Monthly Archives: March 2013

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The bricks don’t need to be moved

When I was just starting out at a dotcom company back in the high-flying internet boom days, our vice president walked our team through how he looked at doing performance reviews.

Performance review season is one of the worst times in corporate America, with executives posturing that they’re actually doing something that matters, managers jumping through the stupid hoops and pretending their subjective judgments are actually objective. And, of course, the employees at the bottom scrambling to remember what they did over the past six months so they can fill in their “self-review” and convince their boss they can have a larger raise. Which they won’t do because their boss already set their score weeks ago and only pretends to take the employee’s review into account to prevent any… unpleasantness.

That said, the explanation I received of how give a good performance review was the only one I ever thought made any sense and I have used it many times for my employees in the years following.

Here’s how the scoring worked officially.

1.0 – You’re fired immediately. Basically theoretical because you would have been fired long before you were reviewed.
1.5 – Not meeting the bar for the job; basically fired.
2.0 – Doing some of the tasks of the job; put on performance improvement plan. Probably fired rather quickly.
2.5 – Doing most of the tasks; but are having trouble; put on performance improvement plan. Likely to be fired, although a few did survive this score.
3.0 – Did all the tasks of your job with no problems. You’re safe, however what this really means is your boss doesn’t want to go through the hassle of firing you.
3.5 – Performing above expectations. In reality, however, this means you’re average.
4.0 – Very high performer. These are the rock stars you can’t lose. Sometimes also means you’re friends with your boss.
4.5 – Given rarely and only for remarkable innovation. Even those receiving this score will only get it once or twice in a career. Something along the lines of creating a patented product that revolutionizes the future of the company. I only heard of maybe 2-3 of these ever being given out.
5.0 – Given when thinking on a completely different plane then everyone else. Imagine someone proposing an idea to the CEO that turns into billions of dollars. Something completely disruptive in the marketplace. Basically theoretical. I never heard of a 5.0 being given.

In reality, several of the levels weren’t used because 1.0, 1.5 and 2.0 were only used when they were trying to get rid of you and 5.0 was basically a theoretical score meant to inspire us to do better (or something).

Here’s how it was explained to me by that VP long, long ago in a way that actually makes sense. I’m paraphrasing a bit; it’s been a few years. He used a metaphor of moving bricks from one pile to another pile as the requirements of your job. The review scoring then can begin to make some sense:
1.0 – You stole the bricks. You’re fired immediately.
1.5 – The bricks didn’t get moved. You’re fired.
2.0 – You only moved some of the bricks. Fired.
2.5 – You moved most of the bricks but are struggling. Probably fired.
3.0 – Moved the bricks from one pile to the other exactly as instructed.
3.5 – Moved the bricks and did a great job. Bricks are nicely stacked, you even had extra time to move some additional bricks. Nice job!
4.0 – Came up with a more efficient way to move the bricks, perhaps using a conveyor belt or other innovation. You get a huge raise!
4.5 – Figured out the bricks didn’t need moving.
5.0 – Invented a substitute for bricks, making the company gobs of money.

I like the metaphor because it rewards high-performance and makes the expectations crystal clear. I also particularly like that it gives the greatest rewards for thinking beyond the parameters of the job. Not just dreaming up new and better ways of doing things but realizing the things didn’t need doing at all.

The commonly used cliche for this is “thinking outside the box”, but in reality the creative power is realizing there never was a box. “There is no spoon” if you will.

Pretirement is about realizing the bricks didn’t need moving.

The most magical number: 20

Across the internet these days, there is a nonstop stream of confusing investment advice. What stocks to buy? Will interest rates go up or down? Are we due for a market correction? What’s the right investment yield I should plan for? And on and on and on.  But really, if you’re going to get serious about early retirement or pretirement, there’s just one number to remember: the number twenty.

Good ol’ TWO ZERO will serve as your task master and trusty guide, leading you safely to the glory land of pretirement.

Now many of us, including your humble host, have known about the number 20 for some time without truly UNDERSTANDING its almighty power.

Here’s how it works. You’re going to use the number 20 to determine what something REALLY costs. That will, in turn, tell you not to buy it. Or, if it’s something you really need, it may tell you HOW to buy it. How? Simply by multiplying the cost by 20.

First, some basic math. My rule of thumb is an investment in today’s market can be done with reasonable risk to drive a 5% yield. Some say 4%, some say as high as 7%. I like 5% because it’s a pretty safe number and it makes for easy math. (If you’re new to investing, just think of investing $100. If you do, you should make a yield of $5 per year. In other words, it’s just another way of saying 1/20th of 100 — you know, 5% see?) So if you want to make $50 per month in the stock market, you need to have $12,000 invested. (50 x 12 x 20)

So let’s take an example. How about your cable TV bill? Let’s say the cable TV temptation is $60/month. First convert that to an annual number, multiple by 12 so $60 x 12 months = $720. That’s what you’re paying every year to watch TV. Now let’s use the magical number 20 to find out what the cable TV REALLY costs. $720 multiplied by 20 is $14,400. You need nearly $15,000 invested to justify your TV habit. Wow, is your love for “Storage Wars” really that great? Netflix streaming at $8/month ($96/year) is a much better deal at only $1,920 invested in the market to pay for it.

