Guest Posting: Four Ways to Avoid Un-Retirement
Hello Mustachians,
I’ve amassed quite a nice ‘Stash of guest postings from thoughtful writers around the internet, and I thought this one would be perfect for today, since my own most recent article was about The Safety Margins I have myself to prevent any sort of money problems in the future.
This submission comes from our enthusiastic compadres at Money Crashers. It sounds like sound advice to me, except the part about un-retiring being his Worst Fear. I think he’ll find that retirement is just another phase where his “work” becomes more sporadic, self-guided, and interesting. Some of it paid, some of it unpaid. You could instead consider it simply Graduating from being Forced to Work. Nothing scary about that! Enjoy the article.
By the way, Moneycrashers, can I get on your Top Personal Finance blogs list? ;-)
4 Ways to Avoid Un-Retirement and Going Back to Work
By David Bakke
David Bakke is a forty-something single father living in Atlanta. He aspires to retire early, and in his free time he writes about personal finance on Money Crashers, sharing his best tips and strategies for money management.
As a single father in my mid-forties, the topic of retirement is becoming more and more important to me. I need to have enough money to retire, and I am trying to do what I can now to retire as soon as I can. I have two side businesses that generate a decent amount of income, and I am shooting for an early retirement.
I know that this is an aggressive goal, but I also know that it is achievable. With my plan for an early retirement comes the built-in fear that at some point, I may be forced to UN-retire. Believe me, this is my worst fear. The last thing I want to do after retirement is to re-enter the workforce because of financial shortfalls.
These four tips will help you plan for a lasting retirement:
1. Invest Until it Almost Hurts
One of the phrases that I hear bandied about when it comes to retirement saving and investing is that you should “invest until it hurts.” I disagree with this idea; you would be better served by investing until it almost hurts. No matter what your goals are for your retirement years, you should not invest so aggressively that you negatively affect the life that you’re living now. You can still enjoy your current lifestyle and there’s no reason to live like a pauper to prepare for your post-working days. With that said, it is still extremely important for you to look for ways to save that don’t drastically alter your lifestyle, but still allow you to increase your retirement contributions.
Regardless of your retirement plans, you should diversify your portfolio. This will protect you in the long run against short-term market fluctuations. If all of your financial eggs are in the same basket, you run the risk of becoming a victim of market fluctuations. Diversify your portfolio to include stocks, bonds, international funds, and cash funds, so you’ll be able to weather any future financial storm.
2. Delay Your Retirement
In today’s climate of economic uncertainty, no one knows what’s going to happen. Rather than subject yourself to the ups and downs of the markets and our economy, why not just scale back your retirement plans?
Planning on retiring at age 50? Why not just postpone your retirement and shoot for 55 instead? Shooting for the standard retirement age of 62? It might be more responsible to extend this three years and plan to retire when you are 65. By doing so, you will significantly decrease the likelihood of having to un-retire at a later date.
3. Ratchet Back Your Lifestyle
There are many ways to save for your retirement. For example, say that you are 50 years old, and contemplating the purchase of a large flat screen television that costs $1,000. Compare spending $1,000 now to investing that $1,000 towards your retirement. If you retire at age 62, that $1,000 would translate into $1,600 upon retirement, assuming a relatively conservative annual return on your investment of 5%. In addition, look for other ways to cut unnecessary expenses. By doing so, you can maintain your current lifestyle, while saving money for retirement.
4. Objectively Envision Your Retirement
Visualize where and how you want to live after you retire. Do you love browsing city farmers’ markets and going to the theater? Do you dream of an open space on a mountaintop? Do you want to live near the ocean? Do you need to be close to family? The answers to these questions will help you determine what sort of life you will have post-retirement, so you can effectively plan for your future.
I once met a couple who lived in a beautiful home, right on the shore of Lake Erie. We started talking and I soon found out that they weren’t independently wealthy. Instead, they had planned carefully for their retirement. They fell in love with the house years ago and when it came on the market, they purchased it. They then sold their primary home, and moved to a mobile home. In the years leading up to their retirement, they rented the lake house to tourists during the summer months, and visited their second home in the off-season. When they retired, they had saved enough money to move to the lake full-time. They had a clear goal in mind for how they wanted to live after retirement, and it worked for them.
Is there a similar plan that could work for you?
Final Thoughts
To sum it all up, the success and enjoyment of your retirement depends entirely on you. The financial decisions you make now will determine how happy and enjoyable your sunset years will be. Use these tips to plan for your future, and you’ll be certain to enjoy a gratifying, permanent retirement.
What are you doing to plan an early retirement, or to avoid the possibility of un-retirement?
(note from MMM: wondering if there is some significance to the photo? Not really, I just stole a screenshot from today’s headline picture on the Moneycrashers site and cropped it to reveal what I felt was the most Delicious part.)
