How Did We Know We Were Ready For Early Retirement?
I received a very thoughtful email this morning from a reader asking some very pertinent questions about how we knew we'd reach the point where we were ready to enter early retirement. After reading the email, I reached out to the author requesting, and subsequently receiving, permission to respond to the email via my blog, because I think the questions asked have broad appeal for others likewise considering early retirement.
Here are the questions, followed by my responses.
- Did you feel certain that you were making the right choice at the time, or did you have some doubts as we do?
Oh my goodness, yes, I had many doubts, but I kept returning to the point of recognizing that I had lost all my passion for my job, and that increasingly I was just going through the motions at work. When I got to the point of literally dreading the sight of my office, I knew something had to change. I wasn't 100% sure that early retirement was going to be the answer, but I did know 100% that leaving my job was the first step.
Conversely, Mike seemed to have pretty much no doubts. He'd been ready to go several years before me, but held off until I got to a place of acceptance on his decision. His salary was much bigger than mine, and letting go of it was very scary for me.- Did you toy with the idea for a long time, and analyze it to the nth degree, before actually handing in your resignation?
It took me two years to work my way through the entire process. About one year in I negotiated a cutback in hours, going from five to four days a week. That took a little pressure off of my dissatisfaction at work, but I still felt pressured to stay on top of things on my off days, due in large part to the constant buzzing of my BlackBerry. I finally realized that nothing I might do was going to cause me to become excited about my job again, and that's when I knew I was finally ready to to tender my resignation.- What about financially... Did you "know without a doubt" that you had enough money set aside to do all the things you wanted to do?
It took three years and three independent financial check-ups before we reached a point of confidence that the lifestyle we wanted could be achieved within our portfolio, and that the portfolio would last throughout our lives. We worked with 1) an online financial program, 2) our assigned account manager at the investment firm handling a portion of our portfolio and 3) with a privately hired financial advisor.
During that three year process, we established our retirement budget, and 'practiced' living on it for a year first. In hindsight, that turned out to be an excellent decision. It created a change in how we viewed our spend, but it wasn't negative. We actually found that by knowing how much we had to spend in any given category on any given day, we were much more conscious about our decisions, and experienced greater overall satisfaction as a result.Did you face that paralysing fear of "what if we make the wrong choice? If we run out of money, or realise that having an extra 70 hours free in the week isn't actually as good as we thought it would be". If so, how did you move past that?
Because we set up a practice retirement budget a year in advance, we were able to identify and eliminate a lot of waste, which resulted in driving down our fixed expenses to less than 50% of our annual spend. That gives us a lot of leeway should something ever go terribly wrong in the financial arena. We also have additional contingency plans, such as moving to a smaller home or taking out a reverse mortgage. Neither are actions we anticipate taking, but both are available to us should it become necessary. We're also pulling out considerably less than the prevailing retirement withdrawal rule of 4%. We should actually be in the position of increasing our withdrawal rate once the first of us reaches Social Security and Medicare age, which is kind of exciting.
Plus we could always return to work should it become necessary. We wouldn't need to earn salaries anywhere close to what we earned before to cover our living expenses. Two entry level jobs would be more than adequate.
Creating a new set of routines and hobbies to fill our time was a multi month process, but there were no concerns that we'd run out of things to do. It was more a matter of finding the right things. Currently we have no shortage of things we enjoy doing, but we do sometimes have a shortage of energy!The above questions are, I think, pretty universal. If any of you reading this would like to provide additional thoughts or perspectives, please do so. I'm sure we'd all benefit.
Great post Tamara. I agree that these kinds of concerns are very common prior to retirement. It's been ~ 9 months for me, so my observations are from a relatively short time period.
ReplyI so agree on the importance of having a good financial advisor to help sort out the complicated issues of budgets, portfolio mix, withdrawal rates etc. And, the ace in the hole is knowing that we have options (back to work, reverse mortgage, smaller house) were the market to crash. While we too are concerned about what the market will do now that the government is possibly going to default (!), we will not lose sleep over it, knowing that eventually the market will very likely recover, and, we have other options to keep us afloat financially.
I'm not a very imaginative person, so prior to retiring, I tried to imagine what it would feel like and what my days would look like. The newfound joy of life unfettered is absolutely amazing and way better than I ever imagined! And I am still in the "discovery phase" of figuring out this new life, so I expect several more surprises along the way! My husband and I share a lot of the same interests. We enjoy spending time together, sharing our love for physical activity, but we also have our separate interests/friends as well. It's a good mix that works for us.
I agree that doubts are VERY normal, and actually are an indication that you are giving some very good thought to all the pertinent issues. I think it is all part of a very helpful process of preparing for retirement. So to your reader, I would suggest that s/he not be paralyzed by the doubts, but look at them as a way of preparing for this very important time of life.
Tamara, I believe this post may turn out to be one of your top 10 posts. Earlier this year when I was researching early-retirement, I came across your blog. For me, your entry where you define budget categories by percentage was most helpful. It turns out your percentages are very close to my projected budget percentages and that helped validate my goal of early-retirement. I continue to use your percentages as a reference benchmark. I must thank you again for sharing that information. My wife continues to work until mid-2014, so I will continue to fine tune our budget.
ReplyOther resources that I have used which may also be beneficial to your readership are as follows; if you are a Vanguard customer the Voyager team can provide a no cost financial plan, the online tool FireCalc, the T Rowe Price FuturePath tool, and other early-retirement blogs.
I set up an Excel workbook including a spreadsheet defining by year our projected assets. Like you, I am using the safe withdrawal rate of 4%. I’m planning to be just under 4% for the first several years, then below 3% after that. The projection also includes an inflation rate of 3% and a return of 5% annually. I’m curious what were your projected rates of return?
Your reader asked, and you answered the most important and often-asked questions about retirement. Anyone who needs reassurance and a game plan to follow only needs to take to heart what you and Mike did. Well done.
ReplyOne major part of our long term retirement plan Betty and I have is no mortgage on our home. We have 100% of the equity for future housing and other expenses that may surprise us. That feels really good!
Excellent post Tamara. We followed a similar approach when we decided to consider retirement. Terry set up a very detailed budget and tracked every single expense to see what we were spending our money on. Some were surprises but most weren't as we have always worked off of budgets and mostly been frugal. We continue to do this even in retirement, with him tweaking categories as we go.
ReplyVery interesting topic. I am thinking about retiring at 45 (in one years time).
ReplyHaving tracked expenses and squirrelled away every spare penny over the past 15 years I know I could exist financially, but I worry about losing focus and dare I say it, getting bored. When I read Tamara's post "50 things to celebrate turning 50", I looked back over my past 12 months and can honestly say that I have ticked off a similar list of items from my bucket list - while also working. I am very driven and while I hanker for spending more time on the activities I love, I fear having so much time would result in me eventually getting lazy, allowing things to take longer, achieving less, then getting bored. I look at my parents who can spend an entire day shopping for groceries, or watching TV, and I feel it is a shameful waste of their time. Has that happened to any of you?