Pension, Schmension! Retire on Your Own Terms

many_mustachesAt the beginning of your financial life, there are plenty of traps laid out to bite you. In all probability, you were raised by financially unskilled parents, meaning you picked up deadly habits like buying automatic-transmission trucks on credit and commuting enormous distances in them. All while thinking you are living a perfectly reasonable life – and simultaneously wondering why it’s so hard to get ahead these days.

If you don’t get trapped by adopting the habits of your parents, you still might get eaten by any other number of demons including student loan debt, borrowing money on credit cards, or an addiction to convenience.

A few people are lucky or skilled enough to avoid all of this, and they enjoy lives of happy moderation, living below their means and saving a reasonable amount. Only to fall into another trap which awaits at the end of their working careers: the “one more year” syndrome or other problems with knowing when to quit.

After many years or decades devoted to selling the majority of their waking hours to an employer, these poor people lack the knowledge or bravery to set themselves free, and end up sentencing themselves to decades of additional unnecessary repetitive work.

You would be shocked at how many emails arrive in Mr. Money Mustache’s mailbox with this general theme, and it is high time we address it, using this recent example to illustrate:

Comments: Dear MMM,

I have just learned that my job is likely to end next year. I love my job (professor at a university, but my department is being phased out) and was planning to stay until age 65, which would be 9 more years. I am a single mom with a daughter who will be going to college soon.

I have a vested pension which is supposed to pay 40,000/year when I turn 65, but the pension is seriously underfunded so I am not sure I can count on it. While I have made some significant financial errors (buying a house right before the crash), I have also always saved some of my income. I have 600,000 in retirement accounts (mostly 403(b)). I also have 300,000 in non-retirement savings. I bought my house with cash, but it needs some major repairs.

The problem? I cannot believe I will be okay if I go ahead and retire. I have had a paycheck for 40 years (and been fortunate to have great jobs, including my years as an academic that allowed plenty of flexibility for family and travel). I have always felt “safe” from having money in the bank, employer subsidized health insurance, etc.

Help! How do I make this leap? How do I find the right place to live? (I’m only in this town for the job.) Please persuade me it will all be okay so I can start sleeping again.

Waking up at 4 a.m.

Dear 4AM,

We need to start with a double congratulations. First on your unusual saving ability (many US workers end up with minimal net worth by the time they reach their mid-50s). And secondly, on your impending layoff! Without that, you might never have been shaken out of your comfortable working trance and forced to step out and do what you are now financially very well prepared to do: Begin the self-directed stage of your life!

While it will be obvious to regular readers that your savings are way more than you need, let’s cover the basics quickly anyway:

To retire, you need passive income to cover your annual living expenses, with a reasonable safety margin.

  • Your living expenses, while not stated, are probably pretty low since you own a mortgage-free house.
  • On your remaining assets ($900,000), you can plan to withdraw about 4% per year for an indefinite period. This should provide you with about $36,000 per year of spending money.

On top of this $36,000, you have the amazing benefits of:

  • A high probability that your pension plan will pay out at least a significant part of the planned $40,000/year, starting only 9 years from now.
  • Social Security payments which will also be available in full beginning at age 67.
  • Medicare health insurance coverage beginning at age 65
  • The chance to move to a less expensive location, extracting more equity from your house

This is an enormous safety margin, which means that even if you spend, say, $200,000 of your current savings on things like helping your daughter, house repairs, moving, losing money in financial crashes, or anything else that life throws at you, you are still more than prepared for the 10-12 years between now and the pension years.

So not only should you sleep well at night, you should ask yourself if you would like to quit working before the department lays you off next year. You are set for life, and if you’re ready, you should set out and enjoy life.. NOW! Since you’re thinking of moving to a new city, you can make that part of your adventure. I can think of at least a dozen low-cost cities that I’m fond of, and the readers of this blog could list many more.

Since it sounds like you enjoy your work, this might not mean leaving the academic world. It just means that your actions will no longer be directed by the need to earn a paycheck. The money-driven phase of your life is complete.

OK, maybe this example was too easy. I also get questions from teachers in their late 20s, asking things like

We are half way to saving for early retirement, investing heavily, and managing our first rental house. But my wife’s school board offers a generous pension if she works at least 20 years in the district – which means 13 years more work. What should we do? Is it stupid to sacrifice a solid pension by leaving early?

Absolutely not! It not stupid to walk out on a pension. What is stupid is staying in a job that you don’t love, when you no longer need the money.

All of this hinges on the concept of “Enough”. It’s a tricky one to grasp if the television has done its job in raising you to be insatiable. But if you work through your own bullet points like the ones above, and you’ve got enough, then dude, trust me, you can go ahead and quit.

When you take early retirement, you are almost always walking away from a whole bunch of money. Salary. Benefits. Bonuses. Stock options. I’ve often recounted how I’ve “lost” least a million dollars of potential income since quitting in 2005. Even now, I am forced to turn down more work opportunities almost every week, and Mrs. Money Mustache does the same. Early retirees seem to have a way of attracting unwanted work opportunities, much like the casual man who walks into a pub with no desire to hit on women. The employers seem to smell your freedom, and it makes them want to offer you additional money. But unless the work offered is your true love, you will gracefully decline.

We are deliberately sacrificing extra savings and security in our distant futures, for continued free time right now. We’re throwing away the equivalent of many good pensions. Oooo. Big deal.

To gain the ability to quit your job, you have to learn to lose your addiction to artificial security. You may think you’re building up additional financial strength, but really you’re just indulging a psychological weakness.

More money beyond the reasonable guidelines noted above does not make your life better. But spending an extra 10 years working a mundane job, setting the alarm clock and droning away on the conference calls because you are afraid to quit does make your life worse, unless that is truly what you were born to do.

Ding, Dong! That’s Mr. Money Mustache ringing your doorbell. “Hey, rich person! We’re all out here playing in the sun! Fold up that laptop and come on out, for I’ve got the grill going and the cooler is full of beer.”

There is nothing scary out here in the world of early retirement. It only takes a finite amount of money, and everything is going just fine for those of us who took the plunge. And you’ll be fine too.

  • Michelle January 29, 2013, 6:12 am

    I agree, if you no longer need the money (such as with a teacher’s pension), I don’t know if I’d stay an extra 13 years if it meant unhappiness. However, I do realize that they said they were only half way to their early retirement goal. If it turns out that they don’t fully fund their retirement until one year before the pension hits, then I would probably stay, as you’ve already worked so hard!

    • Mrs PoP January 29, 2013, 11:16 am

      It’s a slippery slope, though. My MIL started counting down her days to pension eligibility a few years ago (and I helped her create some spreadsheets to figure out safe draw down rates of her various savings sources. But after she had her retirement decided she had a curve ball thrown at her. Working 3 more years past her planned retirement date would get her good (non-Medicare) health insurance coverage for the rest of her life.

      She made a deal with the devil to continue working for that benefit, but I think that took a lot of the enjoyment out of her job in the meantime.

  • Jimbo January 29, 2013, 6:18 am

    Awesome one, and good point. All we need is enough.

    For the record though, we don’t sell our waking hours to an employer, we barely rent them. At least, that’s what I tell myself…

    • Mayank January 29, 2013, 9:33 pm

      Nope, we do sell them. Once those hours are gone, they’re never coming back.
      When one rents something, there is an expectation of getting it back at some point in the future.

      • Jimbo January 30, 2013, 7:18 am

        But that applies to every hour, paid or not. They are not coming back.

        Salary/compensation is what you get back of employment. Well, at least that is what I get.

        • Justine April 14, 2016, 5:08 pm

          We’re not selling our hours, because we still get to live and enjoy them. I prefer to think that I’m selling the products I create and tasks accomplished :-)

  • Johnny Moneyseed January 29, 2013, 6:23 am

    The only thing that sucks about her situation is that she loves her job. I can imagine that some people (like her) don’t really consider their employment to be a grind like most of us do. Or maybe they’re just scared of a freedom they never knew was possible.

    • Debbie M January 29, 2013, 7:54 am

      Yep, if they’re getting rid of the whole department, that stinks. If she likes the research part of her job best, maybe she can move someplace that still has such a department, stay connected in the professional associations, and find a way to continue doing research for fun.

      Another idea is to move to wherever her daughter is going to college, though if she’d like a state school in a different state, they’d probably need to get there a year early to establish residency for the cheaper tuition rates. After that, she might have a better idea of where she’d like to live long-term.

      • Johnny Moneyseed January 29, 2013, 9:05 am

        This is exactly what my mom did when my sister was starting college. She applied for a job to fill an opening in the school’s security department staff. She was hired on, and not only does she love her job, but my sister is just finishing her undergrad this spring for a grand total of $0.

        • Mr. Money Mustache January 29, 2013, 9:37 am

          Now THAT is a highly Mustachian move! Combining the adventure of moving, an unusual new job, and massively helping out a family member – with huge financial benefits for yourself.

          Hats off to Mama Moneyseed!

          • nicoleandmaggie January 29, 2013, 10:49 am

            Good idea! We knew someone whose mom did that so her kid could go to MIT. Some private schools have very generous benefits!

  • Tom January 29, 2013, 6:25 am

    A think a lot depends on the solvency of the state’s pension fund as well. If she lives in a state that has massively underfunded pensions right now, she may not even get the full amount that she is expecting in 13 years. So even if she’s only a few years out from getting the pension by the time they have enough to retire, the extra few years might not be worth the effort.

