WHY EARLY RETIREMENT MIGHT NOT BE SUCH A GOOD IDEA

Lots of executives putting in long hours every day under very stressful conditions have a dream in the back of their minds. They think, “I am punishing myself now so that I can ditch this rat race early and spend the last half or third of my life living the good life.”  They see themselves sitting on a yacht, sipping the perfect martini as the sun goes down in a blaze of color. Or perhaps they dream of floating down a river in France sampling French wines at every stop.  Sometimes it’s as simple as being able to play golf every day the weather permits.  

A special vacation, sure. Why not? But do you really want to do that for the rest of your life?  If it’s possible to continue to engage in the workplace but at a more moderate pace, how would that change your outlook?  Sometimes, a slower pace may be the answer, but it’s just not available or possible.  In that case, the siren song of early retirement starts to sound very sweet.

The first concern before pulling the trigger on an early retirement is probably the least important one, and that is whether or not you have enough money.  Can you truly afford to live indefinitely in retirement maintaining the same standard of living you have now? That’s a tough and important question.  Finding the answer that is uniquely yours will require a rigorous analysis of your finances and a projection of anticipated future earnings.  

Let’s do a quick back-of-the-napkin approach so you can see the basics of how the finances in early retirement typically work.  For example, most advisors suggest you take four percent of whatever you’ve saved and ask yourself if that’s enough to cover your bills and keep you happy each year.  So let’s say that you have one million dollars.  In that case, four percent of one million dollars is $40,000 which means the typical approach is to ask, “Will $40,000 a year be enough?”  

But I suggest you change that question slightly so that it is easier to answer.  A better question is, “Do I currently earn more than $40,000.”  A great approach to know if you really are prepared for an early retirement is if four percent of your nest egg is equal to or greater than what you earn now by going to work and making a living.  Some people think they can retire early because they do a lot of financial gymnastics to downsize and change their lives.  They plan to reduce a lot of their ongoing expenses and they assume that everything else will stay the same.  For example, these people imagine that they will live in a smaller home, drive a used car, and give up the season box seats to the ballet while all other parts of their life remain static. 

Unfortunately, my experience suggests that this is unrealistic. The other parts of our lives change once you’re retired.  You’ll have costs associated with socializing and entertaining that you don’t have now because all the hours you currently spend working now will be spent in activities that probably cost money.  Other things that will change as you age like medical costs and health insurance should also be taken into consideration.

Beyond finances, however, there is a more important issue to examine. Will you find the happiness and fulfillment you seek in retirement? If you are still in the prime of your life, then that means you are capable.  You have potential and possibility.  Don’t you think you’ll miss the feeling that what you do every day makes a difference?  Is a life well-lived filled with only martinis on the beach or would you find more joy pursuing something with a sense of purpose and personal contribution?  We humans like to test ourselves in a variety of interesting ways that help us to learn about our true limits and capabilities.  That drive to discover gets lost when the daily routine is games, drinks, and selfies.  

There are solutions, of course. Some executives put their energy into a meaningful cause. They may volunteer or even end up running an important charitable organization.  Often, these endeavors can be just as challenging and even more important in the scheme of things than the rat race they left behind. Instead of the satisfaction of closing a major deal, they can see the difference they’re making in the lives of real people (or animals) around them.  

Artistic expression and personal education are additional pursuits where retirees can find true joy.  This includes things like advanced photography or painting, singing with choral groups, playing an instrument, and writing memoirs.  But it also includes learning more about the world by going on archaeological digs, joining active environmental expeditions, birdwatching, and exploring the world’s museums.  Sometimes, it’s as simple as becoming a student again and taking leisure learning courses like advanced gardening or earning another degree in a new field.

People probably focus too much on the government’s definition of retirement. The government tells us we can begin to withdraw money from our IRA at the age of 59.5 and begin to draw Social Security at 65. Early retirement is often defined with these ages in mind.  But the government’s definition of retirement does not have to be yours.  

There are myriad ways to spend one’s time and energy profitably in early retirement. The question is, what will make you genuinely happy and fulfilled.  No one wants to wake up a year after retiring with a deep pining for the challenges of the office that they left behind.  You can still take charge like you used to if you avoid the siren song of the “beach life.”  Finding your path begins with some serious soul-searching. You may decide in the end that, whether or not you can manage it financially, early retirement is not for you.

Written by Christopher Mansk.
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