when you no longer have full-time work to take up so much of your day. These opportunities can (and do) include earning money.
I’ve found a slew of options after calling it quits that could almost replace what I was earning before. Of course, that’s not what I want. I don’t want to work that much, and I’m okay taking significantly less.
But, the larger point is opportunities exist. They are literally all over the place. But, our minds had a way of ignoring those options back when we held full-time jobs.
4) We’re in the ballpark with our numbers. Let’s talk about this for a second. Right now, you might be thinking, “Jim, are you insane?!! Ballpark ain’t gonna cut it with 30, 40, or 50 years of retirement!”
Yeah, well, guess what? If that black swan event happened and the #$%^ really hit the fan, is it really that big of a deal?
Honestly. Think about it. It’s not like we’re quitting with $25,000 in the bank – we’ve gotten ourselves to the point that we’re pretty sure we’d be good-to-go even if things get messy.
But let’s say I’m off by a little bit and for some reason, our hobbies aren’t bringing in any income at all (hard to believe). What’s really the worst-case scenario? I get a part-time job at Home Depot to fill in the gap? Or work part-time at Starbucks to get the healthcare benefits?
I’m actually Ok with that. I don’t think that’s ever going to happen, but if that’s really the most unpleasant or serious thing that could occur, um…ok. I can live with that. Hell, I might even enjoy it!
Jim at Wallet Hacks had similar thoughts when he decided to leave his job:
I saw my side business as buying me years of “not working” for an employer. Once I had about ten years, I was confident I could figure something out in the next 10 years so I wouldn’t have to go back to work if things imploded.
It’s All About Perspective
In other words, it’s important to put all of this into perspective. Just because you run your numbers into 11 different FIRE calculators out there and they all come back saying there’s a 7% chance of you running out of money before you die, it doesn’t mean you’re actually going to run out of money.
The odds of that happening are slim – well, technically 7% in that example. If you’re any good at math or know anything about gambling, you’ll quickly realize that this is a bet you want to take. The odds are definitely in your favor!
More importantly, these calculators have a hard time taking into consideration the “people factor.” And by that, I mean that no one in their right mind is just going to let their money run out.
If every bad scenario starts manifesting and it’s crushing your nest egg, my guess is that you’re going to adapt. Either you’re going to start cutting back on what you’re spending for a short time or you’re going to start making some more money one way or another.
That’s not a bad thing! This isn’t traditional retirement – you shouldn’t be just sitting in a rocking chair for 40 or 50 years. As an early retiree, you have the freedom to be a little more flexible.
Over-planning isn’t always going to be the right answer anyway. Even if you have 10 more “one more year” guilt trips and you end up working a decade longer than you supposedly need to, something’s going to throw a wrench in the works.
It always does.
You can’t plan out every detail 100%. Life happens. Things change.
However, as long as you’re flexible, you’ll be fine. Doug “Nords” Nordman from The Military Guide told me that he knew years in advance of his coming retirement:
I retired from the U.S. military in 2002 after 20 years of active duty, and I had no interest in a bridge career. We’d already reached the tripwire of the 4% Safe Withdrawal Rate, I had a small pension for our bare-bones expenses, and I was burned out.
When I asked him if he was nervous about making it happen, he said something I thought made a lot of sense:
The best you can do is have faith that your FI skills will help you succeed better than a 4% SWR robot.
Vicki from Make Smarter Decisions realized that sometimes you just need to pull the trigger because you really never know if you’ll make it long enough to enjoy every minute of happiness:
My big “aha” – a woman I hired at school who was my age died of a brain aneurysm watching one of her kids at a cross country meet. Then my neighbor (another woman my age) – had a massive stroke. They thought she was going to die – but she pulled through. She has an aide with her most of the day because of her disability now. These were happy, healthy women who both had kids in school with my kids. $hit happens.
And sometimes things happen that dictate you pulling the trigger whether you’re ready or not. Mark from The Retirement Spot shared his experience:
For me it wasn’t me who decided, it was a neurological disorder that decided for me, but I had saved enough where I did not have to worry about finances. I always had my finances in order and prepared for unforeseen circumstances.
I was a bit nervous. I think I was more nervous about losing my network of colleagues. Wasn’t sure what I was going to do. One of the first things I did was pay off the rest of my mortgage. I tend to be a worrier by nature. So, yes I was a bit nervous but in the end it worked out.
He’s making a list and checking it twice…
Now, with all that said, don’t just go quitting your job right off the rip. If you’re planning to retire early, you still need to do some due diligence first.
Remember that ballpark I was talking about? Yeah, well, make sure you’re in it.
If you’ve been in the personal finance community long enough to understand a game plan for FIRE, you likely already know some of the important concepts:
- Track your expenses. Know what you’re spending now and also what you’re anticipating to spend in retirement. Don’t forget to take into considerations like the costs of healthcare.