    I think they have the right idea. Save for retirement on your on terms. If you happen to get a pension, that’s a nice added benefit, but I would be worried if I had to depend on that to pay my bills.

    • Mr. Money Mustache January 29, 2013, 9:34 am

      Sure, a lot depends on the pension status IF you are counting on the full amount of the pension (for example, if you have zero savings, live on under $20k/year, and your pension and social security are scheduled to barely meet it).

      In this case, we don’t care about the pension at all – the savings alone are HUGE. Social security alone is a huge safety margin. And the pension alone, even if it paid out at only 50% (incredibly unlikely), would also be enough to live on in a pinch. So our subject has about 300% of what is required for a safe-ish retirement.

      For Ultraconsuming Antimustachians planning to spend $80k per person per year in retirement, these would indeed be issues. But in the event of reasonable spending, this case study represents extreme safety.

      When you’re riding on excessive safety, you get to relax and not worry about details – which is the whole point of this article.

      • MattW January 29, 2013, 1:21 pm

        Many state employees in education do NOT pay into Social Security and so do not have that safety net. I’m one such employee, but then I think SS won’t be around much longer anyway, so it’s not much of a net.

        • Hamster January 29, 2013, 6:49 pm

          I don’t see any way Social Security is completely disappearing in the near to medium term. If you look at several years of polls more Americans would accept higher taxes than accept social security benefit cuts. It could get privatized (although I think the only politically possible privatization is a partial privatization option for younger workers), and it will almost certainly have a change in either eligibility age, benefits, or elimination of the exemption from SS taxes above ~$110k in earnings. But I think everyone who thinks about it seriously knows that eliminating social security will be a huge social disaster and is politically untenable.

          That said, my philosophy is to save like I’ll never get social security, and when I do get something, it’s just a bonus.

          • LTF January 31, 2013, 10:55 am

            In 1978, in a company retirement seminar, we were told that social security probably wouldn’t be around for our retirement. We saved with that eventuality in mind but in 2017 (our full retirement year) I’d be surprised if it wasn’t still a viable program.

          • MattW February 1, 2013, 6:39 pm

            I’ll buy that, Hampster. Part of my pessimism about SS is to make me feel better that I won’t ever collect. But I’m not complaining, ’cause I’m not paying into it, either.

            • Emmers February 3, 2013, 1:52 pm

              The most likely scenario (IMO) is that Social Security will phase out — current oldsters will get it, current middle-agers will get a smaller amount, current youngsters will get an even smaller amount, and so on until it’s gone.

        • Tabitha November 29, 2014, 12:32 pm

          Yes, this is my situation. In CA, teachers do not pay into SS. I have money saved in a 403B and several savings and money market accounts but am a bit clueless on how much I should have saved up at age 39 living in the high cost bay area but having a fairly good deal on rent for where I live.

      • greg January 29, 2013, 7:27 pm

        As you know, a safety margin is important. But to convince me completely (especially nervous and early in my not-so-long investing time) to take the plunge earlier, I’m afraid you’ll have to address the 4% assumption in more detail …


        I’m debating FI at 30 with one professional career or FI at 35 with outstanding credentials and effort in two … long-run, diversity in skills can add to the safety margin (slightly a-la ERE “Renaissance Man”).

        Like the commenter cited, true freedom terrifies me, and I’ll need more posts like this to give me some fortitude =P

        • Mr. Money Mustache January 30, 2013, 8:01 am

          Greg – while I think Todd (the Financial Mentor) is an awesome guy and completely right in his financial analysis, in your situation you need to avoid creating worry based on technical and uncertain articles like that.

          Early in your savings, all you need to know is this about the 4% rule:

          By the time you get there via the Principles of Mustachianism, you will know how to iron out any uncertainties. For now, just work on the saving and lifestyle part.

          It is only at the exact quitting point that you really need to decide if the SWR needs fine-tuning.

          For example, right NOW, as in January 2013, we have high-ish stock valuations, and low dividend and bond yields. People retiring with no safety margin right now might bump against the limits of the 4% rule, running out of money in 25 years if they never make spending adjustments. Or they might not.

          But someone with only $100k in savings right now is going to be purchasing through several more end-of-the-world financial and stock market crashes. They’ll get stocks on sale. Bond yields will improve. They might get into other income sources as well like rental houses. Their spending level will drastically change over their saving years due to the randomness of life. Only when they are just about financially independent, do they need to worry about splitting hairs on whether the 4% rule is really the 3% rule or the 5% rule for them.

  • Bulldog249924 January 29, 2013, 6:27 am

    The teacher’s unions and the government where I live in PA make it sound like any pension reform sounds like the end of the world, and that there will soon be many an educator standing in a soup kitchen. Thankfully, I have read Mr. Money Mustache, and I know I am in control of my own destiny. The goal is to have no mortgage, and get to 400000 of savings by the time I am 46 years old. Currently making 60k a year, and with some lifestyle changes, I should be able to accomplish my goals. Then I will do something else in my “retirement”. More government workers and other jobs that offer a pension should read your blog. Personal responsibility would prevent teachers who work 30-35 years, some who don’t even enjoy it anymore, from draining the system just for a paycheck. Imagine a world where those people could work 20 years, and then work voluntarily or part time with students in need, instead of dragging on till the bitter end! It would improve our system of education overnight!

    • Mr. Money Mustache January 29, 2013, 9:40 am

      So true, Bulldog! I love teachers in general, but I want to help them decouple the job from the paycheck. I had a couple of financially independent teachers and professors through high school and university (through low spending or entrepreneurial efforts), and they were the most badass and inspired people.

      They were only there teaching because they loved it, and that’s the right reason to teach. (And it’s the reason I try to build my own life around various kinds of teaching and will continue to do so).

      • Mrs PoP @ Planting Our Pennies January 29, 2013, 11:07 am

        Completely agree, MMM. Most of my best teachers growing up in the public school system had no need for the money (one of my favorites even rode a bike instead of having a car!). The sad part is that most of these teachers that didn’t need the money and were teaching just out of sheer enjoyment have left the profession in the last 10 years.

        The bureaucracy and lack of autonomy to do what they did best changed from being a minor annoyance to a major PITA. These teachers decided their time wasn’t worth the hassles and left the profession. It truly is a shame.

      • TLV January 29, 2013, 11:09 am

        At my high school, the physics/astronomy/geology teacher was a long-retired geologist teaching for the fun of it. His AP classes were among the few that were truly college level, and there were awesome team projects like building trebuchets from scratch (we had to launch a 10 lb. shotput 100 feet to get an A).

        Oh, and he biked 10+ miles each way to get to the school, year round.

        • lurker January 29, 2013, 4:29 pm

          he sounds totally awesome….loved my teachers like that.

      • Zina February 1, 2013, 8:27 am

        One of my favorite teachers in high school was a man who had retired in his 40s. The story goes that a former student visited him while he was living in Florida and told him that he should come back to teaching. So he put in a few applications and moved to Tennessee, where he has been teaching for 10+ years.

        He always came in early and stayed late to help students and was so obviously devoted to his subject. He was a simple guy. Always wore the same clothes (granted, it was usually Ralph Lauren) and always brought his own lunch (turkey sandwich and a few Oreos). He also drove a red BMW convertible. But he was one of the best teachers I ever had and I bet his freedom played a huge part of that.

    • Tara January 29, 2013, 10:34 am

      This is my goal too, but I am unsure if $400,000 is enough, and at what point are you going to start drawing down on this money? I need $15,000 per year to cover expenses… not sure if this is doable. Would love to hear comments on the feasability of this plan… I have no pension, no rental properties, no other income stream at this point other than my job.

      • Jane Savers @ The Money Puzzle January 29, 2013, 5:12 pm

        I was wondering if $400,000 is THE number for me. It is the number that I think I will need to retire without worry.

        Of course I have less than that, much less, less than $10,000 so far …..

        • Holly@ClubThrifty January 29, 2013, 8:05 pm

          I think that all the time…what is the number I need? Hopefully we will know when we get there!

      • greg January 29, 2013, 7:43 pm

        If there’s something else you enjoy that makes less money, even $10k/yr can keep you within the widely-recommended safe withdrawal rates much earlier. A friend convinced me to make this my Plan C so I would stop worrying. If you’re at all like me you can start feeling secure half-way, because after that point even a part-time, low-wage job will prevent you from eating into your principal.

        A nice side-effect of making so little is that you also get to enjoy some free rider-ship vis-a-vis taxes; personal exception + standard deduction = 3800 + 5800 = 9600.

      • GregK January 30, 2013, 7:55 am

        Hey Tara,

        Your Mustachian spending habits are your savior! $400k is more than enough to retire on at those spending levels.

        $15k is under the 4% you can safely withdraw without doing much to the principle (assuming a conservative portfolio of non-growth-oriented investments, a 4% return is very reasonable).

        Eventually, you’ll add some SS income (even if you believe the naysayers and think it’ll be much less than is promised today), and you will very likely pick up some profitable habits once your job isn’t holding you back. Maybe you’ll buy a rental — they tend to yield way more than 4% if you do it right. Maybe you’ll tutor or teach some classes, or use some other skill you have in a profitable way you enjoy. All of these add to the safety margin that is already baked into the 4% withdrawal rate.

        Check out MMM’s article “First Retire… Then Get Rich”. It’s very likely your $400k will grow, not shrink, after you quit your job.


