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?