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:
Step 1: Budget for financial independence
Step 2: Create a passive income
Step 3: Take into account replacement costs for big-ticket items
Step 4: Test drive living on less income
Step 5: Become debt free and celebrate freedom
Step 6: Achieve financial independence
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.
–George Foreman
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!
ARB says
I must say, I actually envy people who worry that they will become bored during retirement. They must have awesome, stress-free jobs. I was talking to a coworker about this issue (actually, I think a bunch of us had been talking about what we would do if we won a billion dollars right there and then), and she said that one shouldn’t retire early because “you have to do SOMETHING with your time”. I know I would do SOMETHING. Just not what I do now. You saw my post, Bryan, about the nasty customer that made me throw my notary stamp.
I don’t know what I would do with myself if I were to retire tomorrow, but I know what I wouldn’t do. And that’s go to work and stress about customers, sales, and all that other crap. My dad’s retiring at the end of this year and he has the same mentality I have. At 62, he wants to spend his days relaxing by the beach, not working in an underfunded housing project and dealing with an incompetent staff and animalistic tenants.
For people who fear that they’ll have nothing to live for in retirement, I say that’s nonsense. You’ll find something. You’ll have the time to find something. You don’t do anything outside of work right now because you dedicate 50+ hours a week to it. That will change once all that time belongs to you rather than your employer.
Sincerely,
ARB–Angry Retail Banker
Bryan says
That is great news that your dad is retiring this year. I agree with you ARB, I know what I won’t do in retirement: stress about customers, sales, and other crap! 🙂
The thing about it for me is that I can get so focused and wrapped up in our goals, the present moment is slipping away from me. I tend to have a future mindset and the belief that the magical “SOMEDAY” will arrive with retirement and THEN I can be happy! I now know that I have to find my own happiness and I should not delay. That is the perspective of where my YOLO article thoughts originated.
For me, retirement will give me the freedom of time to do the things I have put off for far too long.
Take care.
Steve @ Think Save Retire says
Awesome blog series, Bryan – I like this one best because it’s talking directly about retirement. I’ve always found it interesting that people believe that they’ll be bored after they quit…implying that WORK is the only thing in their life and they are incapable of pursuing productive activities without a full time job. Truthfully, I believe this belief to be pretty darn sad. If work is the only thing in your life, perhaps a reflection upon your life is in order before considering calling it quits.
As always, nice blog post. Keep up the good fight – almost at the one-year-out mark! 🙂
Bryan says
Thanks for the feedback Steve – I enjoyed the “Our Next Life” series you recently completed. Doesn’t it feel great to imagine what life will be like for both of us, just barely a year from now? 🙂
I have so many things I want to do, learn, experience, and see in our travels, I think we will need several more lifetimes to complete. I know we won’t be bored after our jobs are gone. Unfortunately I have been in a rut for nearly ten years working toward early retirement. I have lost the passion for the job and can’t wait to move on to something more enjoyable.
Luke Fitzgerald @ FinanciallyFitz says
Many years away from retirement (happily) but this quote still hits close: Retirement will be a time to live, grow, and prosper. As I’ve said before, retirement is a fancy word for “following more opportunties.” Great series!
Bryan says
I appreciative the feedback and support on the retirement series Luke. Hopefully it is just one more year for me. 🙂
Our Next Life says
We do wonder about the identity question — how will we define ourselves in retirement? We have some ideas, but also want to give it room to evolve, and to find out who we really are once we strip away the work demands.
We are definitely NOT worried about being bored in retirement. We expect there still won’t be enough time to do everything we want to do, and we’ll be happy to leave all the work silliness behind! It can’t come soon enough… 🙂
Bryan says
I don’t think the identity issue will be a problem for me, however just like you, I do want realize it could have an impact.
I am with you that we will not have enough time to do everything we can dream up doing. It is just like making money, there is a theoretical limit to how much you can make. The thing that will be most interesting for me is that many of my excuses are stripped away once I leave employment. I can no longer state that my lack of time, energy, passion, joy, etc. that has been sucked out of my life due to a job. Those excuses are removed and it is up to me to make my own happiness. (I know that is really the case now – but I still use my job as the excuse. A difficult habit to break.) 🙂
Take care,
Bryan