    • Betsy January 29, 2013, 11:09 am

      I agree that it’s not good for anyone (teachers, students, tax-paying community) for teachers to be stuck in jobs once they’ve burnt out. However, I think for a lot of almost retirees, health care is THE big issue…it certainly was/is for my parents (private sector employees). I was holding my breath until they both hit age 65 and I knew that they’d both be covered by Medicare regardless of what happened with their jobs. Otherwise, they would have been in pretty serious financial straits, since they have some pre-existing medical conditions. A couple of hospitalizations/heart procedures can blow through a retirement stash pretty quickly, and at a time when the family isn’t in the best situation to go out to find other jobs to make up for the hit. Hopefully Obamacare will make this situation a bit better for other almost-seniors, and will provide the seeds for more risk-taking/innovation during the latter career years.

      I’ve read MMM’s explanation for how his family selected health insurance options, but 1. The MMM family members are still young and didn’t seem to have any serious pre-existing health care issues and 2. There seemed to be some sort of medication exclusion, which would make me very, very nervous (and could cost a LOT of money, depending on each individual situation). Maybe it is possible for 50/60 somethings with pre-existing medical conditions to get decent, affordable individual/family coverage on the private market, but I’ve never seen any good examples written up on any of the financial blogs that I follow. That would definitely be an interesting topic that would be useful for a lot of readers.

      • Jennifer January 29, 2013, 2:44 pm

        Yes, I would like to see an article on health insurance for those in their 50s and 60s. We have enough money to retire, but the health insurance problem stands in the way. My husband has pre-existing conditions and we were told he would either be turned down completely, or offered insurance at twice the normal rate which permanently excluded covering anything related to those conditions. Also, we have watched friends of the same age purchase private insurance only to find that each year the premium is raised enormously. One friend ended up with premiums of $10,000 per year and a $10,000 deductible. We will see if Obamacare will solve some of these problems.

        • Kimberly V January 31, 2013, 9:39 am

          I didn’t realize this until recently, but as part of Obama care each state already has an insurance plan for Pre-existing conditions. I have pre-existing conditions with no pressing issues at the moment. I already knew about California’s MRMIP (Major Risk Medical Insurance Plan), but couldn’t really afford the $300+/month in the last couple of years. Now that my daycare is full I was thinking that I could finally afford it and started looking to remind myself how to apply when I came across the PCIP (Pre-existing Condition Insurance Plan) Apparently it started in 2011 in all states because of “Obamacare.” There are catches to qualifying of course. You have to demonstrate a pre-exisisting condition through a denial letter from another insurance carrier within the last 12 months or through certification from your doctor and the part that would probably be scariest for most (but works perfectly for me at the moment) is that you can’t have had any other insurance for 6 months prior to applying.
          Anyway, if you have any pre-existing conditions, yes, you will probably be turned down for private insurance. The last time I applied there were probably 10 reasons listed for why they wouldn’t insure me including a minor surgery 11 months earlier, my on going relationship with a chiropractor, my mild childhood asthma, and my weight. However, if you do a little extra research on the subject you will find there are likely other options out there for you or your family.

      • Kenoryn January 29, 2013, 3:28 pm

        You could move to Canada. :)

  • mikec January 29, 2013, 6:27 am

    is it just me or does anyone else instantly go to mint.com to check your stache after reading an MMM article?

    • ike9898 January 29, 2013, 11:43 am

      Funny. I just did that. (not Enough yet, maybe tomorrow)

    • Devin January 29, 2013, 12:43 pm

      Sometimes right away. Other times it is the investment account. But really I don’t need to I just do it out of habit. You are not the only one and I am sure there are others out there they just don’t admit to it.

    • Angela January 30, 2013, 8:12 am

      Yep, and just checked my 401k account directly to see how it’s performing. Funny thing, this morning when I logged in there was a “new” retirement planning tool. It prompts you to enter the desired age of retirement but only lets you enter a whole number between 62 and 100. Granted you can only withdraw without penalty from your 401k at 59, but the calculator completely dismisses the possibility of retirement before 62.

      I work in a small office with people all making over 6 figures, with ridiculous bonuses every 6 months. They are all in their late 50s and 60s, I’m 31, and they constantly talk about how they don’t have enough money to retire. I’m thinking stop buying your dumb toys, i.e. boats, jet skis, big ASS trucks (I live in Houston), paying for gas for your one hour commute each way. The list goes on and on.

  • Rich Uncle EL January 29, 2013, 6:49 am

    In the first example, she has 900K with a paid for house, I say what is she still doing working. She can tutor little kids part time to pay for her daughter’s tuition, also her daughter can work to pay part of it as well. I think people appreciate school more when their dollars are paying for it. In the second example I would not quit until I knew my savings and rentals would cover both parties’ expenses with a 15% safety margin. It might mean they have to work a few more years.

  • frugalscholar January 29, 2013, 6:50 am

    Also, the teacher whose department is about to be phased out might find that her college student is eligible for a lot of need-based aid. Such aid is often based more on income than on assets.

    I think Bob Clyatt talks about this in “Work Less, Live More.”

    • Ginger January 29, 2013, 8:34 am

      And of the assets they count, excludes the 403b, so she could live off of the $300,000 and let the 403b grow some more.

  • Ross January 29, 2013, 6:52 am

    I recently went through this same exercise with my parents. They were just working because that’s what they’d always done. When we sat down and did the math we came to the conclusion that they could both retire. After a few nerve-calming conversations, they are both retiring this year. I just wonder how much earlier they could have retired if they’d focused on it as a goal.

    • cyclevillian January 29, 2013, 7:16 am

      Care to elaborate a little about this exercise? I have 2 high income parents who are constantly complaining about how much they hate their jobs but don’t seem to be making any real progress towards FI (new camaro purchase). I have not quite figured out how to bring this up or analyze this with them. I imagine I would need a day or so to collect and analyze their savings/expenses (this actually sounds fun) and then i would dole out some face punches and they would see the light… OK, it wont be that easy, but how did you get started on the topic? were they Ok with sharing all of the financial information? what were your suggestions and how did they react?

      • Mr. Money Mustache January 29, 2013, 9:21 am

        Haha.. I like your little (new camaro purchase) aside. I imagined you throwing into a conversation with your parents disguised as a cough.. Like “Well, Dad, there are at least a FEW areas in which you could improve, (CH-CAMARO-HOUGH!!)..

      • Ross January 29, 2013, 6:07 pm

        Well it certainly wasn’t easy, and it took a long time. Over the course of maybe 6 months I’d have small conversations with them about what they wanted to do, and whether or not they liked work. It became clear to me that they were SET financially but they didn’t know it. My dad has a pension from the state which brings in $80K+/yr and then they’ve got a variety of other retirement assets. I had been raving about mint.com for a few years, but eventually convinced them to have a go at it. There was some crying and yelling, but we eventually got all their assets in there… a slow process. Then I showed them a little 4% withdrawal math on top of the crazy good pension, and within a week, my Mom started telling everyone that she’s done at the end of the school year. My dad actually pulled the trigger for a variety of reasons, but come this May, they will both be done working. I’d say, just take it slow and don’t push your beliefs on them. Let them figure some of it out on their own.

        • Ingrid January 30, 2013, 4:16 pm

          Well done Ross!

  • Chetbodet January 29, 2013, 6:57 am

    How do taxes affect this though? If he is pulling out $36,000 a year wouldn’t that fall under the capital gains tax most likely? And would there be any other tax implications to consider?

    • Mr. Money Mustache January 29, 2013, 9:28 am

      If you’re living on $36k a year and single, you get the first $5950 of that shielded due to the standard deduction. After that, the rest of the income will be in either the 10% or 15% tax bracket, which is pretty reasonable. We can’t be sure of the mix between capital gains, interest income, and dividend income, since it depends on how the portfolio is constructed.

      State tax will vary, of course, and accountants should correct me in the likely event that I have missed some details here. But the main point is that while you do have to account for taxes, they are not huge at this level. And $36k/year is a LOT to work with for one person.

      • Lina January 30, 2013, 12:31 pm

        I would love a 10 or 15 % tax on capital gains. Here it is 30 %. According to my calculation I would need about 31 000 USD to get by per year. There is some money for travel and fun included in that amount but not much. I am living in a high cost country. Counting the tax I would need app. 1,1 million USD with 4 % withdrawal rate.

      • Kelly1mm January 31, 2013, 8:48 pm

        Actually, a single tax filer gets the $5950 standard deduction that you mentioned and a $3800 personal exemption for themselves, so the first $9750 is shielded from federal taxation.

        • Mr. Money Mustache February 1, 2013, 3:57 pm

          Excellent – thanks Kelly! The low taxes of early retirement show themselves yet again.

      • Three Wolf Moon March 8, 2014, 10:47 am

        For up to $36,250 per year in the US a single person would owe $0 in federal taxes IF they could structure it so that it all came from either qualified dividends or long-term capital gains. In fact, one could earn an additional $10,000 in other income (part-time work, rentals, short-term capital gains, anything else really) and still pay $0 taxes since the standard deduction and one personal exemption would eliminate the tax due on that.

        For the married filing jointly crowd, the IRS lets you double all of those numbers – so a retired couple could have an income of $92,500 (properly structured) and pay ZERO federal taxes! Not that a mustachian couple would need that much…

        Note: numbers are for the 2013 tax year (so current info as of this comment), but these tend to get adjusted upwards for inflation each year – the numbers in 2011 and 2012 were $34,500 and $35,350 respectively. Which all goes back to an older comment by MMM – at mustachian levels, not too much need to worry about the tax implications.