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Mr. Money Mustache is a family man living in the United States who retired from work, relatively wealthy, at about age 30. After several years of retirement, he noticed that his still-working peers were envious of his lifestyle. They were making more money than he ever had, yet they were somehow still broke. So he decided to write this blog to educate the world on how it is done.
Hmm…just semi-mustachian advice in my book, especially #2.
Same as Jeh, I’m a little disappointed in the ideas here (especially #2). I think this article belongs in Money magazine, not MMM.
It’s not bad advice for non-mustachians. But for this crowd, I’d recommend:
1. Save at a very high rate while you work
2. Learn to become self-sufficient (see Don’t Outsource)
3. Learn to find meaning in life beyond work
I suspect the early retirees that follow MMM return to work more often due to boredom than financial needs.
Nice, nice. I like to see that our standards have become so high here, that normal “Good Financial Advice” is now considered “Not Mustachian Enough”!!
You hear that, Moneycrashers? Competition is heating up.. Is it time to up the game a little? ;-)
Just a re-phrasing of Brave’s last sentence – I am hoping that any MMM-style early retirees would not return to work due to BOREDOM, but rather due to the UNSTOPPABLE CALL of a fun new line of work. That is what keeps happening to me, and it is a pleasant battle between forcing myself to relax on the couch in a sunbeam, as I am doing right now, or getting sucked into dramatic days of hard work where sparks and sawdust fly.
It’s funny that you mention “hard work where sparks and sawdust fly.”
One of my visions of early retirement is buying a beat up old house and completely renovating it by myself, by hand. I have this grand vision where some days I do nothing- sleep in, play with my kids, ride my bike, all stress free. Other days I get up early, head to my fictitious house, and work 12 hours straight sanding/measuring/cutting/hammering/hanging. (Kind of like that dude in The Notebook… Yeah, I saw it and I liked it. So what?)
Hmm, I haven’t seen this “Notebook”, but it sounds interesting.
It is funny that your vision describes my exact life for the next two months :-)
I feel as an outcast here. I find no joy in working with power tools, 6-pak of beers lasts one year in my fridge, and I can’t even travel everywhere as I am a snob when it comes to bed and bathroom conditions (before you criticize, note that I spent 4 years in the trenches in the middle of the civil war, and I am done roughing it).
I feel like a bad guy for loving by work – building a company, dealing with customers, managing people – I love it and I will probably never stop working. Am I crazy?
My goal is to get to the point where I do not have to work if I chose to stop. Am I the only one here?
What are you talking about!? You fit right in! Love your work, engage with people – and make sure the money part is not what forces you to work! The Mustachian Dictionary term for this is a SWAMI.
There is no rule that says you have to like power tools. Bikes, on the other hand, are mandatory :-)
Not a big fan of power tools, bigger fan of computer science. I enjoy my work, but would like it to be an optional task.
Regarding envisioning retirement lifestyle, yes this can be helpful, but only to a degree. For, so very often, the newly retired person will discover that he (or she) will, likely through trial and error, discover their “true retired self.” Thus their lifestyle may or may not be what they initially envisioned. Bill
Agreed. While the guest article was good advice for the average person, we’re not average folks on this website, we’re agressive thinkers, doers and visionaries who are willng to think outside the box (outside the Matrix) and take a much more agressive approach to retirement and more importantly FREEDOM!
Appreciate the effort though MMM.
Thanks MMM for being so inclusive!
I ask myself often – would I go to work tomorrow if I won the lottery today? Your blog helps me prepare for the day when the answer to that question is NO.
P.S. Lottery part is a hypothetical question. No worries, I am not stupid to spend money on lottery…
“Compare spending $1,000 now to investing that $1,000 towards your retirement. If you retire at age 62, that $1,000 would translate into $1,600 upon retirement…”
I don’t find these comparisons very compelling until I put it in perspective that $1600 is easily my cost of living for a month. $1000 now postpones retirement for a month, and it isn’t hard to rack up a year’s worth that way.
It is even worse for the average person. In Canada, taxes are much higher. So, this is how much $1000 spent today could actually cost you if you are an average person who will pay the income tax, then pay the sales tax, then carry the balance on the Sears card for say 6 months… instead of putting that money into the registered tax-deferred retirement fund. Numbers below are educated guesses only, don’t beat me over it…
Regular Joe Canada: He takes $1000 from his paycheque (yes, that is how we spell check), and spends it on say a new TV for the bedroom, even though the old one was working perfectly fine. Then, he pays 13% sales tax, and, he carries it on the Sears card for 6 months (bang – add $141 in interest). So, this $1000 thing becomes $1300 in no time. Then, with the average person paying marginal tax rate of 30% off the top of the pay, Joe would actually have to earn something like $1800 for the $1000 TV.
