I received a very thoughtful email this morning from a reader asking some very pertinent questions about how we knew we'd reach the point where we were ready to enter early retirement. After reading the email, I reached out to the author requesting, and subsequently receiving, permission to respond to the email via my blog, because I think the questions asked have broad appeal for others likewise considering early retirement.
Here are the questions, followed by my responses.
- Did you feel certain that you were making the right choice at the time, or did you have some doubts as we do?
Oh my goodness, yes, I had many doubts, but I kept returning to the point of recognizing that I had lost all my passion for my job, and that increasingly I was just going through the motions at work. When I got to the point of literally dreading the sight of my office, I knew something had to change. I wasn't 100% sure that early retirement was going to be the answer, but I did know 100% that leaving my job was the first step.
Conversely, Mike seemed to have pretty much no doubts. He'd been ready to go several years before me, but held off until I got to a place of acceptance on his decision. His salary was much bigger than mine, and letting go of it was very scary for me.- Did you toy with the idea for a long time, and analyze it to the nth degree, before actually handing in your resignation?
It took me two years to work my way through the entire process. About one year in I negotiated a cutback in hours, going from five to four days a week. That took a little pressure off of my dissatisfaction at work, but I still felt pressured to stay on top of things on my off days, due in large part to the constant buzzing of my BlackBerry. I finally realized that nothing I might do was going to cause me to become excited about my job again, and that's when I knew I was finally ready to to tender my resignation.- What about financially... Did you "know without a doubt" that you had enough money set aside to do all the things you wanted to do?
It took three years and three independent financial check-ups before we reached a point of confidence that the lifestyle we wanted could be achieved within our portfolio, and that the portfolio would last throughout our lives. We worked with 1) an online financial program, 2) our assigned account manager at the investment firm handling a portion of our portfolio and 3) with a privately hired financial advisor.
During that three year process, we established our retirement budget, and 'practiced' living on it for a year first. In hindsight, that turned out to be an excellent decision. It created a change in how we viewed our spend, but it wasn't negative. We actually found that by knowing how much we had to spend in any given category on any given day, we were much more conscious about our decisions, and experienced greater overall satisfaction as a result.Did you face that paralysing fear of "what if we make the wrong choice? If we run out of money, or realise that having an extra 70 hours free in the week isn't actually as good as we thought it would be". If so, how did you move past that?
Because we set up a practice retirement budget a year in advance, we were able to identify and eliminate a lot of waste, which resulted in driving down our fixed expenses to less than 50% of our annual spend. That gives us a lot of leeway should something ever go terribly wrong in the financial arena. We also have additional contingency plans, such as moving to a smaller home or taking out a reverse mortgage. Neither are actions we anticipate taking, but both are available to us should it become necessary. We're also pulling out considerably less than the prevailing retirement withdrawal rule of 4%. We should actually be in the position of increasing our withdrawal rate once the first of us reaches Social Security and Medicare age, which is kind of exciting.
Plus we could always return to work should it become necessary. We wouldn't need to earn salaries anywhere close to what we earned before to cover our living expenses. Two entry level jobs would be more than adequate.
Creating a new set of routines and hobbies to fill our time was a multi month process, but there were no concerns that we'd run out of things to do. It was more a matter of finding the right things. Currently we have no shortage of things we enjoy doing, but we do sometimes have a shortage of energy!The above questions are, I think, pretty universal. If any of you reading this would like to provide additional thoughts or perspectives, please do so. I'm sure we'd all benefit.