  • Kraig January 29, 2013, 7:00 am

    It’s hard to believe people with that kind of ‘Stash don’t think they have enough to retire. What does enough look like for them? 1 million? 2 million?

    That’s what society these days is telling us, that we can’t retire until we’re old and almost dead. We MUST keep working for the man and spending all our money on unnecessary goods and services.

    How about not. There’s a better life to be lived than that.

    • Jane Savers January 29, 2013, 5:25 pm

      I can understand her fear of forced early retirement. When you only have yourself to rely on for finances, current and future, you worry about how much is enough and what you will do if something happens and you can’t earn any more income.

      Lots of single women worry about living in poverty a we age. I do.

    • Rachel July 12, 2013, 9:01 pm

      Yes – this is the mind shift that has to be made by me. I have lived my entire life with my financial advisor telling me the number is around 4 -4.5 million and I never second guessed.

      It’s a big mind shift.

  • Julie Sunday January 29, 2013, 7:18 am

    As a state employee I really appreciate this. Those of us with pensions are often left out of financial advice that seems to presume that they’re all gone. I would be interested in your thoughts on liquidating the funds in a pension vs letting it sit after leaving the state job, something I will likely have to decide in the next year. I would like to put my pension funds toward some rental property rather than let it sit, and because I am vested I should be able to withdraw my funds without a penalty. Anyway,would love to see more stuff about pensions!

    • Mr. Money Mustache January 29, 2013, 9:19 am

      Nice ideas, Julie. I don’t know much about pensions since I’ve never been part of one. I didn’t even know you could take out lump sums to do things like other investments.

      If you want to send me the details of your situation (especially things like how much you contributed over time, what it is invested in now, and rules on how you can withdraw it), it could indeed make a great story.

      • Mike January 29, 2013, 10:18 am

        Even for state pensions, the lump sum option should be actuarially equivalent to the annuity. This makes assumptions (e.g. a low discount rate at the moment; expects you to die at an average age) that may not be true. Might make sense to look at the plan docs (e.g. the summary plan description) to find out how lump sums are calculated. You can also ask HR (but verify their answers by looking at the plan docs!). If the lump sum is actuarially equivalent to the annuity, and you are happy with mortality tables and discount rates being used, then that leans in favor of taking the lump sum from a poorly funded pension. Figuring out whether you are happy with the assumptions takes research, but google is your freind, and there are basically only two assumptions that matter (i.e. mortality table and discount rate). And the amount of money at stake means that the return on time spent researching is really high.

        If you like the idea of a stream of payments and to protect you if you live longer than you expect, you can buy an annuity with the lump sum (assuming you go with the lump sum option). Although, these are typically expensive for what you get, and they’re not 100% safe due to counterparty risk (what happens if the insurance company goes bankrupt). Alternatively, you could put the money in relatively safe investments and essentially establish your own annuity.

        • Debbie M January 29, 2013, 12:35 pm

          If it’s like my pension, you can withdraw all your contributions plus 5% interest when you leave (though you will pay a penalty unless, perhaps, you can roll it over into an IRA). But the part the employer contributes is lost forever.

          If you leave it in, the employer contribution could help them pay out more than you could earn on your own, but that’s more true the closer you are to retirement age. Here are several factors to look into:
          1) How well-funded is your pension? The worse shape it’s in, the less likely everything else about it will still be true when you hit retirement. And for my pension, they don’t grandfather people more than 3-5 years from retirement at the time of the change.
          2) If you quit now, what benefits would you be eligible for? For example, for my pension it’s 2.3% x the average of my top 5 salaries x the number of years of service. The longer you’ve been in, the more awesome this number will look.
          3) How does that number compare to, say, 4% of the amount you can take out? If it’s the same or less, it sounds like a good idea to take it out.
          4) If it’s a lot more, how good will that money look at retirement time (after inflation erosion–those top five salaries won’t look so good down the road), and how good would your withdrawal look (after investment growth). If you have a lot longer until you could benefit, the pension will look worse than if you don’t have very long.
          5) What are your chances on working with the state (or another compatible job) again? If you might, what are the rules for re-buying the years of service you are now thinking of cashing out.
          6) What does “letting it sit” mean? My pension money earns 5%, which is better than “letting it sit,” though only you can decide if it’s better or riskier than real estate.

          • Julie Sunday January 29, 2013, 3:21 pm

            These are all really helpful questions. Basically I guess I’m faced with the question of whether to just let this money stay in this pension account and wait for it until I do ‘retire’ according to their rules, which means I will receive whatever they calculate my financial contribution to be. I’m 2 months shy of 5 years service, so I’ll be fully ‘vested’ and eligible to receive that benefit in the future. The Teachers Retirement System of Texas pension is supposedly very well funded and its investments well managed, so I expect that the money will be there. I don’t know that I’ll get another state job (I mean, god willing, I won’t :)) and I’m not from Texas so I don’t know that I’m likely to stay here forever. But as a relatively low paid state employee this 6.4% represents savings that I have not been able to put aside myself because participation is not optional. But to withdraw it and invest in real estate would definitely, I think, result in having to pay a penalty and taxes which would be pretty sizable. So I guess the question is for someone who definitely does not want to actually work in this system until I ‘retire’ should I leave the money in the pension system and plan to collect it, whatever the benefit actually is, when I’m eligible?

          • Julie Sunday January 29, 2013, 3:27 pm

            I just did the calculator on their website and my ‘annuity’ based on my 5 salaries and years of service and a proposed retirement date of 7/2045 my amount would be $438.15/mo. I expect to live for a while…so if I collect this amount monthly for 20 years I will have been paid out $104,400. Is that right? In that case, I’m making a ton of money :)

            • Debbie M January 30, 2013, 10:00 am

              (I also have TRS.)

              Assuming you have $16,000 and you can earn 8% per year on your own, and then you start withdrawing 4% per year to live on, you can start withdrawing $438.15/mo sometime during the year 2040, which is 27 years from now. Assuming 11% per year, it would be sometime during 2033, 20 years from now. If you do have to deal with a penalty (I’ve never checked if we can get out of that penalty by rolling it into an IRA), it will take longer.

              I’d be inclined to keep the money there–depending on how long it is before you turn 65, this could be a pretty good deal for something that seems pretty safe. If you do that, I’d stay on the TRS mailing list (and keep your address updated with them) so you can monitor the situation as the years go by. Worst-case scenario, you’re earning 5%, which is pretty good for a such a “safe” investment. And this sounds like a good way to diversify–in the long run, this 16K won’t be a very high percentage of your portfolio.

              On the other hand, if you’re itching to get started with some other kind of investing, I can see the allure of taking the money out. Still, if you are not yet doing any other kind of investing, I’d recommend starting small–inevitably there are bumps in the learning curve, and you might not want to risk your whole wad just at the start.

              Remember that if you leave the money there, you can change your mind at any time and take it out later (plus 5% interest).

      • Julie Sunday January 29, 2013, 3:14 pm

        Well, in my state (texas) I’m a part of the Teacher’s Retirement System pension and something like 6% of my pre-tax income is taken monthly and put into a pension account. The system doesn’t exactly ‘match’ it but there is interest calculated (maybe 5% per year? I forget now). You are vested at 5 years and that means, if you leave, 100% of your contribution plus some interest accrual is yours to roll over into an IRA or 401K or else face taxes (since it’s a pretax contribution). So in my case, having been here about 5 years (and not close to retirement, early or otherwise) I’m looking at taking out about $16000, more or less, to invest in some other way. After 5 years I can just let the money stay in the account and collect it when I reach ‘retirement’ age (65) but I’m not sure if that would even make sense.

        • Kenoryn January 29, 2013, 3:42 pm

          This is something I’m considering too. In my case, you’re significantly penalized if you take it out as a lump sum or if you start collecting before age 65 (you can start as early as 55, woohoo, but again, with penalties). I find the whole pension system incredibly confusing as it is and am not sure how to figure out what amount I would be collecting at 65 or what I would get now (wish I had the calculator yours has!)

          If waiting ’till 65, it seems sort of pointless if you’re planning on having enough savings to live off of passive income well before that. You’re probably not suddenly going to need the extra money at 65. Plus in Canada you’ll start collecting CPP or OAS around then anyway for added security. So the money is more useful to you as part of your base ‘stash… but it does mean you get less money overall.

          • Debbie M January 30, 2013, 10:05 am

            See if your employer or pension offers classes on the pension. Also, check the website of the pension, and check any statements you get in the mail. Also, one of your co-workers may have devoured the information and figured it out.

        • Debbie M January 30, 2013, 10:02 am

          Actually, the system does do matching, but we cannot withdraw that part and it does not appear on any of our statements. It does help fund the pension, though.

        • Julie January 31, 2013, 7:16 am

          You might want to consider the health insurance implications. If you are “in the system” in Ohio, you can buy the STRS group health insurance if you retire early. If you withdrawl from the system, then you don’t have that option.
          Thanks everyone for correcting the false assumption that teachers get Social Security. They don’t. Even if they work a second job for 30 years like my FIL, who paid into SS, the penalty for having a pension is severe. He gets a really small fraction of the SS he earned through his second job.

