When can I retire?

retired license plate

Introduction

It’s hard to imagine a more exciting yet anxiety-riddled question, right? This is the big one! First let me start with some humility: I am absolutely standing on the shoulders of giants when it comes to this topic. I’ve been incredibly fortunate to find so many amazing resources from talented and knowledgeable people over the years. This area is the one that like most people, has provoked the most research for me. You’ve no doubt heard and likely experienced the fact that anything involving money can be among the most stressful things in our life. Contemplating pulling the plug on your income and employer-provided benefits certainly provokes lots of anxiety and warrants lots of research! My hope is that I can share a few things that I have found useful and point you to some excellent resources (section at the end of this article).

Before we dive in – a reminder that I am not a financial advisor nor should you consider anything in this post as investment advice. Best practice is always to talk with experts (financial advisors, tax professionals, etc.) about your specific situation before making any investment decisions.

The core concept

From a money perspective, you are ready to retire when you are financially independent (FI: the first half of FIRE!); that is, when you can securely cover your anticipated expenses for the duration of your lifespan without reliance on your current employment income. There’s a lot packed in there, right? This kind of planning is full of assumptions so let’s get that concept out there now. I’m a planner by nature as well as an optimist, and have many long lived relatives, so I’m assuming I make it to at least 95 – or a bit less than another 50 years. In addition to not knowing how long I’ll live, I don’t know how my expenses will change over time. So I chose to make a plan based on my current expenses, with a teenager still at home and paying off a mortgage. Many people explicitly plan on their expenses decreasing over time since they most often do, and also model in planned future income like Social Security, pension, etc. I prefer to keep spending flat, don’t have a pension, and ignore Social Security income given the uncertainty around it in the future – though this is a conservative position. It helps me sleep at night, OK? So the big nut to crack is determining what your spending looks like – and that is the next section.

Before I go there – the FIRE community rightfully tends to take this opportunity to point out that achieving FI does not mean you have to retire early (RE). It simply means you have the freedom to do so when you are ready. Stepping away from the workplace is a very individual decision. It needs to be “the right time” for you and your family. For us, FI came at a time when I was in a fulfilling job, working at a wonderful company surrounded by talented colleagues doing impactful work. In other words, there was no pressure from that side. The decision ended up being pretty easy from a personal perspective. Our daughter was finishing middle school and so knowing that we’d have to move due to housing prices in the Bay Area, the transition to high school seemed a good time to pull the trigger on retiring – the only other option being waiting another four years until she graduated. My wife and I didn’t want to do that. That was our path, and you will need to choose what’s right for you. It’s liberating having the freedom to retire once you hit FI. But many people elect to wait longer than that, or take other approaches like reducing their hours, changing to a less stressful/less lucrative field, etc. There is not one answer to the timing question!

How much money do I want to live on?

This is an essential question as I’m sure you agree. I’ll be honest – for most people this part of the equation takes some real effort, and it’s worth it. I’d hazard the first question to be answered is what are you actually spending right now! Few of us have budgets that we adhere to strictly, as many surveys point out. I had not really budgeted for years, rather looking at things flipped around: for most of my career, I took care of our fixed expenses, “paid myself” by putting away my targeted savings, and then considered the rest available for variable costs (i.e. the fun stuff for the most part). This meant that I didn’t have a great understanding of our true spending. Two years before retiring I started to work out a zero-based budget. At first I just roughed it out to get an idea of what we spent and what cuts we could (and probably should) make. About a year before retirement I got much more serious. I kept coming across mentions of software called You Need a Budget (YNAB) – there’s a really straightforward associated book as well, which I’d recommend. Honestly, this was the game-changer for me. It’s worth a whole post, really. Let’s just say I started explicitly tracking all of our expenses in detail using software, and “giving every dollar a job”. This allowed me to make a true zero-based budget and make adjustments as needed to determine our desired retirement “paycheck”. We then lived on this budget for nearly a year before my last day of work, demonstrating it was achievable even living in the Bay Area. This was another conservative approach as we knew that while we would have one new (large) expense in retirement – out of pocket health insurance (a topic for another time!), many of our expenses would be going down. It is this effort that truly gave us the data and the confidence to finally pull the trigger. No matter your timeline to retirement, if you like the idea of YNAB, please check out the free trial! Understanding your spending is critical to speeding up both debt repayment and increasing your savings. If you use that link and end up signing up, we both get a free month!

OK, but how much do I need to save?

This big topic warrants a series of blog posts so let’s start simply for now. First of all, many people in the FIRE community like to tout the 4% Rule that originates from the Trinity study. In brief, this states that if your annual spending is no more than 4% of what you have saved, you’re in the clear. So you take 25 times this annual spending and that’s the total starting amount you must save. Example: If you plan to spend $5K every month in retirement or $60K every year, you need to save $1.5 million. The truth is more complicated, since it has many assumptions built in. For example, the Trinity study contemplates a 30-year retirement period – too short for what many are aiming to do in early retirement. At the end of the day, it all comes down to calculating your safe withdrawal rate (SRR), which will lead you to how much savings you need to start with. In other words, how much can you withdraw from your savings each year without running out of money before you die. Your own SRR will be determined by the factors you choose to model for your own situation. Many bloggers have written on this topic and I’ve linked one of my favorites in the Resources section below. In short, you must come up with this number. For us, I determined that no more than a 3.5% SRR makes sense, so we needed to save at least 29X our projected annual spending. That assumes no other income is produced by my wife or myself after retirement – this is already not the case. But again, it’s about having the freedom to not need that other income.

