I’ve worked with many clients over the years who decided to retire early. Sometimes that was a great decision, other times it resulted in some unexpected challenges. Below are some of the pros and cons I’ve seen with early retirement. Consider them carefully as you decide when to retire.
Time control. During your working years, you don’t control large chunks of your day. If you retire early, however, you shed those demands and have much more flexibility and opportunity to use your time to do the things you really want to do.
Health. Generally speaking, the younger you are, the healthier you are. If you retire early, you get to take advantage of the fact that you’re still healthy and active.
Open doors. In The Funny Thing About Time, I discussed how time closes doors as we get older. The kids grow up and move away. You lose a spouse or other loved one. Your physical health changes and you’re not able to do that trip you always wanted to do. Retiring early means that more of those doors are still open.
Better relationships. One of the advantages of having more time is that you can prioritize relationships. During our working years, we’re less proactive with relationships. It’s a side effect of less time and more obligations. Early retirement changes that calculus. And since relationships are key to a happy life, retiring early can be a huge advantage.
Less stress. This one is pretty self-explanatory.
Potential opportunity for a second career or passion project. Some retire early because they are ready to leave work/career behind. Others still want to work, they just want to do something they enjoy or are passionate about without having to worry about what it pays. Retiring early can give you that opportunity.
Age difference with other retirees. I have a client who retired early and moved to a private community in Florida. He was the youngest resident by several decades. You can feel a little out of place if you’re 50 and everyone around you is 70. This is obviously more of an issue if you move to a destination geared toward retirees.
Guilt. I wrote about this in 4 Unexpected Emotions in Retirement. If you retire early, you can sometimes feel guilty because you’re doing fun stuff while your friends and family are still working. This can make conversations awkward as you talk to each other about your day, priorities, etc.
Money. The sooner you retire, the less time you have to save and the longer your nest egg needs to last. If you are considering early retirement, be sure to work with a trusted adviser to create a detailed retirement plan with a high probability of success.
Comparison with peers. Alas, comparison with others continues even in retirement. Your friends and co-workers will likely be a little jealous of your newfound freedom and you’ll likely feel a bit green when you hear about their promotions and raises. You might even second guess your decision to walk away from the challenge and status your career. The best way to guard against this is to do things in retirement that provide purpose and meaning.
Social Security. Your Social Security benefits are based on the assumption that you will continue to work until full retirement age. If you retire sooner, your benefits will be a little lower. Likewise, if you decide to claim your benefits early (rather than waiting until full retirement age) they will be reduced. You can retire early and still wait to claim your benefits, but that means that your portfolio will need to do the heavy lifting until you file (see my point on money above).
Health insurance. If you retire before becoming eligible for Medicare at age 65, you’ll need to get a health care policy that bridges the gap between your employer policy and Medicare.
Timeline vs. Pie Chart
Regardless of when you retire, you’ll be faced with tradeoffs. If you wait, you get more money, but you lose time and health. If you retire early, you sacrifice a bit of money, but you’ll be healthier and have a much longer runway to enjoy retirement. You need to decide what’s most important to you.
One piece of advice I can give you: Don’t save the best for last. Retirement should not be a timeline where youth is 0-20, working years equal 20-65 and retirement is 65 plus. Instead it should be a pie chart divided between time you control and time you don’t. Retirement is using whatever time you control now (whether that’s 10%, 50% or 90%) to live the life that you want to live.
When it comes to retirement, you absolutely want to dream big. Just don’t forget how important it is to eventually get those dreams off the drawing board. Here’s a simple framework that can help. It’s called the 4 Disciplines of Execution (4DX for short) and was developed by several people at FranklinCovey and discussed in their book by the same name.
Discipline #1: Focus on the wildly important
The authors of 4DX write: “The more you try to do, the less you actually accomplish.” It you try to do too much, very little gets done and the things that you do, don’t get done well. Concentrate your efforts on a few wildly important goals so you can do them well.
It’s up to you to choose what “wildly important” things to
focus on when it comes to retirement. Here’s
my suggestion, informed by almost 25 years of helping people plan for
retirement: Focus on money and meaning. The
money will help you sleep at night (and fund the type of retirement you want). The meaning will give you a reason to get out
of bed in the morning.
Discipline #2: Act on lead measures
Once you identify your wildly important goals, you need to
measure your progress toward achieving them. The authors of 4DX suggest there are two types
of metrics you can use to measure your progress: lead measures and lag
measures. Lag measures track the thing
you’re actually trying to achieve. In our
example above, having enough money to fund your retirement was one of the
goals. A lag measure would look at
whether you’ve reached that goal.
