We are most effective when we are able to apply ourselves fully and with the most creativity. It won’t feel like work when we feel we have the choice to engage in activities that both add value and bring us pleasure and fulfillment.
This is intended to be a sequel to an earlier post I called Life is Change. For more inspiration check out some of my favorite blogs
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With longer life expectancy, the uncertainty of social security benefits, and the rising cost of healthcare, the prospects of retirement appear exceedingly distant. Yet it remains the primary goal shared among working class citizens. We all want time for leisure, hobbies and projects. What is the definition of retirement? When can we retire? How much money is enough to retire? How will we spend our time while in retirement? These are the questions you should consider while reading. You might even find that your answers have changed by the end of this post.
As a kid, my idea of retirement, as I’m sure is common to many, is that you work hard for many years and when you save up a bunch of money you go ahead and leave your job, never work again, and live off your life savings until you peacefully depart. I always wondered how someone without an income could live an affluent lifestyle paying the necessary expenses for life’s many pleasures. It turns out the answer is a bit more complicated than I thought. My ideas around retirement have since evolved. Indeed there is not one right way to retire, and the conditions that make it possible will look different from person to person. First of all, I learned that just because you leave your career job, your income doesn’t necessarily stop. You might receive a pension, social security, medicare and other payments from investments, insurance or annuities to pay for your lifestyle in addition to drawing from the nest egg you’ve accumulated. But then what? What is one to do with one’s time when working a job is no longer necessary to earn money?
If we go throughout life believing that we must 1) work to earn money and we must 2) save to retire so that we can quit work, then how will we derive meaning and value in life when work suddenly stops? Is it everyone’s dream to sip pina coladas on a beach? If you make it this far then great, but I have to ask: how many pina coladas would it take before you get so bored you want to rip the few remaining hairs from your head? So I’ve concluded that there must be more to retirement. I believe we could all benefit from planning now what we hope our retirement will look like before we get there and realize it’s not what it was chalked up to be. This requires that we rethink our own definition of retirement.
In my view, retirement does not necessarily mean quitting work altogether. To stop working is to stop adding value to the world. Who would want that? Retirement is having the time and freedom to do the kinds of work that you genuinely care about and find fulfilling, work for which you have a great enough passion that you would gladly do it for free. In retirement just because you don’t have to work doesn’t mean you should do nothing. Even after your working years it’s important to keep yourself occupied and engaged. You could volunteer, but it’s arguably more fun when you’ve got money on the line - skin in the game. You work not only for money but for a cause that you believe in. This is my definition of retirement. This is really the attitude we should have toward work in general. We are most effective when we are able to apply ourselves fully and with the most creativity. It won’t feel like work when we feel we have the choice to engage in activities that both add value and bring us pleasure and fulfillment.
On the contrary, when we feel trapped in the cycle of work in order to pay the bills, our imagination is stunted and our thinking is confined by the boundaries imposed by “the man.” Before retirement we are motivated by the fear of not having enough money. I feel it’s important to distinguish between being motivated by fear and being motivated by a worthy cause. It’s up to you to develop a mission statement for how you will spend your time and focus your resources. If you go along spending money (and time) haphazardly it will dissipate outward at random, and it will be difficult to make any meaningful change for yourself and others.
So what is stopping you from choosing to do a job you enjoy today rather than putting up with a job you hate because you believe you need it to pay the bills? We might think that we won’t be able to make money consistently or that there are barriers and obstacles preventing us from pursuing our passion. We might feel fear and anxiety around the risk of running out of money. So in short, it is our fear and self-limiting beliefs that keep us stuck. Until we can get comfortable with uncertainty, we will stay stuck working jobs that appear to be reliable although far from satisfying.
My goal is not to stop working but to retire from the proverbial rat race. The rat race is that feeling that we must continue to work a job in order to fund our standard of living. By stepping out of that, you take back the freedom to choose how and when to work. How to exit the rat race? Acquire enough income-producing assets to offset your living expenses. Then you no longer need to trade your time for money. Your money works for you even while you sleep. This is the key to financial freedom and a critical piece of a sustainable retirement strategy. If you never learn to invest in assets, you’ll be stuck trading time for money and will likely run out of time before you save enough to live on.
How will we know when enough is enough?
To answer this requires that we know our annual spending needs. Say you spend $30k annually. Now assume your money is invested in assets that return an average of 8% per year. If you planned to withdraw 4% of the total investment to live on, your money would theoretically last forever (because it is growing faster than it is shrinking). Thirty thousand dollars is 4% of $750k. So it takes three quarters of a million dollars to retire with an annual budget of $30k. Keep in mind this assumes you don’t earn any more money in retirement which we concluded is unrealistic. So the 4% rule is fairly conservative. The key here is that you come up with an annual budget. Then you can make projections on how long your money will last. It might be a surprise to know that, by this logic, if you got your annual spending down to $10k you could easily retire with as little as a quarter million dollars.
Financial independence is actually a spectrum across which one moves over time. It doesn’t simply occur with a flip of a switch. So depending on how much it costs to fund your lifestyle, you might enjoy increasing degrees of freedom over time. Many people experience the benefits of retirement on a sliding scale. As their elderly benefits and investment income grow, they gradually reduce their time spent at work. Recall that retirement is the freedom to choose whether to work, and financial independence is the point at which passive income is sufficient to fund your lifestyle. So your ticket to freedom depends both upon your ability to put your money to work in investments as well as to control spending.
Controlling spending and frugality do not mean being cheap or depriving yourself of luxury and excitement. Instead I encourage you to seek creative ways of enjoying the same things you love but for less cost. You can get the ball rolling on your retirement by adopting some good habits early on that will pay dividends for a lifetime. Pay off debt, buy used instead of new, quit smoking and eating junk. Create a budget and a personal mission statement. These are just a few common sense measures that can make a big impact in the long run. Interestingly, the same habits that are good for wealth-building also make you look and feel great. That’s why I say invest in your own well being - intellectually, physically, and emotionally. When you truly feel rich in spirit, money finds its way to you!