          • Kelly1mm January 31, 2013, 9:00 pm

            Only some state’s employees including teachers do not pay or collect Social Securty. The majority do. Here are the states that do not collect social security from their employees:

            States in Which Public Employees Are Not Covered by Social Security

            Georgia (certain local governments)
            Kentucky (certain local governments)
            Rhode Island (certain local governments)

      • Mike January 30, 2013, 4:28 pm

        If you are going to do an article on pensions, would you want my info? I likewise have a pension, but mine seems to be a rather good deal. For 10 years of 6.5% contributions starting at 29, I get to collect 11.82% of my highest year’s paycheck (adjusted for inflation) from age 50 on. If you figure $100K for the salary, that’s $65K put in that pays out $12K per year past 50. Quick back of the napkin calculations put the expected worth of my contributions around $220K when I turn 50 (assuming 8% return). At a 4% withdrawal, I’d be getting $8,800 per year from a portfolio vs the inflation adjusted $12K per year I’ll get from the pension.

        In any event there are so many variables – I could pick a non-contributory plan that would pay out 7.5% at age 55. I can also buy 4 years worth of credit for my military service. Running the actual numbers turns out to be quite a mathematical challenge.

      • Moemoe September 19, 2015, 9:43 am

        Hi MMM. I do earn a pension. I earn 75% of my pay if I stay 30 years; I get 65% of my pay if I stay 25 years. I have worked 21 years, saved 60 grand in a 403b account and rolled that over to buy out 2 years. In summary I can retire at 25 years in 3 years. I don’t have extra savings anymore as I used it to buy out years. I also get to cash in my vacation days to earn around 30 grand. I make approximately 100 grand a year. I still have student loans. That’s another long horrible story. I was planning on using my vacation buy out money to pay off the loans to ensure I am sept free. (Which I am just about there). I also have about 50 grand equity in my home. My dream is to move back to my home town but do you think it’s smart for me to retire early? I love my job but it’s sucking the life out of me. My dad died before he could enjoy retirement so all I have on my mind is to not let my job kill me in the end. I don’t want to make an emotional decision. I want to make a smart one. I also have a daughter and my plans are to work at my home town college so that she can have a free ride to college when the time comes. Any sound advice would be awesome. Thank you!!!!

  • William Cowie January 29, 2013, 7:41 am

    Mr. MM is right – congrats are in order. For someone as disciplined and organized at Ms. 4am sounds to be, she might find that if she simply sat down and drew up a budget, she’d find she is as comfortable as our host says.

    Sometimes doing a budget can be stressful, because we know it will contain some form of self-denial, but many times it’s a source of comfort, because it shows us we really can make it on “not all that much.” And still do the grill and cooler thing along the way! :)

  • Headed Home January 29, 2013, 7:46 am

    I would have been in the same boat as the academic before getting kicked/punched by your simple math and positive outlook, MMM. Now, I’m considering semi-retirement with ‘only’ a modest level of “retirement” assets that will grow as I work part-time to cover living expenses. Thanks for the positive outlook, MMM.

  • TicoHombre @ Pay Off My Rentals January 29, 2013, 7:59 am

    There’s a lot of insecurity out there. Especially among those who only know one trade or career path. They feel the effects of their limited pool of job opportunities and all the more so as they age.

    I’d rather know how to do a little of a lot of things (Jack of all trades) than only master one. If one line of work is no longer an option, I can look for another with which I’m at least partially experienced. That, coupled with a good work ethic, will take you a long way in this society. And lends to greater confidence and less fear of the economic unkowns. IMHO

    MMM is a good example of a techie who also knows how to swing a hammer and could do well in those or likely any number of money-making opportunities.

  • jlcollinsnh January 29, 2013, 8:03 am

    another MMM classic!

    Might I suggest you also point readers to your post on 4% withdrawal rates? While most of the typical discussion on this revolves around the rare instances it proves too high, in the overwhelmingly majority of cases it is too low.

    This means an individuals’ stash, sensibly invested in index stock/bond/REIT funds, will likely continue to grow. Last year I spent 6.2% of ours and by year’s end the total had increased over 11%.

    Of course, last year was a great investment year. I certainly don’t mean to suggest, nor do I plan, to withdraw 6%+ each and every year. But with a bit of flexibly, the possibilities are profound.

  • Brian January 29, 2013, 8:18 am

    Yeah, great points. Funny how the problem for most of us is not the money, but the psychology.

    You always forget that the risks are pretty low to take a year off and pick up another job if it somehow doesn’t work out. At that point, you’ll probably be a lot more refreshed anyways.

    Thanks for the reminders and encouragement.

  • Pat January 29, 2013, 8:21 am

    OK I can concede that financially no one ever thinks they have enough even when they clearly have more than enough.

    How about the whole early retirement social thing – for years we’ve been what we do (first question when we met is what do you do?) and our network of high energy professionals – to announce I’m getting off the treadmill would be the equivalent of announcing I’m grow a second head. Even in mulling over early retirement its been suggested I’m simply having a mid-life crisis. Anyway perhaps I just need a “cover story” to pull the trigger and that might make for another article.

    • Mr. Money Mustache January 29, 2013, 9:16 am

      Yeah, the social situation isn’t as bad as you imagine. In fact, I’d say it is ideal!

      I know plenty of those “high-energy professionals” too, and the ones that have something worth living for other than daily paid work remain fun people to hang out with. They will probably be jealous of your new lifestyle and start buying at least a bit shit themselves as a way of drifting towards you.

      And the people who have nothing other than work and can’t relate to you if you’re not in a 9-5 job.. well, that situation can tend to sort itself out automatically.

    • IAmNotABartender July 27, 2015, 6:47 pm

      My wife and I met an individual at a gathering in France who started the conversation by asking us, “What’s your passion?” I think that’s a much better get-to-know-you question.

  • cgk January 29, 2013, 8:33 am

    I’d really love to see a post on low cost cities!
    I’m looking for a low cost, diverse, educated, walkable city – any suggestions?

    • Mr. Money Mustache January 29, 2013, 9:51 am

      This sounds like a great excuse for me to take some deductions on my future travel – to report to Mustachians on retirement destinations! ;-)

      There are a bunch of these, but a few of those that I have visited and liked: Longmont, CO. Portland, and Eugene OR. Bellingham, WA. Parts of Austin, TX. Arcata, CA. Tucson, AZ. Albuquerque, NM. Cedar Rapids, IA. Ann Arbor, MI. Coastal towns in North and South Carolina. Much of Coastal Florida these days. Galveston, TX.

      It’s a big toss-up depending on personal tastes, but with US housing so undervalued in many areas these days, great retirement places abound.

      • Lindsey January 29, 2013, 11:21 am

        I read an article saying Fairbanks, Alaska is a great place to retire. Well, I live here and it is 51 below zero today and has not been above 30 below zero all week. Just for those who might be thinking about Fairbanks…

      • Novacek January 29, 2013, 12:53 pm

        Only parts of Austin?

        What didn’t you like?

        • lurker January 31, 2013, 3:42 pm

          I dream about Barton springs sometimes….love Austin. all of it.

      • Ms. Must-stash January 29, 2013, 2:14 pm

        Louisville KY! Amazingly affordable real estate, great food, smart people.

        • meagain January 29, 2013, 7:10 pm

          re: Louisville….quite bikeable too, right?

          • cyclevillian January 30, 2013, 10:59 am

            there are a couple areas that might be considered “bikeable”, but our bike infrastructure is behind other major cities of similar size. It can be quite a challenge to find safe routes if you need to go more than a couple miles. I am able to bike most of the time to work.. but i’m considered crazy for doing so because it is very rare.

            I suppose no city is perfect, but our current “bronze” rating from the Bike League shows that we have potential, but have plenty of room to improve. We are slowly making improvements though and our long term plans look promising.. assuming they can get funding for them.

      • Melissa January 29, 2013, 5:08 pm

        MMM- I’m so glad you mentioned Cedar Rapids, Iowa. I’ve lived here for 25 years (recently moved to a smaller town nearby). I’ve travelled all over the USA and have found it to be very reasonable to live here. With my coworkers paying $8K – $10K for property taxes on the East Coast and my best friends in California living with exhorbitant home prices, I’m fond of saying, “It’s good here in the middle.” We have good schools, a great local University (U of I) and community college offering lots of adult classes too, mountain bike trails, cross country skiing, lakes/fishing, extremely reasonable and plentiful golf, and nice hole-in-the-wall coffee shops and community theater shows if those things are of interest.

        MMM, If you’re ever in the neighborhood-we’d love to meet you for a Dubuque hotdog (best hotdog ever-not healthy so we’ll have fruit and coleslaw with it!) by the lake!

      • cgk January 29, 2013, 11:35 pm

        Love all the suggestions, thank you very much! I was wondering though, as parents of mixed ethnicity (assorted colors!) adopted children, are the locales mentioned ethnically diverse? I would love to find a location where my children won’t stick out like a sore thumb. Like a mini NYC or Toronto – minus the living costs of course.

        • Gerard January 30, 2013, 6:50 am

          I hear you on this. You need the diversity at the micro level, too. I mean, Philadelphia is “diverse” — parts of it are all white, parts are all black, parts are all hispanic. Which is why we moved to Toronto, bits of which are still affordable.
          Some college towns might be a good bet. Nice mix of permanence and transience, little bits of everybody, smart populace, interest in diversity. And there are good opportunities to rent out part of your home to students if you need a little extra cash!

    • Ruth February 1, 2013, 7:29 am

      St. Louis! Cheap houses, lots to do (and lots of it free!), and many walkable neighborhoods in the city. I’ve also lived in NYC, Seattle, Chapel Hill, and this is my favorite city so far; we were able to buy a nice house with a garden by a lovely park for <$120k.

  • Phoebe January 29, 2013, 9:01 am

    I LOVE this post!!