Unfortunately, that comes too late to be helpful. Instead you want to track lead measures. Those are the behaviors that eventually lead
to successful lag measures. So in our
example of money, lead measures could be things like 401k contributions,
savings rates or investment returns.
Discipline #3: Keep a compelling scorecard
“People play differently when they’re keeping score,” the
4DX authors write. The scoreboard brings
out our competitive spirit, drives us to stay focused on lead measures and
gives encouragement when we see progress toward the ultimate goal(s). Returning to our example, maybe your scorecard
tracks each pay period that you were able to save a certain percentage of your
income. Or if you’re tracking meaning,
maybe your scorecard tracks every time you have a date night with your spouse,
take a trip or work at learning a new hobby.
Whatever your lead measures, keep a scorecard to track how you’re doing.
Discipline #4: Create a cadence of accountability
In the final discipline, the 4DX authors say that you need to put in place a “rhythm of regular and frequent meetings of any team that owns a wildly important goal.” Depending on your goal, that “team” could just be you or it could include others like your spouse, financial adviser, friends, children, etc. Meet regularly with whoever has a vested interest in the outcomes you’re trying to achieve so you can track your progress and hold each other accountable.
Dreaming without doing is a recipe for disappointment. The 4 Disciplines of Execution will help you
turn your retirement plans into reality.
Quick Note: I recently posted a video to YouTube on the 8 Habits of Successful Retirees. If you haven’t seen it yet, you can click the link to watch it and click “Subscribe” to see future videos.
The general idea behind retirement is to reach a point of financial independence where work is optional and you control your time. How fast you get there depends largely on how much you save and how much you need to live on during retirement. The math is pretty simple. The more you save and the less you need, the faster you will be financially independent. How can you ratchet up your savings and reach your goals faster? For some ideas, let’s look at the habits and tactics of super savers (people who save 30-50 percent of their take home pay).
How to save half your
First, let’s address the elephant in the room. “Wait Joe, Did you say 50 percent!?!” Indeed I did.
That might sound ludicrous to most of you, but let me prove to you that
it’s possible. Think about how much
money you make. Got it? Ok. No
matter what number you have in your head right now, there are millions of
people in the U.S.—some of whom no doubt are your friends, neighbors and
co-workers—living on half that. Say
your income is $100,000. Almost half the
country is currently living on half that.
Or maybe your income is $50,000.
There are tens of millions living on half of that. So living on half of whatever number you have
in your head right now is not only possible, it’s apparently pretty easy. Millions of people are already doing it. The trick is to spend like them, even though
you’re making twice as much. Do that and
your savings rate will skyrocket. Let’s
look at how super savers do it and then consider how to apply those lessons.
Strategies of Super
They focus on maximizing income. Super savers focus on income, not just expenses. They realize that the more money they make, the easier it will be to cover a comfortable lifestyle and still have plenty left over to save.
They avoid lifestyle bloat. Most people allow lifestyle bloat as they get older. As income grows, so do expenses. Bigger paychecks mean better houses, cars, vacations, wardrobes and gadgets. If you spend everything you make, you’ll never be financially independent. Super savers try to buy their freedom as soon as possible by capping their lifestyle and saving the rest.
They have clear priorities
and goals. Super savers understand
what’s important to them and what’s not.
They have clear retirement goals.
They have a vision for their future.
They know what they really want out of life and they are taking those
plans very seriously.
They are self-aware
and secure. Because super savers
take the time to think about what’s important to them, they are less likely to
make purchase decisions based on expectations, peer pressure, vanity, a pushy
salesperson or the need to keep up with the Joneses. Instead, they spend liberally on things that
provide them with a solid ROI and miserly on things that don’t.
They make things
simple and automatic. Super savers
automate their savings by having the money automatically deducted from their
paychecks and/or bank accounts.
They are organized
and intentional. Saving large chunks
of your income doesn’t just happen. In
fact, the path of least resistance is to spend everything you make. Super savers are disciplined and intentional
about earning, saving and spending. They
track their progress and regularly try to improve.
They have aggressive goals. I have a theory. Our collective failure to adequately prepare for retirement is partly due to the fact that our target (mid 60s) is so far out in the future when we start our careers. There’s no sense of urgency. Super savers have aggressive goals that don’t allow for complacency.