- Earn, Save, Invest (ESI). I swear I know that acronym from somewhere! This is the most important part of getting from A to B. Do it wisely and you’ll get to where you need to be even faster.
- The 4% rule… of thumb. If you’re not familiar with this, you’ll want to dig into this more. The research shows that you should be able to withdraw 4% of your portfolio every year (adjusted for inflation) without running out of money for at least a 30-year period. Flipped around, it basically states that you should have saved 25 times your annual expenses. There are arguments on both sides as to why this will or won’t work. Regardless of which side of the discussion you lean toward, it’s still a good start to get you in the realm of how much you want to have saved up.
- Understand the difference between taxable, non-taxable, and tax-deferred. Know which accounts will be taxed as you withdraw from them and which won’t. This can dramatically affect how much you want to have socked away.
- Don’t be afraid to get a second opinion. Some folks are able to understand every nuance of personal finance and know all the accounting rules and strategies. I’m not one of those guys and I’m not ashamed to admit it.
I understand a fair amount, but I’m not a financial planner or a CPA. Those are the people that can give you some more confidence in your plan. In fact, a fantastic financial planner is the one who helped confirm that we could retire one year earlier than planned. He gave me some strategies and ideas that really solidified the idea.
Jump In, the Water is Fine
All-in-all, if you’ve knocked those steps out and the math adds up, what’s stopping you from going for it?
Joe from Retire by40 suggested this idea if you’re still nervous about making it happen:
We did a trial run for a year so my wife can feel comfortable about my early retirement. We saved all of my income and only lived on passive income, blog income, and my wife’s income. The trial run worked beautifully. We didn’t need my income and it gave our cash saving a big boost.
However, if you’re still not sure about the whole idea of quitting early, sometimes you can make it work with some other more structured forms of income. Mrs. Groovy from Freedom Is Groovy had this to say about them quitting the 9-5:
We planned our retirement two years out, targeting October, 2016 as the time we’d both quit. That was when Mr. Groovy turned 55 and became eligible for a small pension. We knew we’d feel a bit weird when our paychecks suddenly stopped and we wanted the psychological boost of knowing we’d have a small, but reliable stream of mailbox money coming in.
Understand that pulling the trigger on FIRE isn’t the end-all-be-all. If you feel you made a mistake after a year or two, you can go back and get another job. Call it a mini-retirement if you want. I don’t anticipate ever doing that, but if I ever needed to, it’s an option.
“One More Year” syndrome is not something I will allow myself fall prey to in this life. I want to enjoy every minute of time I have and wasting it in the rat race isn’t going to do it for me!
If you’re “there” financially but you’ve still been nervous to jump ship leave your job, I hope this has helped you see a little bit of a different perspective on things.
Your turn – what are your thoughts on actually pulling the trigger for early retirement?
This is ESI again, with a few post wrap-ups of my own.
If you’re nervous about retiring, here are some suggestions:
- Do a trial run as Jim suggested. It doesn’t need to be a one or two-year full-blown retirement. Just see if your workplace will let you cut back to two or three days a week. Then if it seems a bit scary or unpleasant you can easily ramp up again.
- Build in several margins of safety. These should give you even more confidence that if something goes wrong, you have back-ups to cover you.
- Seriously consider a side hustle. It’s one of the best margins of safety you can have because it earns you money! And if you pick something you enjoy to work on (which you should) it won’t even seem like work. You have to do something in retirement, why not make it something you love that earns some extra cash?
- Remember you can always go back to work. Even if it’s Starbucks or McDonald’s, the likelihood that you’d be able to find some sort of job is very high.
In the end, the stories from Vicki above really resonated with me and I’d suggest you think about them.
Here are a few I’ll add to the mix:
- A college classmate of mine recently passed away from cancer.
- A wonderful neighbor of ours who was just a few years older than me had a brain tumor and died of a heart attack.
- Many friends and relatives my age have had bouts with cancer, heart problems, and the like — serious issues that could have gone either way.
People often ask me about retiring early saying, “What if something goes wrong with your health?”
They are implying it will be bad for my finances if I get sick.
But I turn it around and say, “If something does go wrong, I get ill, and I don’t recover, I’ll at least be thankful that I retired when I did. I don’t want my last good day on earth to be spent in the office.”
I’ll probably write a post on this one day but let me share part of a story as I close.
One of my bosses from several years ago passed away earlier this year. He was an awesome guy in many ways and only a few years older than me.
A few months after he passed a mutual friend and I had coffee. I noted that I didn’t even know my former boss was sick and my friend said not many did — he was a private guy and didn’t want people to know.
Then he said the words that have haunted me since, not for me personally but for those who are able to retire and yet don’t:
“He was at work on Friday and dead on Sunday.”
I don’t want that to be said of any ESI Money readers if I can help it.