I Don’t Have Enough Money, But I Retired at 40 Anyway

It might sound odd coming from a personal finance blogger, but the truth of the matter is I don’t have enough money for early retirement but I retired before my 40th birthday anyway.  Oddly enough, despite all the readers on this blog no one has really called me out on this so far. Why?

Because I was honest enough to state what I’m doing really isn’t a full on ‘I never plan to work again retirement‘ but rather a ‘I plan on doing some fun work during a semi-retirement.’  And in that little shift of wording on what I planned to do made a huge difference between being able to leave now and being able to leave two to five more years in the future.  You see despite most personal finance bloggers obsession with numbers and saying you need to have around 25 times or more of your annual expenses saved to retired the secret it this: it’s actually bullshit if you semi-retire.  In fact you can think about leaving work when you are around 80% of the way there.

Pardon? Well you see the analysis behind that 25 times your expenses (also know as the 4% rule) is solid, but my beef is with one of the underlying assumptions which is: you never receive any additional money from work or other sources.  Basically it assumes you only use your investment income to live off of, which is fine if you really plan to NEVER work again, but generally ignores certain items in reality.  For example, it ignores you may get some government benefits in your old age (like Old Age Security in Canada or Social Security in the US) and it also ignores the fact it is fairly easy to earn small quantities of income when you don’t have a full time job.

So let’s break each one of those down.  First off you will be getting some kind of income from your government when you get older.  You can debate how much depending on which country you live in and how well funded the given program is.  As an example, in Canada the Canada Pension Plan (CPP) is rock solid and has enough to easily make its obligations for my retirement.  On the other hand the Old Age Security program is paid out of the current yearly revenue for the government and thus has a significantly higher degree of being altered in the future to change either the qualifications to get the money or reducing benefits or increasing the age to collect it.  Yet despite all of that I’ll likely get something from both programs and during my model work for my retirement I just assumed half of the OAS payments.

Now onto that second point about earning income.  The internet seems awash in articles about having a side hustle to earn extra income so if you even just keep on doing a hustle you can likely bring in $3000 to $5000 a year fairly easily.  For example, minimum wage where I live is currently $10.96 per hour and even at half time (20 hours a week) that is $11,398 per year income.  Or if you do just 10 hours a week you could still pull in $5669 a year and that is at minimum wage.  Imagine for a second how little you would need to work if you get a higher wage.  In my particular case I’m going to take a stab at writing fiction for some income first and if that doesn’t work out I will consider other options.  Also it helps my wife has decided to keep her home based daycare running for a few more years which provides some income for us.

In the end, the reality of the situation is this.  If you are prepared to do some work after you leave your job and you are willing to depend somewhat on government benefits you can likely get away with about 80% of your target savings amount and reduce your working career by a few extra years.  Of course there are risks doing this such as not having any other income for long periods or poor investing returns.  Yet managing those issues is entirely possible.

You just need to have some backup plans in case things don’t work out and also keep a bit of a cash buffer around to allow you avoid work for periods of time if required.  So in our case we have one backup plan which is linked to my wife’s decision to shutdown her daycare.  We would downsize the house and move.  This should free up some money from the house and also reduce our property taxes going forwards.

But the reality is your current situation of having a job also has risks.  We just tend to ignore them as we are so used to having them.  For example, job security is largely non-existent.  The reality is that if the company is willing to spend the money they can fire  you or lay you off at any moment without much of a reason either.  We know this but we just don’t think about it all that much.  So what you are really doing with an early retirement is just changing your risks, not removing them.

So what do you think?  Would you be willing to enter a semi-retirement to get out of work sooner? Or are you more interested in not having to ever work again?

6 thoughts on “I Don’t Have Enough Money, But I Retired at 40 Anyway”

  1. This is exactly what is going to happen for me as well. I still need to work full time for a few more years.

    That said, I feel like I’ve semi-retired because my work to chill ratio is about 55.6% .. I’ve only worked a little over half of my career.. whose to say it can’t go on like that forever? 🙂 especially if I love what I do…

  2. A few things, Tim.

    First, I split my ER plan into two parts. The first part, the more important one, is getting from the age I retired (45, nearly 10 years ago) to age ~60, while the second part begins at that age and goes beyond that indefinitely. The first part is more important because I have to use only my readily accessible money and any of its investment income to pay the bills. After that, my “reinforcements” begin to arrive. These include (a) unfettered access to my IRA, (b) my frozen company pension, and (c) Social Security (I live in the US).