They use debt
sparingly. Debt allows you to bring
future purchases into the present. You
get the fancy doodad now in exchange for the promise to keep working so you can
pay for it over time. Super savers
understand this calculus. They realize that
you don’t add debt, you exchange future years of your life for it. And since they hold those future years dear
and want to control their time, they use debt very sparingly.
It’s not about the
job. For the most part, super savers
aren’t trying to quit working. They’re
trying to get to the point where work is optional and they have greater
leverage in choosing the type of work or other activities that they do.
How to buy your
I wrote this article, of course, in the hopes that it would
inspire some of you to ratchet up your savings rate and thus buy your freedom
faster. Here are a few simple ways to
apply the strategies discussed above.
Inventory. The first step is a quick inventory of your
current financial situation. The goal is
to get an overview of how much you earn and where that money is going. Grab a pay stub and calculate your annual
after-tax income. Make a list of what
you’re currently saving in your different accounts (e.g. 401k, IRA, etc.). Review your budget to see where you’re
currently spending. Again, the idea with
this is just to get a clear picture of how much money is coming in and where
priorities. Next, think about what’s
important to you. What do you actually
want to do in this life? When would you
like to retire and how much money do you need to fund that lifestyle? What goals do you have? What types of purchases do you view as most
worthwhile? The idea here is to define
your priorities and goals so you can allocate your resources more efficiently. You want to invest in things that are
important to you and stop spending on things that aren’t.
Set an audacious savings
goal. How much are you saving? Nothing?
3 percent? 10 percent? Whatever the number, set a stretch goal to
drastically improve your savings rate. Something
that will give you a sense of urgency and force you to put forth major
Track. I’ve been experimenting with savings rates myself for the last two years. To help, I created a simple spreadsheet that has a column for my income, columns for each of my accounts and a column for my mortgage. Then each time I get a paycheck, I list my after-tax income in the income column and then enter the amount of savings in each of the other columns (e.g. 401k, IRA, HSA, etc.). I’m trying to pay off my mortgage quickly, so I count extra payments there as savings.
Reallocate. Increasing your savings rate takes time because the extra money you want to save is already allocated somewhere else. In some cases, it will be easy to reallocate it. If you eat out regularly, but that isn’t a high priority, then stop eating out and send that money to savings instead. Other things take a little more time (e.g. paying off credit card bills) or more effort (e.g. lifestyle changes like downsizing your house). As you get rid of past indiscretions and reorder your priorities, your savings rate will rise and you’ll reach your goals faster. Not only that, but you’ll also be less stressed about money and more satisfied with your lifestyle because you’re spending on things that matter to you.
Happy New Year! It’s that wonderful time of year when we all get a blank slate and a chance to make a resolution or two. That got me thinking about actions and aspirations. What if I told you that my goal for 2019 was to become an Olympic swimmer, but I never got in the pool? Or if I said I wanted to write the great American novel, but never bothered putting pen to paper? How confident would you be that I’d reach my goal? Not very, right? That’s because most people realize that major accomplishments require major effort. You’re not going to achieve an exceedingly rare outcome by putting forth a mediocre effort. Said another way, your actions need to match your aspirations.
How about this one: What if I told you I want to retire someday. Big deal, right? Actually, it is. We take it for granted because it has become so ingrained in everyday life, but when you think about what retirement really is, it’s a wonder anyone can do it. Retiring is like saying: “I want to quit my job tomorrow and never work again, but I want to be healthy enough and have enough money to do fun and exciting things and also maintain my standard of living for 30 years or so.” Seriously?! I think most of us have a better shot at the Olympic team.
The 1% Life
I recently saw a video of writer/speaker/businessman Gary Vaynerchuck talking to a young man who was describing the kind of career he wanted—meaningful work that paid handsomely but gave three to four months off each year for travel. He was lamenting that it wasn’t happening and asking for advice. Gary asked him several questions that made it pretty clear that, aside from daydreaming, the kid wasn’t putting forth much effort to get his dreams off the drawing board. This was Gary’s response (and I’m paraphrasing): Look, you’re asking for a 1% life. In other words, a life that is so unique and amazing that only 1% or less of the people in the world get to experience that. What you’re asking for is ridiculous and you’ll have to do ridiculous things to have any hope of making it a reality. So you’re asking for this 1% life, but you’re not really doing anything to achieve that. If you want a 1% life, you need to do 1% things.
