November 2, 2000
Retire Early Home Page
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Is early retirement just a regular retirement that starts a few years sooner? Or is it a different breed of cat?
There's a column by David Braze (TMF Pixy) on the Motley Fool home page today arguing for the former position. I favor the latter. So I thought that I might pull my thoughts together on why, and offer them for the board's consideration.
Link to the Braze Column:
Braze's argument is that those planning an early retirement "must make sure they'll have enough income, assets, insurance, and activities," just like those planning the plain vanilla kind. He acknowledges that there are differences in the amount of effort devoted to the planning process. Early retirees must be more careful about generating adequate investment returns, must devote more thought to the health insurance issue, and so on.
But those differences are matters of detail, not core substance. So, in general, "there's absolutely nothing special about deciding to retire at age 35 as opposed to age 70." I agree with Braze that the differences in degree of planning activity do not justify thinking of early retirement as a different animal. But I don't think that the debate should turn on an analysis limited to an examination of those sorts of issues.
For me, early retirement was different because adopting it as a goal provided a compelling reason to engage in the planning exercises discussed by Braze, something that the goal of conventional retirement had not done. When I was 35 years old, I had no budget and less than $5,000 of life savings. The subject of taxes was boring to me, the subject of insurance was boring to me, and the subject of investment returns was boring to me.
What turned things around was learning that retirement didn't have to wait until age 65, when my age would limit my enjoyment of it. Realizing the possibility of retirement in my mid-40s gave me the charge I needed to study all those boring subjects. My life transformation is testimony to the dramatic differences between the two kinds of retirement. Early Retirement is a subject I worked at until I became a master. Normal Retirement is a subject I lost interest in after the first lesson.
Sometimes, I feel embarrassed that for many years I did so little to provide for my financial future. Other times, though, I think back to the things that were on my mind in my early 30s, and see that, regrettable as my decisions were, they were not entirely lacking in logic. When I was three years old, did I plan for what I would be doing at 33? No, and things more or less worked out on their own. Age 65 was just as distant a reality to me at age 33 as age 33 was when I was a toddler.
It was my Retire Early goal that gave meaning to the concept of saving. So long as I was stuck at a job for the remainder of my high-energy days, my attitude was that I might as well buy those things that would make me feel a little better about my condition. If I had a bad day at the office, I ate out, or went to a show, or bought a new magazine. The expenses of these purchases didn't matter much because, in a sense, money not spent was being "wasted."
Sure, that 65-year old version of me that would be visiting the planet three decades hence might appreciate me saving more. But this fellow's concerns were not at the top of my priority list. I had a lot going on that seemed important at age 33. Worries about theoretical 65-year-olds, no matter how closely related, were worries that could be put to one side for the time-being.
Some might dismiss motivation as a "soft" issue, not as significant as those "hard" matters like taxes and insurance. But I would argue that motivation is possibly the single most important issue that needs to be considered under the subject heading of "Retirement." In the years after my discovery of the Retire Early idea, the compounding of returns on my new motivation added hundreds of thousands of dollars to my savings. That's a bottom-line effect that it would just not be practical to ignore.
The "early" in my "early retirement" quest influenced every aspect of the process of achieving it. I went through my list of budget categories, and asked an identical question in regard to each item: "How many months could I speed up my retirement by reducing this expense?" I don't get the impression that this is a question asked by many workers planning conventional retirements. The lack of a sense of urgency over achieving the goal changes the dynamics of the planning process.
Cuts that I put in place at age 38 had an enormous cumulative effect because those changes will pay dividends every year of the remainder of my life. Cuts made at age 58 in preparation for an age-65 retirement don't have nearly the same impact. At that stage of life, some of the best opportunities to get a big pay-off for spending changes have passed one by. That must have consequences for the planning process.
Once an important financial goal like retirement is within five years of realization, it affects all money decisions. It's real and concrete, not vague and distant. Those planning conventional retirements view retirement as a side issue for most of their working lives. In contrast, it's usually the core concern of those aspiring to retire early. That makes a big difference.
A review of messages posted to this board suggests another distinction.We discuss all the issues of concern to conventional retirees: insurance; taxes; and investment returns. But we also struggle to determine what is required to bring purpose to a life. It's an issue that's hard to ignore when planning or living an early retirement.
Conventional retirees find that the hours of their days are always filled, first with work and later with a host of common retirement activities. But those who retire early have many more years of "free time" at their disposal. Thinking about what to do with it becomes a critical aspect of the endeavor. An aspiring early retiree needs to touch base not only with insurance agents and tax advisors, but with philosophers as well.
So motivation and planning are different with an early retirement. The biggest difference, though, is what happens following the retirement date. It's not uncommon today for those leaving their long-term corporate jobs at age 65 to return to some form of employment or charity work afterwards. So the fact that early retirement leaves that option open as well is not a major distinction.
The difference is that only in rare cases can a 65-year-old hold out hopes for building a new career with as much significance to his life as the one he has left behind. Having started a freelance writing career at age 43, I have 20 years or more to develop the skills and contacts needed for success. In the event that I find the field not to my liking, I can explore something new, with no concern for whether it will "pay" or not.
A 65-year-old can switch to more meaningful work after retirement, but in most cases her prospects for seeing a new career grow to fruition are limited. When a retiree chooses to enter a new line of work, it is usually the first time in her life that she has been able to choose the work she does without concern for the financial implications. The earlier the freely chosen work gets started, the more fulfilling it is likely to be. The added fulfillment potential present with an early retirement can add a measure of zest to even the pre-retirement years.
The differences between "normal" retirement and early retirement are at least as great as the differences between an Apple computer and a Windows-based system. Both machines call for use of a keyboard and a mouse, just as both retirement strategies call for attention to insurance and tax issues. But the differences in the user experience are deep and profound. I say: "Retire Different!"
Available Now on Soapbox.com:
Secrets of Retiring Early, by hocus
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