MMM Joe Canada does this: Decides that a new TV in the bedroom is stupid when he already has one in every other room, not to mention the effect it has on his sex life… So, he takes $1800, puts it into his RRSP (tax deferred pension account), which turns nice 6% each year for 20 years, and this $1800 ends up being $5800 or so. And, since by this time he is retired with modest income coming in, his marginal tax rate dropped down to 10-13% so, even after $800 in taxes, he has $5,000 saved up and retire 2 months earlier… Maybe he even uses this opportunity to cut out the cable TV (or mobile phone, or expensive wine habit) and saves $1000 per year (again in Canada, Cable is expensive), and he has additional $50K saved up… Retiring 2 years earlier by cutting out your Cable TV – awesome idea!
Like!
Hi DD. Just got around to reading all the posts even though we have been going back and forth on the emergency fund issue. Nice to know you are from Canada too. I like seeing posts from us Canadians on this blog considering MMM is also a Canadian.
Yes, it is a bit different trying to grow moustache in Canada. However, every time I get jelaous about low taxes in US, cheaper food, cheaper gas etc, I remember that I don’t have to put away half a million for my son to get good education, nor do I have to worry about health insurance, or what happens if I or someone close to me is down on their luck.
Where in the US you have more ability to earn and save more money (because taxes and living expenses are lower and wages are in general higher), you do not have to save as much to retire in Canada thanks to generous social programs. Most importantly, in US, saving for the “worst case scenario” is a big undertaking. In Canada, “worst case scenario” is usually losing your job and having to live off $24K per year that any family gets one way or another.
This post has really been the low point of this otherwise excellent blog.
Kind of complainypants, rjack. The truly Mustachian Way would be to write a guest post that is even more kickass than the above, and then share it :)
Nice one Dan. I agree totally.
First of all, Rjack, you need to think about who will read your comment. The author of the post perhaps? How will he feel? He has written a perfectly good and thoughtful perspective on early retirement.
Now the fact that all you hardcore Mustachians are saying the article should go further – that is GREAT! That actually makes it worthwhile publishing, just to show the contrast. It makes me feel like we’re on to something useful here. And it’s up to us to build the culture around us up to this new level!
At the same time, in response to these comments and some in personal emails, I will be RAISING THE ANTE for guest postings, where in the future they have to display some form of Badassity in order to qualify.
Thanks again to the author David, Moneycrashers, and you commenting dudes above for a nice little lesson today.
Hmmm…perhaps I was bit too harsh and I apologize if I offended the author.
Just to clarify, I think the general content and writing of the post is good. I just think it is too basic to be posted this blog.
Question to Anyone Out There:
So many sites talk about having a 3-6 month living expense fund set aside-not included in one’s retirement portfolio.
My dh and I are thinking of doing this-setting aside 30K in case his work ends or there are some slow months(is a contractor-IT).
I would appreciate input here.
Thanks
What I don’t understand is when people put their emergency funds in a general bank savings account paying less than 1% interest because they feel that they must have money available on a minutes notice.
If you have an investment account (with conservative contents) from where you can withdraw money within say 2-3 weeks, you can use the credit card within the grace period for those couple of weeks.
Just my $0.02.
Are you saying if you already have around 800k(we do) in our retirement portfolio, than we don’t really need to have 3-6 months living expenses set aside? Just wondering.
No, I am just talking about where your emergency funds are kept. Many (if not all) of the people I know, save their emergency funds in the plain 0.5% interest bank account because they think that money should be available on a minutes notice. All I am saying is – put the money somewhere where it brings more value AND where it could be reached for emergencies within couple of weeks.
Heck, I even have the friends who have $10K in their emergency savings account, yet they carry $10K+ in credit card debt each month. You may as well pay the credit cards off and use them as your emergency funds if needed and save the interest.
Another interesting question (that may be cool thing to hear others comment on) – what do you consider an emergency? Again, I know people who think that being stressed and needing a vacation an emergency worth cracking that safety seal :) What do you think?
I think we are talking about two different things.
1. I think an emergency fund would be like $1000 in case the fridge broke down or the washer and dryer.
2. Then I was thinking of a three to six month living expenses of like 30k for us if we need 5k a month to live off of-do you think this 30k should be part of the retirmement portfolio-just keep adding to the portfolio till have an extra 30k there . What I hear you saying is don’t put this 30k in a saving account earning less than 1%. Still have the 30k worth of living expenses but invest it conservatively. Do I hear this right?
BTW, enjoy conversing with you about this. Very helpful
Yes Pachipres, as for your comment below (I could not reply to it for some reason), there are in fact two kinds of emergencies.
And I supose level of emergency savings depends on individual conditions. For example, if you are early in employment in the industry that sees big ups and downs, you may want to have more savings and be more conservative. But, if you are working for a same company for 15 years and things are good, you can probably take a bit more risk.