To borrow Gary’s phrase, retirement is a 1% life. And if you want to make that 1% life a reality, you need to do 1% things. And I’m not just talking about money. Finding meaning is pretty darn hard as well. There are plenty of retirees who are cash rich and lifestyle poor.
Unfortunately, we often treat retirement like it’s a 99% life that happens to everyone as long as you make a few 401k contributions and maintain a pulse. It’s not that easy. You won’t reach your retirement goals by simply having a certain number of birthdays. It takes financial stewardship, intention, hard work, effort and sacrifice. It takes deciding what you really want out of life and taking those plans seriously. It takes being proactive. It takes experimenting and practicing so you can refine your plans and get good at actually doing stuff. It takes building into your relationships and working on your marriage. It takes eating right and exercising so you can maintain your health. All of those things are in your control, but they’re not necessarily easy. But neither is retirement. It’s rare and unlikely. It’s a 1% life. Are you doing 1% things to get there? Stick around because I’ve got a ton of stuff coming your way this year that will help. Here are two that you’ll see in your inbox soon:
January Health Articles
I don’t care how much money you’ve saved, retirement won’t work without your health. Take care of yourself so you can get out there and enjoy life. Follow along at Intentional Retirement during January and I’ll post several health-related articles and resources to help you start the year off right.
Sometimes you just need a little inspiration. A muse, if you will. With that in mind, each Friday in 2019 I’m going to send out a quick list of the coolest and most interesting things I’ve found that week relating to retirement.
The list might include trip ideas, articles, products, quotes, retirement tips or anything else that looks interesting or inspiring. The goal is to give you a quick dose of motivation as you head into your weekend. Keep an eye out for the first one in a few days.
Apparently I can travel faster than I can write. I made it home Tuesday in the small hours of the morning, but I still have several articles I want to share with you including about my time in Italy and Germany as well as my reflections on and lessons from the trip. I’ll send those your way over the next week or so. Thanks so much for following along and keeping me company over 18 days and 25,000 plus miles. It was a fun experience!
After wrapping up my time in France, I took an early morning flight to Naples, Italy where I had a car service waiting to drive me about an hour and a half to a little seaside town on the Amalfi Coast called Positano. During the planning stages of the trip I read that parking a car in Positano is a difficulty on par with splitting the atom, so I decided to save myself the frustration and just use the aforementioned car service. The cost was surprisingly reasonable and talking to the different drivers (I used it for several trips) about the economy, politics, their families, the culture and more was a kick. Plus, the guy who picked me up from the airport was named Fredo so I instantly felt like I had been dropped onto the set of The Godfather (best movie ever).
When we arrived in Positano, I was reminded of a line from Orwell’s Down and Out in Paris and London where he described the houses on the narrow street where he lived as “lurching towards one another in queer attitudes, as though they had all been frozen in the act of collapse.” Imagine pushing an entire town over a steep cliff and then somehow freezing the picture as the houses, buildings and roads spilled toward the sea. That is Positano. It’s beautiful, but it seems to defy the laws of physics.
Fredo dropped me off at the Hotel Marincanto where I checked in with the usual questions (Just you? Is that backpack your only luggage?) and then found my way to the hotel restaurant for lunch. It’s hard to imagine a meal with a better view. My table was outside on a veranda that was covered with flowers and lemon trees (Limoncello originated on the Amalfi Coast) and looked down the hillside at the crashing waves below. My waitress was a friendly Italian woman who age-wise could have been my mother and who, like my mom, took joy in providing a good meal. I ordered the ravioli and a beer. She asked me what kind of beer and I told her to surprise me. “Ah, Peroni for you,” she said. When I later complimented her on her choice of beers, she brought me another, gratis. Smiling, she said: “Is good, no?”
Stomach full, I decided to do a little exploring. As you might imagine from my earlier description, walking the streets of Positano is like doing a Stairmaster workout with the machine on “Everest” mode, but the shops and scenery reward you for the effort.
The itinerary for Italy was designed to give me a little downtime after the breakneck pace of Hong Kong and France. I had four days instead of three and the only scheduled activity I had was a tour of Pompei and Mount Vesuvius. The rest of the time was earmarked with exploring Positano, hiking the paths above the town and working. A typical workday started with breakfast and cappuccinos in the hotel restaurant and then writing, answering emails, calling clients and running trades in my makeshift office on the balcony outside my room.
Makeshift office on the balcony outside my room.