    “All of this hinges on the concept of “Enough”. It’s a tricky one to grasp if the television has done its job in raising you to be insatiable. But if you work through your own bullet points like the ones above, and you’ve got enough, then dude, trust me, you can go ahead and quit.”

    This is the entire idea behind my blog…..how I struggle with defining what “enough” is. Thanks for tackling this topic!

    • mike crosby January 29, 2013, 10:36 am

      Great point on “Enough”. That’s what I love most about this blog and ERE.

      Yesterday I was rearranging my garage. And oh my, I have loads of stuff. (And trust me, I’m one that’s known for getting rid of stuff.)

      After yesterday, I sit back and think, “I’ll never need to buy anything ever again”. I know I exaggerate, but if you watch tv or listen to the radio, you truly are constantly bombarded with things you “need”.

  • Mortgage Mutilator @ Mutilate The Mortgage January 29, 2013, 9:03 am

    When the time comes I hope we’re not sucked into more and more years being fearful. To side step this psychological trap I plan to have a GOOD safety margin.

    Along with jlcollinsh’s comment, I’d also suggest pointing readers at the Renewable Wealth’s “Most Retirement Advice Is Worse Than Useless”.


    It addresses some very critical points many people overlook.

  • thedude January 29, 2013, 9:10 am

    Worth noting with some state run pensions (such as PERA here in CO) teachers or state employees do not pay into SS so they will not receive any SS benefits when they reach 65.

    • Mr. Money Mustache January 29, 2013, 9:12 am

      Hey that’s an interesting situation and I had no idea about it – thanks for pointing it out, Dude.

      So, if you were a PERA pensioner and you retired early, would you still expect to receive partial benefits for social security, just as SS is telling me that I am eligible for waaaaaay down the road?

      • Ryan January 29, 2013, 1:02 pm

        I believe this is the same in Ohio as well. My mom is a teacher and I don’t think she can receive social security, even though she paid into it for years before entering education.

        • Sean January 29, 2013, 1:24 pm

          Ryan, if your mom paid into the SS system at any point, then she should get SOME benefit. It will probably be tiny, though.

          The SSA sends out projected benefit statements from time to time. Has she ever gotten one?

          • Ryan January 29, 2013, 4:04 pm

            I’m sure she has, she worked outside education for over 10 years. I just remember her saying something a long time ago that she wasn’t sure how her pension and SS worked together.

            • Giggles January 30, 2013, 6:28 am

              Pension (in most cases) reduces SSA benefits by 2/3. So she would get 1/3 of the estimated benefit, approx.

              Anyone can now create an account at ssa.gov/myaccount to get their estimated benefits online. The paper forms have been discontinued due to SSA budget cuts

      • Sean January 29, 2013, 1:21 pm

        SS benefits are based on the SS tax you’ve paid during your working career. So if you only ever work as a teacher in a state where teachers don’t pay SS tax, then no – you’ll never get any SS benefit. My mom is in this situation.

        What such a person MAY be able to do is cash out their accrued pension savings and roll them into an IRA.

        This is not such a bad thing, by the way. SS is a spectacularly bad deal for most people.

        • rebecca January 29, 2013, 3:50 pm

          My dadwas a teacher and worked summers at Target for a few years to qualify for social security and (I think) Medicare.

          I have only worked less than one year at job that paid into social security, so unless I also pick up some outside work, I won’t be getting SS (though my job does pay into medicare.)

    • Brian January 29, 2013, 9:24 am

      Same situation in MA. I thought it was like that most places for the public run pensions but I’m not entirely sure.

    • nicoleandmaggie January 29, 2013, 10:55 am

      Same thing with IL. In fact, now if you are eligible for both SS and the IL state pension (because you worked at a different job long enough to qualify for SS), they dock how much you get from the pension.

  • Brian January 29, 2013, 9:23 am

    Every time you post about early retirement, it makes me want it more and more. It also makes me realize that it’s extremely possible for everyone, not just me.

    I’m going to have to throw an example your way pretty soon. My mother, an elementary school librarian, is in a tough spot when it comes to retirement. Might not come until her early to mid 70’s, even though she is extremely frugal.

  • ErikZ January 29, 2013, 9:30 am

    Do they give severance pay? They might not if she quits, and after working there for so long, it would be a sizable check.

    • Mr. Money Mustache January 29, 2013, 9:54 am

      But again – that decision should hinge on “do you need the money or not?”

      If someone asked me to go back to my engineering job and work just one more year right now, in exchange for a $1M severance check at the end of the year, what do you think I would say?

      It’s deep and it takes practice. But once you really understand what “Enough” means, you don’t care HOW MUCH is at stake – you plan your life outside of the money realm.

      • Chris January 29, 2013, 10:28 am

        “It’s deep and it takes practice. But once you really understand what “Enough” means, you don’t care HOW MUCH is at stake – you plan your life outside of the money realm.”

        Powerful. I’ll be pondering this statement today.

      • Andrew January 29, 2013, 11:29 am

        Fair point. One thing to consider is, in the vein of Peter Singer & “The Life You Can Save”: do you have a moral imperative to go back to work if in just a year you can make _that_ much money? After all, what’s so terrible about a year of (relatively easy software engineering) work for you, relative to the literally hundreds of lives it could save?

      • ams January 29, 2013, 12:24 pm

        Oooh. It’s like the moustachian “indecent proposal”.

        • FiveSigmas January 30, 2013, 12:24 am

          Hah! Good call. If you watch the trailer and replace “1 night with your wife” with “1 year of your life” it actually fits pretty well:


          They’d probably need to change quite a bit of the scenery, too, though. Imagining Mr and Mrs MM frittering money away in a casino requires some of suspension of disbelief. :-)

      • Dillon January 30, 2013, 9:37 am

        No amount matters? I can see how that would be true to a point but after awhile the utility of that money has to come close to the utility you receive from early retirement. 5 mil? 10 mil? What if you worked for a year and instead of pay, they would guarantee that a public works project for bike lanes or something related (worth x millions) would be funded? 100 mil? 1 bil? 10 bil and you can work from home 100% of the time? I’m being ridiculous but just trying to show it’s not necessarily about an “enough” amount for yourself or your financial situation but the possibility of what that money could do. I think it is great if you think you have enough and choose to not maximize earnings so you can maximize your enjoyment in life. I guess it is semantics since the dollar amounts that would tempt a person are astronomical but IMO it might not be a strictly black and white case after a person has enough and has an offer(s) on the table.

  • Pauline January 29, 2013, 9:31 am

    I would enjoy my retired days right now, but many people have the stigma of “one should work for 40 years” combined with “what if that is not enough”. A bit of realistic planning will show that with simple living $900K is a very, very comfortable nest egg.

  • Forcus January 29, 2013, 9:45 am

    The part I have trouble with is not having Enough with current circumstances, but having Enough with unforeseen circumstances. If I plan for world calamity, I may be working well past the Enough stage. Conversely if I put faith in the government that the social safety nets will be around, I might not have Enough in 40 years. Trying to tune the realism meter without letting fear guide decisions.

    • Mr. Money Mustache January 29, 2013, 9:58 am

      Yeah – but you get to make adjustments each year based on the reality. You’ll always have the option of spending less or earning more if it came down to it. And remember the hidden effect of the safety margin. It automatically grows over time: http://www.mrmoneymustache.com/2012/05/14/first-retire-then-get-rich/

    • Lindsey January 29, 2013, 11:32 am

      If there is a world calamity, all your planning one way or the other will be pointless. When the Nazis came, my grandparents lost their farm and savings and they and their kids (my father) starved. Money had no value, intellectual skills had no value…when you are that close to hell the skills that have the most worth are being able to fix things, make meals from almost nothing, and hunting. If you think a pension or a job will save you if there is a world war or financial collapse, think again. Inflation destroyed savings and pensions. My grandparents made it to the U.S. in their 50s and my grandfather was still picking slag out of iron work scrap piles when he was 81 and my grandmotehr sewed for others into her 90s.

      • stellamarina January 29, 2013, 7:10 pm

        Yes…this reminds me of a bit of financial history that I recently learned while visiting Singapore. When the Japanese Army occupied Singapore during WWII they had everybody convert their money to Japanese currency. After the war their Japanese currency was worthless and so everybody in Singapore had to start out from having nothing again.

        Does it make you think about saving other things than money?

  • Joe @ Retire By 40 January 29, 2013, 9:45 am

    You are right about opportunities. I turned down some great opportunities because I want to spend time with my kid right now. It’s quite amazing what can happen when one chapter of your life closed. The first reader should see if she can find a new position since she enjoys teaching. The longer you can defer withdrawal, the better your chance will be of making the retirement saving last.
    I’m sure there will be other opportunities if she keeps her mind open.

  • Mike January 29, 2013, 10:06 am

    Most defined benefit pensions are guaranteed/insured by the PBGC (which is like the FDIC, but for pensions). If your plan is PBGC insured, the vast majority (if not all) of your benefits are guaranteed. Your 403(b) money (the non-profit version of a 401(k)) is 100% funded, and always will be.

    You can find out whether your defined benefit plan is insured by the PBGC, check http://search.pbgc.gov/single-employer/. Even if the plan is not found there, it may be PBGC insured (e.g. as a multi-employer plan). So, if your plan is not listed at that website, check your plan’s summary plan description (SPD) for language on PBGC. Or ask HR. If you work at state school or a religious university, you may not be PBGC covered (but you may!).

