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.

  • Kevin January 31, 2013, 10:50 pm

    This CNBC Suze Orman clip has a 48 year old woman who wants to retire by 55. She asks Orman if this goal is obtainable and grade her progress. She has a current net worth over $1,400,000.00! Orman gives her a D- grade and tells her to work till 65! Typical main stream media advise, pushing consumerism and scaring people into thinking there is never enough!


    • Johnny Moneyseed February 1, 2013, 8:33 am

      I’m definitely not a fan of Suze Orman or Dave Ramsey for that matter. They seem very gimmicky to me. I don’t think this type of information really helps anyone. It just keeps people in the workforce longer than they need to be when they could otherwise live the rest of their lives either being their own boss or by being completely retired.

    • Dee February 1, 2013, 9:29 am

      I followed this link. This single mom of a 17 year old had monthly expenses of $ 6000! Suze didn’t even suggest that the woman could retire at 55 if she lived on less.

      • Kevin M February 1, 2013, 10:54 am

        At $1,400,000.00 she could retire right now given more solid advise of living below her means.

    • Mrs. Money Mustache February 1, 2013, 1:12 pm

      Wow. That was truly awful. My main question would be: what is she spending $6000 per month on? I love how she kept saying that it wouldn’t be a big deal to work 7 more years. Ha! And, she didn’t even take into account the possibility of working part time (and seemed to think it was ridiculous). Very very typical financial advice. Ridiculous.

      I would have told her she can retire right now! :) Maybe she’ll come over and read MMM one day…

    • lentilman February 1, 2013, 5:13 pm

      In Suze’s segment “How am I doing” she doesn’t challenge people’s lifestyle. She just focuses on the situation at hand on an “as-is” basis.

      So if you take the woman’s expenses of $6K/month as an assumption, she will need 1.8 million in invested assets for a 4% withdrawl. Her home equity won’t count, so she is still short. Plus it isn’t clear if her expenses will be higher or lower if she spends her retirement traveling the world.

      I agree that $6K/m is high, but lifestyle isn’t addressed in this segment. Suze’s answer would have been much different if her expenses were $2K/m. (Probably an A+)

  • JaneMD February 1, 2013, 10:31 am

    I did my 4% math and recognize that the best I will ever do is retire up to 10 years early. We have chosen to invest in our children’s Jewish education, which means costly private schools and is not negotiable. The cost will only increase as we have more children, but I recognize that as a trade off I am more than willing to make.
    Our goal of paying off our educational debt actually led me here. I hang out here for the support to keep from buying stuff now that I finally have a worthwhile paycheck.

  • RobDiesel February 2, 2013, 8:25 am

    It seems common for people to say they bought a house at the wrong time, when the market was at its peak.
    If they have the money and ability to pay on the house, and they took on the obligation with that knowledge.

    It sounds like they tried to time the market – in retrospect!

    If you can afford your house and love it, and it’s close to work, then why was it “bought at the wrong time”?

    Possibly bought for the wrong reasons.

  • BC February 3, 2013, 12:37 pm

    It’s not the point of the post but it does allude to the benefits of working in higher education. 1. A lot of people actually like their university jobs. 2. The benefits are pretty awesome. As an administrator I have a 401k match plus pension plus extreme flexibility plus our center does meaningful work to help communities. My DH is a prof at a school that focuses on teaching and so he essentially gets about 4 months off per year. 3. Lastly, in general it is a pretty naturally Mustachian group of the population. At all levels of both of our organizations I can’t think of anyone who aspires to own a large home or fancy car. Bikes, walking, mass transit, frugality etc are much more the norm.

    • Pat March 21, 2013, 5:39 pm

      I found your blog when I was following links for “Your Money or your Life”, and have read from the beginning to now. Almost caught up to a moving target ;-)
      I hope you will do the discussion of how to decide whether or not to relocate once a paid job does not dictate location. And, since you have lots of Canadian readers, maybe a discussion of Canadian choices? Including winters someplace a bit warmer? I love a snowy winter, hate the freezing rain we seem to get more of these days.
      I am finishing a contract at a University (not a huge salary, Instructors make a LOT less than Professors), love the job, hate to see it end, but am otherwise ready for “retirement”. Side benefit – I moved to the University my daughter was already enrolled at, so she has had a few years of subsidized tuition, Lucky her – less OSAP to pay back.

  • Brian February 14, 2013, 5:33 pm

    I quit a job that I hated about five months ago. I worked for a good company that sold the business unit I worked for to a bad company so I left. This has been the best five months of my life. While I don’t quite have enough to retire permanently, my family is okay for a while. I will find another job, but it will be exactly what I want to do and nothing less. Then I will save most of my income from that job and retire permanently in the next ten years.

  • Gary October 31, 2015, 9:26 am

    I am a highly paid aviation industry worker who was just laid-off. We have $600,000 between the 401K and pension buyout but still only 49 years old. We do have some credit card debt and maybe six months severance pay. We also have 7 rental properties but they only cash flow $1500 per month due to 15 year loans that would have finished as I turned 60 and beyond.

    Should we pay-off the rental mortgages (two are below $100,000) to turn the $1,000 mortgage payments to income using the 401K (early withdraw penalty) and pension buyout or try to live modestly on 401K withdrawing enough annually to live while paying penalties?

    • Tax person October 31, 2015, 8:56 pm


      You don’t have to pay penalties.

      I’d roll the 401k into a rollover IRA. You’ll probably have better investment choices and more control. Then set up “Substantially Equal Periodic Payments” and continue them until you’re 59.5 You’ll pay income tax but not the early withdrawal penalties. If you’ll be paying for health insurance, that can also help. Since you may be in a lower tax bracket, it may lead to overall lower income taxes when you take a multi-decade planning perspective.

      Don’t resign yourself to the early withdrawal penalties; there are ways to avoid them.

      Hope that helps.

    • Mercury November 1, 2015, 3:37 am

      Dear Gary,
      I think you will get the best results/replies if you pose this question on the very active MM-Forum (top of the page).
      This reply to an older blog post will generate less response.
      Best regards!

    • Ann November 1, 2015, 7:38 am

      You will get more replies if you post this on the message boards instead of an old thread.
      Pay off the credit card debt. Do not cash out the 401K. The rest would require more information, like what is your interest rate? What are your current monthly expenses? Are there side jobs you could do? But post it on the forums, not in this post!

  • Eli L May 18, 2019, 10:36 pm

    Am I being silly? Please set me straight.I am in the same problem. Not sure I Iove my teaching job. In fact I think I hate it. Problematic parents, childrens’ early exposure to cell phones creating discipline problems veteran teachers didn’t see 20 years ago in education. However, I can retire at 55 as opposed to 62 or 65 67 in social security. I have 11 years to go in education. I wanted to change careers , but was heartbroken to learn that you cannot get both TRS ( Texas Teacher’s Retirement System) and Social Security. I feel trapped in this career and in Texas. Retiring at 55 sounds more appealing than 62. I just need to find something to do within the TRS system other than teaching. I have not saved a penny to retirement and just barely paid off my debts.


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