Early retirement is the personal goal that I hear about the most these days. It seems daunting among young 30-year-olds to work for another 30 years. It is now known that you will not work for the same employer all your life; but not wanting to work at all is relatively new. But I would think quite fair.
The work wasn’t as strenuous as it was for the youngsters these days. There are so many who routinely work in 80-hour weeks. Wait a minute, which means working literally every waking hour. It is no wonder they realize that this cannot be sustained.
It’s cruel that there are multiple professions, from high-brow counseling to private equity to high-quality medicine, that make long hours the norm. But also simpler jobs such as call centers, logistics management, sales and customer care have begun to look for long working hours. Then there are those who work across time zones in technology and software, music and composition, writing and content, media and filmmaking, with little regard for the clock and the list goes on. There seems to be no escape from long work days, which often extend into the weekend.
Young earners have recognized that there is no point in complaining about work hours when the job is interesting, peers are engaged, and the money is good. They therefore see their career as a front-end with opportunities, money, growth and status. What their parents have achieved in 35 long years of work they realistically hope to achieve in 15 years. Early retirement then makes sense not only as an end to the misery, but as a well-deserved linchpin that enables them to pursue what they want. And seek the elusive balance between work and life.
It’s also important to see how stressful growing up was even for this generation raised by helicopter parents. Forced to learn music, play sports, accumulate social work hours, constantly prepare for performance tests and top marks, this generation has prepared for the hardships even if they want to break off and follow their hearts.
The second profession is a romance that many carry in their hearts in their thirties. Many do not want to make a fortune, marry, or have children until they are ready to focus on a life apart from work. In this utopia they would live in the silence of the forest, sleep with the sound of the wind, eat food from their gardens and lead a simple life. How do you prepare for this transition?
First, it’s crucial to build a corpus that can be accessed. The corpus must be large enough to generate sufficient income for basic services. There needs to be enough money to pay rent, groceries, utilities and education, and maybe leave a small surplus for enjoyment. This corpus needs to grow over the years, ideally at a rate that outperforms inflation.
Second, reaching this corpus does not depend solely on revenues, savings and investments. It’s about the new lifestyle. Is there a break from conveniences, expenses, burdens, expectations of the present? Without a clear understanding of how otherwise it would be, quitting a job can be risky. What former retirees saw as a post-retirement lifestyle compromise, the young see as a lifestyle overhaul.
Third, retirement must be about a different purpose in life. Otherwise it would be boring, hedonistic and wasteful. Without making a decision about what to pursue, to engage meaningfully with the world or community in which you live, to contribute to direct your energies, early retirement can be detrimental to mental and physical health be. Burnout cannot be blamed as an excuse for not doing anything for years.
Fourth, it is important to find an alternative employment career. You can write, teach math or music, become a farmer, work as a tour guide or do something close to your heart. But all of these activities must result in an income that can cover some expenses. This reduces the stress on the body.
Fifth, you have to be mentally prepared for the change you are dreaming of. Living on a farm means becoming familiar with other life forms that will live with you; to be ready to accept what nature offers as heat, rain and such unpredictable living conditions; be able to endure less infrastructural comfort; be ready to cook every single meal every day; and so on. There is enough to discourage the weak in many of these alternative proposals.
Sixth, one must be willing to consider how these lifestyle changes will affect what one takes in terms of entertainment, social interaction, schooling, health care, and those everyday choices that urban life takes for granted. Many want travel to be their priority. Traveling requires good physical fitness; Willingness to accept physical complaints of the trip; Comfort with new environments, languages and foods; and so on.
Seventh, one should be open to abandoning the experiment and returning to the mainstream if necessary. Many like to take what they call a “break” so that they can experiment with an alternative and then make a choice. The early days of romanticizing work from home and enjoying freshly cooked home-style meals with closed people have given way to frustration at home imprisonment over the past 18 months. Novelty wears out faster than we imagine.
Eighth, retiring early and starting a new life shouldn’t mean giving up the basic principles of personal finance. Asset management and asset allocation will continue to be needed; one must be adequately insured; monitor how assets are performing; and you have to actively ensure that the money is working hard, even after retreating into a more sedentary existence. The number of years that inflation needs to be tackled means that assets need to increase in value – both by investing in growth paths and by regular growth and accumulation of the corpus.
There is no harm in considering early retirement. But thinking through the elements of both funding and maintenance is quite underestimated, it seems.
(The author is the chairman of the Center for Investment Education and Learning)