  • Mr 1500 January 29, 2013, 10:18 am

    “At the beginning of your financial life, there are plenty of traps laid out to bite you. In all probability, you were raised by financially unskilled parents, meaning you picked up deadly habits like buying automatic-transmission trucks on credit and commuting enormous distances in them. All while thinking you are living a perfectly reasonable life – and simultaneously wondering why it’s so hard to get ahead these days.”

    This could be a blog topic in itself and is something I think about all the time. I had financially irresponsible parents and no good role models either. To top that off, financial education (in the US at least) stinks! I had one class in high school where they taught us about stuff like comparing prices on a can of bean. Whoop dee doo.

    I’d love to see better education. As soon as a kid can understand money, they can start to understand the concepts around it.

    Let’s not stop there though. This blog is great because its entertaining. Let’s get a show on TV where we teach some financial concept in a fun way. I’d watch and I’d make my kids watch too. MMM can be the first guest!

    • Debbie M January 29, 2013, 12:47 pm

      I’ve never quite understood this idea that we did not learn enough financial skills in school. I was taught both math and reading. I even learned about the stock market crash. All the tools were there.

      The problem is that many of the mustachian choices are not highly marketed.

      • Mr 1500 January 29, 2013, 3:17 pm

        Take a look around and see how the average person manages their finances. I’d argue that the vast majority of people aren’t doing the right thing, so something isn’t working.

        I took math through calculus. I’d argue that most people don’t think about what they learn relative to themselves unless specifically told to do so. I’d like high schoolers to know that buying a BMW at age 25 wil set their retirement back a decade or more.

        “The problem is that many of the mustachian choices are not highly marketed.”

        True. I think its a biproduct of capitalism. We’re constantly encouraged to buy, buy, buy. I don’t see many billboards or TV commercials or talk show hosts promoting the virtues of saving.

        MMM TV, I’m waiting!

        • Karl Nelson January 30, 2013, 10:07 am

          This is an interesting thought. However, it ignores the fact that the period of time counted as a “long time” changes after we exit physiological adolescence (around age 25). Until then, a long-time might be next Friday (high school students) and even the brightest have substantial difficulty imagine a life after age 30. Without the ability to plan for the longer future, I don’t see how all the financial education in the world, related to retirement, can possibly have any impact. The economics education on financial literacy training in public education, and the lack of long-term impact, seems to dovetail with this idea.

        • Debbie M January 30, 2013, 10:08 am

          Ha! MMM TV!

          Just because we’ve learned something doesn’t mean we actually use what we’ve learned. (See nutrition.)

          • Mr 1500 January 30, 2013, 12:46 pm

            Yes, MMM TV! It would be awesome!! Every week, MMM would teach us some important concept about money or early retirement or how we should be living.

            Throw in a superhero cartoon at the end for the kiddos! Mustache Man (from the planet Mustachian) would fly around (I’m seeing Superman, but with a big MMM on his chest) teaching young ones important lessons. Just watch out for MMM’s weakness Mustachianite (wasteful spending and excess).

            • Christof June 11, 2013, 5:00 am

              MMM TV – Lesson 1: How to save money by getting rid of your TV.

        • Emmers February 3, 2013, 1:58 pm

          I want to emphasize this – whether the “they’re doing it wrong” is due to lack of education (as Mr 1500 says) or to Great Personal Weakness Which Must Be Mocked And Shamed (other commenters), the fact still remains that they’re doing it wrong. Since not all good ideas are intuitive or “common-sense” to everyone, why would it hurt us to start teaching them to people? There’s no downside here.

    • Chen Zhaowei January 29, 2013, 3:59 pm

      I don’t think forcing kids to sit through financial literacy class will truly allow them to “get it.” It’s another touchy subject just like sexual education. It’s not a great mystery how you make kids by the time you’re old enough to have kids. However, people want instant gratification and parents may not want their poor decisions questioned.

      I had a geometry teacher that spent an entire class period on the Rule of 72. There’s also a bunch of math questions about interest when teaching kids about exponential math. It’s not like they’re never exposed to the concept.

      • Mr 1500 January 29, 2013, 4:56 pm

        Correct, its not the whole solution and I never claimed it should be. However, its an important part of it as you just pointed out (you yourself remember the “rule of 72” lecture).

        Again, exposing kids to math is showing them stuff from one point of view which they may or may not connect with their financial situation. I’d like to see the same math taught, but in the context of personal finance.

        • Brian January 30, 2013, 7:49 am

          I had an electrical engineering professor in college take a minute while he was drawing an exponential curve to say “by the way, this is also what compounding interest looks like. start putting your money in early and it takes off.” I always remembered that.

        • Matt (Semper Fi) September 16, 2016, 5:20 am

          I’m a special education teacher at an elementary school, and I have some really shitty concepts being taught to our youngsters. For example, I have had students come to my room to get some help with their home room class work, and often the math word problems have to do with figuring the monthly payments for a television, vacation, car, etc. It pisses me off to no end. I used to help them solve the problems, but then admonish them to never finance crap like that. As I have gotten crankier over the years, now I just cross out that particular type of problem and add a note to the teacher that says something like, “this problem is teaching a horrible lesson, and I am excusing my student from having to do it”, lol.

      • Dillon January 30, 2013, 10:08 am

        There are always private schools if you want more control in choosing what your children learn or don’t learn.

        I agree, I think a personal finance class in high school should be taught. I was great at math in high school but wasn’t quite prepared for the gravity of the student loan situation at age 17 and how it pertained to my life down the road. In fact, I don’t see how a personal finance class tailored for 16-18 year olds is any less important than any of the somewhat standard public high school requirements currently in place.

        • Emmers February 3, 2013, 2:00 pm

          Did…did a Mustachian just advocate that people shell out $$$ for private school? ;)

  • Matt January 29, 2013, 10:24 am

    Another great reminder for me to start fast tracking towards early retirement.

    I totally understand the people who come out and ask the questions about staying in their job to get their pensions as a safety net. Its one of the accepted “truths” that you’re going to have to work for 40 years before you retire and when you’re in a position to challenge this and retire early it can be frightening to go against what you’ve been taught (even if the math supports the move).

    The other thing to keep in mind as you mentioned you keep getting opportunities – if you’re worried or need some additional funds you can take one one of these opportunities but on your terms.

  • guitarist January 29, 2013, 10:47 am

    Thank you for the post!
    Part of my retirement plan from my current job includes a pension. Although it may be hard to turn down money, I embrace freedom more. I just plug as much as I can into my 401(k) and IRA.
    Being able to turn away from those last few years (decades?) needed to earn just a little bit more money is the ultimate “fuck you!”

  • JUDY January 29, 2013, 11:09 am

    My 31 year old son turned me on to your web site and I have been reading with great interest! I plan on retiring from my school corporation job at the end of this year. My husband retired five years ago and it’s been difficult going to work everyday while he’s at home. He does trade stocks (puts and calls) and makes a fair amount doing that. My only regret is that I didn’t retire two years ago when I was 55. I’ve been basicly working for the “golden handcuffs” insurance benefits. At age 55 a person is fully vested in the Indiana State Teacher’s Retirement fund and receives a monthy stipen. In my case I will receive approximately 2,400 dollars per month. There is also an 85 rule. Your age plus the nuimber of years worked must equal 85 I met the 85 rule at age 55. 55 is the youngest age in Indiana that a teacher can retire and receive a monthy check for the rest of their life. The monthly stipen does increase the longer you work but it’s not worth it. Thanks for your web site as it has changed my thinking!! I might have worked longer for no reason as we have plenty in savings. We can afford to purchase our insurance until medicare kicks in ten years. My co-workers are amazed by my plans to retire but actually I am amazed but their willingness to work till age 65 or longer. Oh sweet freedom!! I am surely looking forward to it. I am so tired of giving my life to my job. I loved my summers off and am now looking forward to my fall, winter and springs off. People ask but what are you going to do? My answer is what every I want!! How badass it that? Thanks MMM for saving me years of unnecessary work.

  • plam January 29, 2013, 11:25 am

    Yes. My dad did this about 10 years ago now. We were wondering what he would do after retirement, but he seems quite happy with it and has used the extra time to become more healthy.

  • cynthia January 29, 2013, 11:53 am

    her ability to retire and keep doing what she loves is even easier in Academia than other possible careers! there’s even a term for it: Professor Emeritus–where you get to keep going to conferences and writing the article you really want to write–but never again teaching the 8 am Freshman 101!
    Take the Plunge!

  • brkr12002 January 29, 2013, 1:34 pm

    Timely article for me. Could be joining the early retiree ranks soon. Good point on realizing when you have “enough”. That concept jumped into my head a couple weeks ago. I thought “sure I can continue to work, be unhappy, and accumulate more money than I know what to do with” or “I have reached the point where I can cover my expenses of a modest lifestyle and still have safety valves in place.”

    My 3 weeks off at the end of last year gave me time to clear my head.

  • M January 29, 2013, 2:14 pm

    OK, so I teach in the college system in Canada. While A LOVE teaching (where else can you get paid to be a dork and a comic to an audience who doesn’t boo you?) it can become a grind after awhile. The student pop has changed in the past 10 years and come with various learning disabilities, social delays, and complex personal lives. and that can mean exhausting days. So why do I still do it (even part-time)? Because 20-somethings keep me invigorated and I feel like I’m contributing to a higher good. But what really sealed it for me was the realization that careful money management in my 20s means I don’t have to work for money now in my 50s! I feel this mental shift has made me a better, happier teacher.

