The Price of Freedom

The pay stubs are finally in from my first month of reduced working hours (80% time) and I’m only down about $550/month on a take home basis since I conveniently just got a raise which offset some of the reduction.  That amount is just about the same amount of extra income my wife will be taking in this fall with some new kids for her daycare.

Of course my wife has some expenses and in the mean time will have lost one older child she used to care for before and after school.  Taking those into account we are down overall by about $200/month.  On top of that I’m also losing out on some pension contributions since that is tied directly to my salary so that’s another $120 a month.  So in grand total overall reductions for our family is $320/month.  Which is a lot softer of a hit than I was expecting.  My initial estimate for potential loss was closer to $750/month.

With regards to my retirement plan to be free from having to work at 45, well that is an interesting story.  I did the calculation, but I won’t bore you with the exact numbers but the results go something like this.  During my last calculation set it was starting to look like I would actually be able to retire at 43 rather than 45.  Today that has shifted back to 45 so in reality my decision to work less now has cost me 2 years on my retirement date, but put me back to my original goal to be free at 45.

You might wonder how it is possible to take a 20% pay cut and still be mostly on track.  It’s because I always do my calculations with several conservative estimates build it.  In this case the ones that come to mind are:

  • I assume my salary only keeps up to inflation.  The reality is I tend to roll over all of my non-inflation raise which was 3% this last year.  So this slowly creeps up the amount I’m saving to offset the pay reduction.
  • I assume I only get a 5% real return on investments.  The reality was I’ve exceeded that at times.  The classic example is the TFSA accounts which turned out a stunning 48% average increase in a year (which was from dumb luck).
  • I don’t include any extra income.  For example the plan does not require me to make any money at this blog or have my wife take on any additional clients beyond what she will have this fall.  We just need to keep the base savings the same and anything beyond that just accelerates our goals or can be spent on other things.

Overall I feel a little like a kid who got to have his cake and eat as well.  Things turned out much better than I was expecting with this decision.  So have you ever had that feeling where things turned out better than you hoped?  If so, please share your story.

5 thoughts on “The Price of Freedom”

  1. Very nice.

    Have you taken into consideration the ongoing cost of health and dental costs once you’ve decided to retire? I am going to assume you’re on some sort of employer sponsored plan at the moment while you’re working and that will disappear once, or if, you decide to retire early.

  2. The economic downturn in 2008 has provided me with much more retirement income than I had anticipated when I was planning my ER in 2007 and 2008. This is because the NAV of the bond fund I expected to buy had dropped about 25% in the middle of 2008 while my company’s stock (what I would sell when I left) continued to rise before a small decline that September.

    The bond fund’s monthly dividend was down slightly but to nowhere near the magnitude of the 25% extra shares I was able to buy, so I was still way ahead. Because of this, I do not need to use the income from my existing, smaller bond funds to supplement the income from this “big” bond fund. Instead, I can reinvest it.

    A most pleasant development, for sure!

  3. I applaude your efforts and pushing for that goal of early retirement at 45! I am just curious, What are you going to do with the next 45 years once you do “retire”?
    I know what I would do (sail the world taking photographs and writing about my journeys). But that is a very expensive retirement that is difficult to quantify!

  4. @Adam,

    Yep, I’ve put in some money to cover a basic medical insurance plan, but I’m going to self insure on dental after looking at the rates for coverage. WOW, they over charge for that unless people have really bad teeth.

    @Frank W,

    Well with my 45 extra years I intend to do a lot of writing, gardening, likely a few pet projects like building a smaller, but highly efficient house. It’s not like I’m going to stop working, I’ll just be doing work based on interest rather than pay.


  5. When I was younger,I never realized retirement before age 55 was even possible.
    At the time,the Freedom55 thing was being advertised and it seemed even people with higher incomes were having trouble getting there.
    As a blue collar worker,I figured the best I could hope for was some kind of semi-retirement at that age.
    I knew that with the work that I do,my body would start
    to rebel on me at some point and I would need to slow
    down abit.

    I turned 45 this year,and progress has been much
    quicker than I thought it would be.
    I still find excuses to work,but at this point,it is more of a choice then a need.

    Things turned out very well for me.

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