This article is the final in a series of seven that will discuss our approach to reaching financial independence and determining key criteria for success. If you have not already read the sixth step about becoming financially independent, please take a minute to visit that post. This article will discuss how to determine when you have reached the right time for retirement.
If you wish to revisit the progression to this final step, here are the links to prior articles:
The seven steps in this series highlight the fact that if we do not manage expenses and design income sources independent of our regular work, we may be choosing a long and rough road to financial independence. Now that we know how much money is required for financial independence, it is time to determine when to retire.
First things first: A few key definitions when reviewing retirement
I think it might be best to start with defining what retirement means to us. Reaching retirement is the day when one is no longer employed for the purpose of receiving income from a job or other active income sources. This long-awaited day can arrive in one of two manners:
First, you have to retire due to health reasons that render you incapable of employment or—even worse—death. 🙁
The second, preferred manner is this: through years of planning, goal setting, or sheer luck, you have the opportunity to leave employment by choice, since that job’s income is no longer required.
Let’s review a few more personal finance definitions, for good measure:
Our jobs or employment: This is what most of us do to earn money to fund our FIRE goals. For too many, this is not a pleasant experience or our true life calling.
Our “work”: A definition of what we love to do regardless of making money. This could be playing a musical instrument, woodworking, public speaking, sailing, photography, or any other activity that uses a natural aptitude or curiosity, and which we want to accomplish in our lives.
Financial independence (FI): This is the point at which we have the ability to choose when to leave because we no longer need the money gained from a particular job. This milestone often requires years of practicing frugal habits, and the know-how to save and invest, along with creating a sustainable passive income source.
Many of my personal finance blogger friends have come up with their own definitions of what retirement means. We believe that our definition is in alignment with the mainstream PF crowd and should not draw the retirement police, thereby avoiding our immediate arrest.
The question isn’t at what age I want to retire, it’s at what income.
How do you know when you can retire?
We went through quite a number of financial calculations by “Step 6: Financial Independence” that shaped our retirement budget, considered the costs to replace items, determined our bucket list costs, and identified new costs in retirement. The 4% Rule that we applied to these expenses determined how much our nest egg should be in order to arrive at FI. We built a tool for this analysis with consideration for our passive income sources. These calculations give us a roadmap to determine when we have arrived at our financially independent destination. We used the more conservative 3% number for calculating a safe withdrawal rate from our real estate and retirement accounts.
An important question to consider now is how do you know when it is time to retire? One could remain employed until the day he or she dies, to simply save or accumulate more worldly possessions, or maybe leave a larger legacy. For some people that is perfectly OK.
For us, this is a tough question; however, we will consider some possibilities. It might be time to retire when…
- Your pain of employment has reached a level of discomfort at which the time and money is no longer worth your energy or time commitment;
- You are forced into mandatory retirement based on company policy;
- You have been laid off by your employer;
- You have health issues that no longer allow your employment;
- You have multiple income sources with passive investments, retirement accounts, pension, and Social Security available now or in the future that support your spending;
- You have reached your “Enoughness” as defined by Your Money or Your Life.
The bottom line: When we retire, it is because we have reached the tipping point to leave our jobs, when it has become more important to pursue our own personal interests.
I might get bored. What is there to do while retired?
It is common to hear stories of people returning to employment after only a few months of retirement. Worse yet, they suffer a debilitating illness or early death. The number one reason we hear about people returning to employment is due to a loss of identity or purpose derived from their jobs.
However, there are plenty of examples of people who are happy in retirement. Two of the couples in the picture below officially retired just prior to this trip down the California coast. Instead of heading back to San Francisco from Half Moon Bay, California, they sailed to Mexico to spend several years seeking new adventures. They had accomplished their early retirement and wished to experience life in a slower and different way!
Boredom would appear unlikely for readers of our blog, but I have witnessed this with family and friends. The amount of time that will be available after leaving my job could be a challenge at first. Realizing this, over the past several years I have attempted to become more involved with the community, finding new friends and pursuing new interests. My reading of books such as Ernie’s have opened my eyes to the kinds of activities we could explore during retirement for little or no cost.
We will engage in a YOLO bender at retirement, relishing in our camping and travel-related experiences.
Retirement will be a time to live, grow, and prosper
We anticipate more focus on our everyday life and happiness. A small sampling of the things on which we will place more emphasis will include:
- Health and exercise: I will be as buff as my 72-year-old coffee-drinking friend, Terry;
- Entertainment: More live music, library events, reading, and dining experiences;
- Family and friendships: More time focused on conversations and visiting;
- Travel: Camping, cruises, hotel stays, VBO, and AirBnB exploration;
- Hobbies: Time to dust off the golf clubs after a four-year break;
- Volunteering: Regular and periodic help with local events;
- Bucket list: Taking an exotic 110-day world cruise and enjoying other foreign travel; and
- Pursue a new career or passive income: Who knows where this could go…
You have determined “the number” and “the why.” Now it is time to retire.
Thanks for following along with us in this series as we have taken the journey toward retirement. This has been something I wanted to create early on with the launch of our website and blog. Joe over at Retireby50 contacted me about guest-posting for his series the “7 Phases of retirement”, helping accelerate our own series.
Disclaimer: my original series draft involved only six steps! 🙂
Throughout this series, we have learned where the income is coming from and what it takes to live the lifestyle we choose. We have determined how much is “enough” and feel comfortable that our passive income sources and the 4% Rule (or 3% approach) can support us financially. We intuitively know we must focus on our health, relationships, helping others, and finding our true calling. We will continue learning and enjoying new experiences.
For those who have reached financial independence, there is no need to continue to maintain a job (unless you enjoy it), since that is not financially required at this point. Now is the time to retire!
PS: When is retirement for us? It is in Just One More Year (or less). We wish to complete a “victory lap” first to fund our immediate and lavish travel plans at retirement!