Early Retirement

Recently, we have had several conversations with younger clients who have the ability and desire to plan for an early retirement. In this context, the term “early retirement” is defined as leaving full-time employment around age 45 to 55. The interesting thing about these recent conversations is that none of these clients earn an enormous salary or expect to have a large equity event (or win the Powerball). They simply do a good job of saving and have a strong focus on delayed gratification. In other words, they are not concerned about keeping up with the hypothetical Jones family.

Often when we meet younger prospective clients and begin talking about financial planning, one of the questions they want to know is, “When can I retire?” The Dutch company, ING, does a great job of connecting with this common question by using the phrase, “What’s your number?”, in their commercials. We have discovered that while most people want to know their “number”, few actually make a clean break from full-time work to full-time retirement once they hit it. The transition is usually a process.

There are three common scenarios that keep people from achieving their original retirement goal: (1) The allure of a certain lifestyle becomes more appealing than early retirement, (2) All goes according to plan, but once the magic number has been achieved, the client is enjoying work so much that they are not ready to stop, (3) All goes according to plan, but the client is too driven to stop (can’t stand the opportunity cost of not working).

This past weekend, I was fortunate to spend some time with my parents and we ended up having a very interesting discussion about retirement. I have always considered retirement (or the freedom not to work) to be the ultimate financial accomplishment. My picture of retired life includes more travel, more flexibility, and less responsibility. My parents, on the other hand, based on what they and their peers experience talked about needing a new type of mental toughness in retirement. Without the fixed schedule that work provides, you need to make yourself get out of the house on a regular basis and you need to motivate yourself to be productive. The importance of scheduling activities and social engagements becomes even more important in retirement. This conversation put my personal retirement dreams in a different light and I was reminded of the fact that most things in life are best enjoyed in moderation. A retirement without purpose is nothing to look forward to. It is important to have outlets, whether it is volunteer opportunities, hobbies, continuing education, or your morning coffee group.

Don’t get me wrong! Achieving financial independence early in life is still a major goal, but I have a different perspective. I have plenty of interests to keep me busy in retirement so that is not the problem. However, without a daily schedule and the constraints that work provides, it may be more difficult than I imagine to remain disciplined and feel engaged. I truly enjoy the challenge and sense of value that work provides. Perhaps true independence is more about structuring work around your life versus the other way around. The term “retirement” is being defined differently today than it was 30 years ago.

What does it mean to you?