    Because of this split, I basically threw out all the talk about multiples of expenses and the 4% rule or anything related to SWR. Just get me to age ~60 safely and my financial picture only improves once these “vaults” open up.

    Second, I worked part-time for 7 years before I fully retired in 2008 at age 45. I couldn’t stand working full-time any more and had reduced my expenses enough to be able to live on 60% pay. But while my personal savings rate dropped some, I had my eyes on the real prize – the soaring value of the shares of company stock I owned. Simply being employed, even part-time, greatly increased the value of that stock I planned to cash out at favorable tax rates later on and invest so its dividends would be able to cover all or most of my expenses.

    I am single so I have no spouse to help out with income. I ham childfree so I have no kids to drain any income, either. I have been happily retired for nearly 10 years and look forward to many more years being out of the daily (or part-time) rat race.

  3. That’s exactly what happened when I retired at 54 with a reduced pension. Shifted from pension lawyer to personL finance writer, doubled our retirement nest egg and 13 years later I’m ready to really retire at the end of May. But who knows what the future will bring?

  4. Great article.

    I shouldn’t be but i get annoyed when F. bloggers claim they have “retired”, but when they explain “little” details like their wife is still working a great paying job with full benefits, and their blog and podcast takes 4 hours a day to come up with and post content on it, then it becomes “not retired”. Essentially you have shifted roles and made your hobby a business and taken a pay cut.

    That in itself is perfectly fine, except if it’s used as a carrot to attract subscribers who may understandably get the wrong impression of the facts.

    You have spelled it out perfectly here. I too am struggling to continue working. I could most likely make some changes and not work. Taking the steps to walk away from a pretty good job, albeit stressful at times to go part time is going to be tough for anyone. My fear is although i’m strong and healthy now, is it a good idea waiting to the “normal” retirement age range to then travel to destinations which would be more suitable to do at my age now? Do older retired people change their desire to do fun things and become too home biased? Be nice to here about that in an article.

    I have been watching a lot of YouTube Travel V-logger videos lately. Some of the simple but unique adventures and places these folks go to. It really makes you wonder financial safety is worth missing out on many amazing life experiences before you go to the afterlife? Harald Baldr is one such individual, if anyone is interested check out some of his videos he has some amazing footage in multiple destinations around the world.

    So getting that condo somewhere warm, simply being a snowbird somewhere every year, doing the sort of standard stuff people seem to dream of, or being a little more out there? I find it harder and harder to resist the latter option lately. And 2 or 3 week vacations in exotic locations just seem to make it even more alluring. A little off topic but relevant to leaving the working world prior to a plan that does not seem as appealing as it once did.

  5. Thank you for this wonderful and honest post. My wife and I are in our last two weeks of our stressful corporate lives. Technically, we are short of the 25 times expenses number as well. We do not have any children and do not have a need to leave money to anyone. Therefore, in an ideal world, we would be $10 overdrawn upon the last persons death.

    I created an excel based retirement model which I call a “Capital Depletion” model. It assumes we spend the entire value of our assets (investments/home) by our age 95. It incorporates future cash flow needs and extremely conservative assumptions as follows;

    Yearly expenses $36K
    General inflation 2%
    Total investment return 3%
    CPP 50% of maximum (because we FIREd at age 52)
    OAS (low income so feel future clawbacks still wont impact us)
    Future used car purchases
    Long term care for 10-years (average length is actually 2.4 yrs)
    Long term care cost $5000/month (current dollars)
    Long term care inflation rate 3%
    Home value increase rate 1% (half of general inflation)
    $150K of “other income” in our life (wife will still work for a few years and I already have a P/T gig lined up from home)

    The model shows that we deplete all assets when we turn 95. Creating a dynamic model which updates for actual incomes and expenses at year-end shows you the long-term impact (gaining or losing ground) and, identifies problems years before they materialize. We will adjust accordingly.

    Despite being very conservative, I am comfortable with the projections and the model. There are ways to adapt to changing circumstances if required.

    Life is not risk free and the idea that we can save enough in our lifetimes to cover any possibility will leave us working until we are dead. We also considered probabilities.

    In this country, most of us have far more than most people in the world. What I wont ever have enough of, is time.

  6. Thanks everyone. It’s good to see many examples of how work and retirement don’t have to be completely separate concepts.

    @Paul N – Eventually you will just decide screw it and jump into it. It won’t work out according to plan regardless of what the plan is so just accept that and move on. Have you considered taking a longer period of unpaid leave to try it out? Not everyone can do it but I’ve heard of some people doing that to help decide. Best of luck on what ever you pick.

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