Pompeii and Vesuvius
Visiting the ancient Roman city of Pompeii and the volcano that buried it meant taking a day trip back into Naples. After the solitude of Positano, Naples felt raw and frenetic. I met the tour group near the train station and we took a small bus to Pompeii. Vesuvius erupted in 79 AD, burying the town in 20 feet of volcanic ash. Heat was the main cause of death, however, with temps reaching nearly 500 degrees Fahrenheit as far as 6 miles away from the crater.
The ash preserved the town, leaving people and animals frozen in time. The bodies eventually decomposed and left voids in the ash that excavators—hundreds of years later—filled with plaster. The result were eerie 3D casts that tell the story of those panicked final moments. After the tour we walked to a local restaurant for pizza (which originated in Naples) and then took the bus to Vesuvius. From the parking lot it was about a mile hike/climb to the top where steam vents remind you that the volcano is still active (it last erupted during WWII) and where you can see Pompeii off in the distance.
Path of the Gods
I got up early the morning after Naples and worked until about 3 pm. With a few hours of daylight remaining, I hopped the local bus and road it to the final stop in the Nocelle neighborhood at the very top of Positano. There is a trail there called the Path of the Gods (Il Sentiero degli Dei) that links Positano with the tiny hilltop town of Agerola. With my limited daylight, I couldn’t hike the entire thing, but I did enough to recognize that the path came by its name honestly. The views were really breathtaking. After returning to Nocelle, I thought about taking the stairs—about 1,500 of them—back to my hotel, but descending the dark, uneven stairs without a headlamp seemed like a surefire way to test out my health insurance, so I walked to the bus stop instead and caught the last bus of the evening.
Watching the sun set from the Path of the Gods.
On to Munich
The next morning I packed, had a few final cappuccinos, said goodbye to the staff and then walked up to the rooftop of the hotel (street level) to wait for my ride. Stepping out the door, I heard a hearty “Bonjourno Joe!” and looked up to see Fredo. About halfway through the ride to the airport he asked me if I had time to stop for an espresso. He took me to his local coffee shop and ordered two espressos made with Kimbo, the local brew. We stood at the bar (there were no seats in the small café) and were each handed a small cup of orange flavored sparkling water to cleanse our palates. The perfectly pulled espresso shots came 30 seconds later. We clinked glasses, downed the contents in one shot and it was on to Munich.
I mentioned that the book I brought on this trip was Meditations by Marcus Aurelius, ruler of the Roman Empire from 161 to 180 AD. To the extent that I read books on philosophy, I tend to enjoy those that give practical insights into how we should live. As a Christian, I read the Bible on a regular basis for that type of instruction, but I also enjoy reading the occasional Stoic, such as Seneca, Epictetus and the aforementioned Marcus. (Note: I’m not equating Christianity and Stoicism. There are certainly differences between the two (e.g. religion vs. philosophy), but some similarities as well. In particular, their emphasis on things like wisdom, kindness, humility, stewardship, contentment and self-control).
As I was reading at breakfast this morning, this passage from Meditations caught my eye:
“Suppose that a god announced that you were going to die tomorrow or the day after. Unless you were a complete coward you wouldn’t kick up a fuss about which day it was—what difference could it make? Now recognize that the difference between years from now and tomorrow is just as small.”
That is so true. How many times have you looked back on a year or two or ten and thought about how quickly they passed?
If I told you that you were going to die 30 days from now, you would likely use those days very intentionally, spending time with those you love, mending relationships, maybe even doing a few of the undone things on your bucket list. I think the point Marcus is trying to make is that if I told you that you were going to die 30 years from now, it should produce the same response. The difference between 30 days and 30 years is minimal. They will both go by in the blink of an eye. So be very intentional with each day. Don’t procrastinate or put things off until “Someday.” Don’t use “retirement” as an excuse for life avoidance or as a synonym for when you actually plan to start living. The clock is ticking and, even if you have decades left, you barely have any time at all. Be intentional and make the most of it.
Where is Joe?
Good question! I’m starting to get a little confused myself. Apologies for being behind on my writing. I mentioned in my last post that I was in Italy. I flew from Paris to Naples and then from there spent several days in a little seaside town called Positano. From there I went to Munich, Germany where I connected with a few friends, explored the huge open-air market, and took several tours, including a beer and food tour of the city’s many breweries. I’ll write more about all that soon, but for now, I’m in London and I’ve got a flight to catch as I keep pushing west. I hope you’re doing well, wherever you are today.