To be honest, I don’t even have special emergency fund. For small emergencies like car repairs and dead fridge I use regular monthly flow. As I am still bringing home $5-6K per month, I would simply pay for repairs from my credit card (2% cash back ;) and then pay the card within the grace period to avoid interest from my regular pay (I would just have to cut amount I put into savings for that month).
For major emergencies, like job loss, I have nice severance pay negotiated into my contract (6 months full pay), then I get 52 weeks of unemployment insurance which will be exactly what we spend now in my family ($2K per month) and by that time, if I don’t want to receive welfare, I could cash out some of the tax-defered RRSPs that I have. Yes, I would have to pay tax if I cash out RRSP, but chances of me losing my job and not finidng another one inside 1 year are probably less than 1%.
So, if I was saving say $30K with my bank, they would pay me 0.5% interest on my money (yes, $150 per year!!!), but sticking that same money into the very conservative fund would pay at least 3-4%.
Hi DD, I too can’t seem to reply to your reply down below so I wil do so here. Thanks for your response about emergency funds. |It is becoming clearer to me now.
What credit card are you using that is getting 2% cash back.
We have a cibc air gold but it gets flight points and I pay $120 a year. Do you ever want to collect flight points?
Hi Pachipres,
I use Capital One card. It is a plain Jane card with around $55 annual fee. Interest is high around 16% I think, but I don’t care as I pay my balance in full every month. Last year I got an interesting letter from them – asking me to call them and tell them how they can make my card even better for me. I asked for cash back rewards to be increased from 1% to 2%, and surprisingly, they obliged. I basically use that card for all monthly living expenses and I even put my insurance on that card (insurance is my only monthly bill other than rent/utilites which are paid together through my chequing account). So, I spend about 1.5-2K per month on that card and every couple of months I have $50 waiting there for me… awesome!
I heard from many people who have had bad experience with Capital One, but to be honest, I had no issues whatsoever. Receiving stupid balance-transfer cheques every couple of months, and not being able to get my paper statements replaced with email version is nuisance, but I can live with those issues for 2% cash back ;)
Another interesting trick (which works for Canadians with relatives in US) – my wife is a Yankee, so we kept her old Visa card open when she moved to Canada. By doing so, she was able to save money and buy services that normally you could not as a Canadian. She has US iTunes account, US Amazon account etc… As you know, prices are much lower in the US for many things, plus selection is better so we take advantage of those options. Since all her family is also in the US, it is cheaper buying birthday/Christmas gifts on Amazon and shipping them to her family in US for free. Buying same things in Canada would be 30-40% more expensive (if they are even available), and then ridiculous Canada Post rates to US would apply.
Thanks DD for your response.
But why would you opt for cash back versus flight points?
Sorry Pachipres, I missed to respond to that part.
While I did some calculations, and 2% cashback is simmilar in value to points you can get for flights with different airlines, it comes to personal preference. My wife and I tend to take month-long vacations where we either drive across the entire US (visiting relatives in MN, CO, UT, ID and some friends in other states along with enjoyment of taking it slow between the stops and seeing the country) or, we take drives to Toronto, northern Michigan etc. We fly very infrequently (ever few years at the most). Secondly, I did not like the fact that most points expire at some point, and they often have restrictions on where they can be used. With 2% cash back, I get $300-$500 per year (depending if we have some larger purchases) and money is never wasted.
P.S. I know, many Mustachians will say that all these vacations are crazy for someone trying to retire early… However, since my wife lives 3000 miles from most of her family, we feel it is a worthy cause to spend some money on. However, by using Jetta TDI, and visiting all these relatives (read – free stays and food), our month long vacations scarcely cost us more than staying at home.
If you own a home, you can also rely on low interest home equity line of credit. MMM discusses that elsewhere on this blog.
MMM, I’m glad you posted this article, even if it doesn’t quite live up to Mustachian standards, just because it got me over to moneycrashers.com, where I found a few interesting articles on related topics that may never have come up on this blog.
So… thanks. And thanks for crafting a truly unique atmosphere here!
I think there’s a bit too much emphasis on maintaining your current lifestyle. Drastic changes really help early retirement, and as this site shows, you can still live comfortably.
I don’t really have anything that negative to say about the article. I appreciate any article that focuses on personal finance and gets people thinking about the future. However, with that being said, I really didn’t understand #2. Delay your retirement? Until 65? No, thanks. I think 45 is too late, personally. Otherwise, a well-written article and it’s always good to see gospel on responsible spending and investing being spread.
“Heck, I even have the friends who have $10K in their emergency savings account, yet they carry $10K+ in credit card debt each month. You may as well pay the credit cards off and use them as your emergency funds if needed and save the interest.”
Exactly that. Well put!