Of course given the tax man, the rules around when you can withdraw from pre-tax retirement accounts, etc. it’s not simply about how much money you need to save. There is much more to consider regarding investment strategy, asset location, maximizing tax avoidance opportunities, and so on. These are topics for another time, and another example of areas where resources abound! I’ve linked to a good post on this in the Resources section, as well as to an excellent financial podcast / YouTube channel.

One more (large) factor to consider: what does retirement look like for you? Is it a spartan lifestyle (see leanFIRE advocates like Mr. Money Mustache), a lavish one, or more likely somewhere in between. What do you want to spend your time on? What new things do you wish to learn? It is essential to ensure you know the answer to these questions and have worked through all the details with others in your family. It would certainly be tragic to pull the trigger on leaving the workforce only to realize that you have underestimated your desired spending in the interest of retiring sooner. Take your time, determine your priorities, and plan for the future you want to have!

In conclusion

To summarize, you can securely retire anytime after you have achieved financial independence. That means you have determined your desired (and achievable!) spending in retirement and have sufficient funds saved to cover those expenses for the remainder of your life, including whatever contingency funding your own comfort level requires.

This post is only a starting point; one introducing a few key concepts. I hope you have found it a useful introduction and jumping off point! As you see there are a number of individual factors that need to be considered to determine your own strategy. This doesn’t have to be scary – in fact it can be a lot of fun. Just do it at a pace that makes sense for you. These are very impactful decisions and therefore warrant taking time to really understand the landscape. The good news is just how much great information is out there to help!

Resources

Admittedly I need to put some effort into a categorized resources list for the blog. In the meantime, let me link to some sites pertaining to this article that I think you will find useful.

The Retirement Manifesto is an excellent blog. Fritz has written so much on this topic and I’ve learned much from him. One post I’d recommend is 5 Milestones You Must Reach Before You Retire. As you’ll see, I’ve only covered a couple of them here. Another great one is How to Build a Retirement Paycheck, which digs into some key issues in detail.

The Money Guy Show is a wonderful and entertaining financial podcast. I’ve been following Brian and Bo for eight or nine years I think – first as an audio podcast, now on YouTube. Full disclosure: their podcast eventually led me to sign up with them at Abound Wealth as my financial advisors. I get no compensation from recommending them! I just love the idea of paying it forward given all the benefits I’ve seen from working with them.

Early Retirement Now is a great blog and is perhaps most famous for Big ERN’s exhaustive series on Sequence of Return Risk (SRR). I won’t pull any punches: a 38-part series of SRR posts is not for the faint of heart. But reading it over weeks took me from extreme anxiety about what my SWR could be to a good understanding as well as confidence. This is highly recommended for the financial nerds among us!

ChooseFI is one of the most popular FIRE podcasts and for good reason: Brad and Jonathan have covered so many key topics and interviewed really great guests over the years. This one leans a bit more towards a leanFIRE approach at times but I find many of the topics they touch on valuable.

The financial independence subreddit is a very active community and one that I recommend (with the usual large boulder of salt associated with Reddit). There’s lots of great discussion here and even a weekly Q&A thread that can be very useful when you are getting started. You’ll find a lot of advocates of the 4% rule here so caveat emptor.

If you end up going with YNAB, you can’t beat Nick True’s Mapped Out Money YouTube channel. I have learned so much from his easy to follow videos and you will find tons of people referring to his channel. On a related note, there’s also a very active YNAB subreddit that I’d recommend.

photo credit: “Retired License Plate” by aag_photos is licensed under CC BY-SA 2.0

The first six weeks after “retiring”

task list

I’ve since written a piece about my first three months after leaving the workplace. You can find it and other retirement milestones posts at this link or in the menu above.

As I mentioned in my last post, it’s been about six weeks since I exited the workplace. Much of that time has been spent preparing for, carrying out, and following up on the big move south. That said, I haven’t exactly been sitting idle otherwise, now finding myself with this newfound freedom. I definitely have had plenty of slack time in there too – though I finally stopped playing Animal Crossing! But from a more productive standpoint, in no particular order I’ve:

  • gotten a new library card
  • installed a home security system – I will likely do a post on this but if you’re interested I went with a Ring alarm system and think it’s a great option!
  • learned and started using the wonderful Notion all-in-one workspace tool
  • kept up my daily AM one hour walks – and settled on a nice route!
  • helped Lorri refinish a bookcase (one down, one to go)
  • fixed a bunch of fiddly things around the house – SO many Lowe’s runs…
  • checked out a few more local wineries & re-organized our wine stash
  • binge-watched “You’re the Worst” (and they are; it’s on Hulu and is wonderful)
  • got my new REAL ID-compliant driver’s license
  • re-read Wells’ “The Invisible Man” and now am engrossed in “The Count of Monte Cristo” by Dumas. I’m enjoying audiobooks of classics during my daily walks – check them out on Spotify or via Overdrive.
  • built a study plan and resources for the next level BJCP beer judging exam
  • brought a ton of cardboard boxes to the recycling center
  • taught myself FITS imaging processing for astronomical imaging
  • cooked a lot! I’ve been negligent in the “actual cooking” department for years…
  • made a number of nice trips to the shore with the fam to escape the heat
  • learned to make corn tortillas (so easy and so tasty! add a little salt…)
  • started preparations to make the legendary Rick Bayless Oaxacan mole negro! I have wanted to make this dish for 20 years! If you haven’t read his Mexican Kitchen cookbook, I highly recommend it!
  • kicked off this blog

This may not be the most exciting list and I’ve assuredly left off some important things (I’ve promised myself I won’t agonize over such things nor will I over-edit). But the time has positively flown by and I’ve never (ever) felt bored. On the contrary, the list of things I want to do is much longer. Thanks to Notion, I’ve got a great list of planned tasks (i.e. due dates assigned) as well as an “idea funnel” (things I want to do but have not yet committed to do). And most of this isn’t even pertaining to “whatever I do next” – or is it? Who can tell at this point. I do have plans to get back to tasks more aimed at personal skills development, and I’m sure I’ll write about those before too long.

Suffice it to say, I have confirmed what I believed for many years: I do not need a corporate job to feel challenged, fulfilled, and productive. The best part is what so many others have written about far better than I have here – for the most part I don’t have deadlines. I choose what to do on a given day (barring things that Lorri may rightfully suggest!). There are natural priorities and those help provide order. But otherwise it’s up to me how I spend my time. That’s incredibly freeing to say the very least. Some days I don’t “accomplish” much at all. We all need those days and for much of our adult lives, we don’t get them. I feel very privileged that I am able to have this experience, to be sure.

Excelsior (the best state motto, but I am biased)! Carpe diem! Mahalo. ?

Early Retirement? Start here!

sunrise photo

NOW what the heck am I doing? To be honest, I’m not really sure. Part of me thinks that writing could be a healthy outlet now that I’ve made this huge change, and early retirement is a topic of interest to many people! We will have to see if I keep this up! In the moment this is an experiment and one for which I am thankful and also humbled to have you on this journey with me.

Let’s play catch up: about six weeks ago I left a successful, exciting, and fulfilling 23-year career in biotech to “do something on my own”, outside the corporate world. To date, I have rarely called this transition early retirement, and even then only to those closest to me. Why? I suppose primarily because it’s an odd word to me, and even more so for a 47 year-old in 2020 to use. Most of the world does not really know about the concept of FIRE (financial independence / retire early), even among my friends and family. If you need a quick intro to FIRE, this book (and accompanying documentary!) is a solid introduction! [I’ve since written a post on how to determine when you can retire!] Second, I know I will “do something else” following said career – retirement doesn’t mean air-whittling or sitting idly on a park bench for me. And third, historically it has made me uncomfortable to use “the R word” with most people – either because I don’t want to face the questions that necessarily follow, or made to feel guilty, etc. I don’t really like to talk about the last bit and perhaps I will address this important topic later. For now let’s just say I have left the only career I’ve known with no plans to return to it.

Four weeks ago my family moved from the San Francisco Bay Area, south to the Central Coast region of California. We’ve known for around four years that mid-2020 would likely be the opportunity for me to bow out of the corporate world, and that meant we had to exit the insanely expensive housing market of the Bay Area. The search for our next town of residence is perhaps a subject to cover in a future post. For now, suffice it to say that we found a wonderful house to purchase. The past month has therefore been largely spent unpacking, making small repairs and improvements, and settling in to a new town. Did I mention COVID-19 is still a thing? Of course it is, which has necessarily added some speed bumps and odd turns at times in our home purchase and subsequent activities. This is again perhaps a topic for another time, since at present we are all living this and need no further reminder.

Before closing let me get a few things out: I feel very, very fortunate to be in the position I find myself. Success in the workplace is never assured and it requires many things to fall in to place – a topic which I’ve given much thought and will assuredly write about soon (Done! Find the series here). And success at work does not in itself lead to early retirement necessarily. That said, my chosen path, some careful planning, hard work, and a healthy dose of good luck has led me to this point. I am grateful to all of those who helped me get here, from whom I learned much along the way, and who supported me over the 47 years I have been alive. It is a privilege to be able to make the decision I’ve made, and I don’t take that for granted. I am thankful most of all to my family who has always been there for me and rarely complained – even when I was traveling often, working long hours, and not being sufficiently present. I am so appreciative of the support I have had, which has clearly enabled this next phase of my life. Here’s to what comes next!

PS – Yes, I noticed how many topics about which I potentially committed to writing posts in the future! I have so many post ideas though, and even thought I might not launch this until I’d written gotten a few in the bag. But then I figured let’s pull off the bandage now, without further ado!

photo credit: “sunrise @ komodo island” by j3ffm4n is licensed under CC BY 2.0