  • Dan January 29, 2013, 3:16 pm

    Sixty five year old who retired about three years ago. Frankly, enjoyed my job but came to realize that i could continue to enjoy some of the aspects of my job in retirement. I worked in the non profit sector so the opportunity to provide some volunteer time and services is always an option. The MMM aspect is that it is now my choice. I don’t miss the three and four nights of meetings a week.

    Wife and I are living well below our means with no debt. Feels to me like we are living the good life.

    This post is simply to encourage all you young people out there to heed the good words MMM writes about.

    Life is what you make of it. Watch your nickles and the dollars will take care of themselves.

    Thank you MMM. I look forward to reading your blog each day.

  • Tony@YouOnlyDoThisOnce January 29, 2013, 3:36 pm

    Love this post, man! And it hits home big time. I have been in a pensioned job for 13 years. 10 more and I can retire with a pretty sweet deal. Guess what? I don’t like my job enough to spend 10 more years in it….

    Bye bye pension!!

  • Stashette January 29, 2013, 4:14 pm

    I haven’t had this situation with a pension, but I think its similar to what happens with other benefits as well. I wasn’t happy with my first job, but I had to stay a year to fulfill my relocation contract. Once I made it a year, it was only one more year until I got to keep my signing bonus. Well then it was just one more year before I got vested in my retirement account. I’m sure I would have found many other reasons to have to stay year after year. I quit after the first year, and am happier for it, even though I missed out on some money.

  • My Financial Independence Journey January 29, 2013, 8:08 pm

    The sad part about the first example is that she loves her job. And there isn’t really enough information in the example to help decide if she should retire or not. If the right town for her is some place with a much higher cost of living, she may have to keep working.

    I’m not sure what her daughter’s college plans are, or what the family’s expectations are, but college (and possibly grad school afterwards) can get very pricy.

    In both of the examples, it’s not really clear what kind of lifestyle the authors want. By MMM’s standards they have enough. But they aren’t MMM, they’re themselves with their own goals and aspirations (I’m assuming they have retirement aspirations). They need to lay those out on the table first and then decide whether they should keep working or walk away.

  • travelbug January 29, 2013, 10:21 pm

    Great post!
    I just love reading the comments section of your blog as well. There is so much information and great enthusiasm here. We are almost there and think the ‘Enough’ idea is fantastic, I mean how simple is that? It’s crazy that we just keep on living through fear of not enough when so clearly there is evidence that there is plenty.
    It is truly just a mindset. We are working on it everyday. Love the $1M question MMM…

  • Uncephalized January 30, 2013, 10:52 am

    I think this one has the potential to become another “classic” post, MMM.

    The idea of “enough” is so important. If you don’t really understand, deeply, what it is to have enough, you are never going to quit working because you’ll always feel insecure.

    I’m 25, and I already have “enough”–I am very fortunate in my life/family circumstances and gifted with the intelligence and general competence to be good at most things I put my mind to, which makes money a pretty small concern in my life. It just seems to keep slowly accruing in the background as I go along. What I don’t have enough of is time–with my wife, with our families and friends, and for myself–and so we’re dropping out of the 9-5 world WAY earlier than most people would think is “safe”–and it’s not safe, but safety is an expensive illusion, right?

    We can do this because we are rearranging our lifestyle around the idea of “enough”, rather than the idea of “more is better”. That simple mind-shift changes EVERYTHING.

    • Kevin January 30, 2013, 12:14 pm

      Well said.

  • Ms. Must-stash January 30, 2013, 11:55 am

    3-4 months ago I was plugging along, bored with all the usual personal finance blogs, discussions, lifehacks, etc. I kept wondering if there wasn’t some other challenge out there, or if we had really made it to the point where I could add some frills into the budget and easily justify it – because after all, my calculations told me we would have plenty of money when we retired – you know, in our 60s.

    BAM! Found this blog and it was an awesome punch in the face. New challenges, why yes! Lots of great new challenges! I am 33 and have realized I would rather retire in say, 10 years, than 30+. Imagine that! The wonderful possibilities are making me laugh with glee on a daily basis.

    • Mrs. Money Mustache January 30, 2013, 12:24 pm

      Excellent Story, Mrs. Must-stash! I particularly like your last line: “The wonderful possibilities are making me laugh with glee on a daily basis.”

      It’s always great to meet someone that welcomes new challenges!

  • Accidental Miser January 30, 2013, 12:33 pm

    As MMM recommended a few weeks ago, I read “Your Money or Your Life”. Although it was written a while back, the fundamental elements of defining “Enough” and calculating when you have reached the point of FI help me sleep at night knowing that our family is headed in the right direction.

    We aren’t to the goal line yet, but we’ll know for sure when we do simply by knowing what we need to be satisfied and knowing how that money will be earned, saved and invested.

    This is my first MMM comment and I’d like to thank MMM and the faithful commenting crew for punching me in the face and getting my mind right!

  • Rob aka Captain and Mrs Slow January 30, 2013, 2:47 pm

  • Ingrid January 30, 2013, 4:34 pm

    Fantastic! Thank You MMM! You have put into words what I have been trying to articulate to others for years. I was fortuneate to grow up in a house where there was a healthy balance between saving for what we wanted and the “made round to go round” philosophy! (Thanks dad and mum) I always felt there would “be enough”.
    When I quite the Corporate world about 10 years ago after mostly enjoyable career my firends ALL thought I was crazy! I have never been happier nor healthier. I own my own home, paid for with those well paid Corporate roles, and I truely believe this makes a huge difference.
    For 10 years I have worked on different projects and with different Businesses. I particularly like your; “The employers can almost smell your freedom, and it makes them want to offer you additional money. But unless the work offered is your true love, you will gracefully decline.”
    Freedom is what I truely value!
    I wish we named “retirement” some thing else for I beleive the word itself has a stigma.
    Freedom is what I beleieve we are really talking about, not retirement!

  • Dad2Them January 31, 2013, 5:16 am

    Perfect timing. You don’t know how many times I’ve thought of sending that same e-mail about having $800k in retirement accounts, $400k in taxable accounts, and a paid-off house but not thinking I can retire for another 10 years. (I’m 45.). By the way, your old post about how to draw from a 401(k) before 59 1/2 was VERY helpful. Thank you for this great blog!

  • Tony January 31, 2013, 3:56 pm

    It never ceases to amaze me how much is written on MMM, in the comments, about healthcare. Living in the UK is expensive, almost £ for $ in many areas, due to rip offs and taxes, but we, like the Canadians, don’t at least have to worry so much as you guys in the US do.

    But what really amazes me is why, therefore is Obamacare not universally rejoiced over. Sure, nationalisation of anything is a sure fire way to get inefficiency, but at least we don’t have to all spend all our time worrying about a serious illness making us bankrupt.

    I read a dozen or more comments per MMM post that basically say “yeah, but what about healthcare” – really depressing.

    Here’s hoping that you guys get a health system more like ours or (heaven forbid) France, then maybe you can all sleep better at night knowing a bad accident or illness is not going to send your families to the soup kitchen, or the cost of your health insurance is not going to prevent your Mustachian dreams coming true.

    Keep up the good work Mr M – great blog, and way out ahead of any of the mainly rubbish (except for Ermine) we have in the UK.


    • Dr. Bone January 20, 2014, 4:33 pm

      I think the biggest problem with Obamacare has been the very predictable realization that it costs way more than the proponents argued. Premiums seem to be higher, with higher deductibles and less coverage.

      It is a fantastic deal for those that get subsidies, resulting in free coverage, but it has usually resulted in higher costs for those who were previously paying for their insurance. We will have to wait and see how it ultimately affects people with employer provided coverage. I would wager that it will not be a positive effect.

      Obamacare has also done nothing to improve the quality of healthcare, nor will it. We do not have a quality problem, the problem lies with the system we use to pay for it. There are too many layers of people/insurers/organizations/lawyers/administrators and other money suckers between the patient and the caregivers. This is what increases health care costs. Any projected cost savings generally comes from a coerced decrease in physician pay or patient benefits.

      Obamacare is closer to welfare than it is a reformed medical system. That is probably why most people do not get excited about it, because the bill eventually has to be paid.

  • Laura @ Frugal Newlyweds January 31, 2013, 6:34 pm

    Thank you so much for posting this. I am a teacher and I love my job now (4 years in). However, I wonder how I can keep up with this job later because it is very taxing. I easily work 55 hours a week and put my heart into everything. I don’t see how that level of work will be sustainable, which means I will either have to teach at what I consider to be a subpar level or else I will have to move out of the job. I don’t want to cheat my students. There is a large push to stay with it for a long time though because of the “pension”. After reading this article I actually looked up how they compute our pension. Wow, what an eye opener! For being talked about as much as it is I thought it would be better than what it is. I now know not to let the “pension” be a deciding factor on when I leave the profession. Without this article I might never have been motivated enough to read through pages and pages government mumbo jumbo to figure out what the actual pension formula is. Thank you for that!

    • Debbie M January 31, 2013, 9:56 pm


      Ideally, you could switch to part-time in the future if you still loved it but it got to be too much. I think part-time is rare, but people get desperate for good teachers, so you might be able to negotiate for that.

  • linda January 31, 2013, 6:54 pm

    For those of you participating in pension plans, you can usually contact your pension administrator to ask for a benefit statement of some kind so that you don’t have to do those calculations on your own. Be aware that those statements do make assumptions, so read and understand the fine print. Otherwise, if statements are not readily available, ask your pension administrator directly or via email, and keep a record of the correspondence (and the assumptions behind any calculations).


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