Bigger items can be even scarier. Say you want a $30,000 car. You don’t need a new car every year, so one way to look at this is to think about how long you’ll have this car. Say you’ll own the car for five years and then sell it for $10,000. So your cost over five years is $20,000 (actually much higher with insurance, etc, but we’re keeping it simple for this example). Over five years, that’s only $4,000/year. Not too bad, right? Well, bring in Mr. 20.

Twenty times your $4,000 yearly cost brings you to $80,000 yearly. You would need to have $80,000 invested to afford that vehicle for each year of those five years. And, to boot, that money wouldn’t be available for anything else.

So use the number 20 to your advantage. Multiple all recurring monthly expenses by 12 then by 20. For one-time or infrequent expenses, simply multiple by 20 to gauge its overall cost, or compute the yearly cost and do the same math. Even if you can’t purchase something on a yearly or monthly basis, understanding what the purchase is costing your future is worth examining.

And that examination is much easier with the number 20 on your side.

Early retirement vs. Pretirement

retired_floridaWhen I talk to friends and family about my goal of reaching pretirement, the first reaction is polite dismissal and maybe some teasing about laziness. On the other hand, if I talk about “early retirement,” there’s a built-in assumption that I’ve made my $1.3 million and am checking out.

Actually neither is the case nor needs to be. It’s a matter of language and of challenging some of the assumptions we’ve been given. Unfortunately it can take a lot of effort and some language changes to shift mindsets.

As I turned 30, I realized I had no money and no plan but also realized I didn’t want to be a wage slave for the next 30 years. That was 15 long years ago. I set a very simple goal at that time: I wanted investments to be able to cover my bills by the time I was 40. Given that I was starting at NO investments and NO money, 10 years seemed like a tight timeframe for reaching that milestone.

You know what? I actually reached that goal ON TIME. It took some magical stock options, some decent real estate purchases and a lot of frugality and I was there. Unfortunately, I immediately flushed that success with some expensive purchases, including my expensive current house. So now I’m crawling back again to that same goal, hopefully wiser and definitely even more motivated to get there as fast as possible.

And, although I now know many people seeking pretirement, I still get the same looks from others when I talk about it. Some are completely amazed: “I thought you couldn’t take your 401(k) until you were older?” or “What are you going to do for money?”

That’s part of the reason I started this blog. This “in-between” state between working and retirement needed a new name. “Early retirement” just doesn’t do it for me. Here’s how I see the differences in the terms:

  • “Retirement” means you’re eligible to pull out your retirement funds and are eligible for Social Security and Medicare.
  • “Semi-retirement” means you’re working part-time, but have finished your career and are eligible for pension.
  • “Early Retirement” means you’ve elected to take social security or a pension (Ha Ha, like anyone in Gen X gets a pension!) at the earliest possible age, foregoing larger amounts later.
  • “Pretirement” to me means you’ve reached a state where your investments generate enough funds to cover your monthly expenses.
  • “Semi-pretirement” then means you don’t have QUITE enough money to cover ALL your expenses, but you have enough to choose to work part-time to cover the gap. This is where I’m at today.

Unfortunately a lot of what I’ve been reading online about this time of our lives uses all these terms interchangeably, making it hard to find great resources. Take one great resource: Joe over at Retireby40. He uses the term “retire,” by which he means he is leaving his former career. Since he is living off his wife’s salary and staying home with their child, I’d say he’s in the same boat as me, “semi-pretired”. Should his half of his bills be covered with his investments, I’d move him into the “pretired” category. (Keeping in mind, that with shared expenses, it can get a little muddy.)

The other reason people just don’t get the pretirement concept is the mental box so many of us have been trapped in.

I freed a thousand slaves I could have freed a thousand more if only they knew they were slaves.
-Harriet Tubman

Nearly all of what we’re taught about retirement from an early age is that it’s something you do when you’re old and that you’re supposed to be a worker drone until the day you’re put out to pasture. Then you pollute the world with your RV for a few years until you have close call one day and have to stop driving so you watch TV and spray chemicals on your lawn until you eventually have as stroke and finally die with your family sitting in a circle around you in a hospital bed… Wait, what was I talking about again? Oh yeah, “retirement.”

The second result on Google for “retirement” (after wikipedia) is CNNMoney, featuring a prominent retirement calculator. The notice on the extremely ridiculous calculator says “How much to put away each year if you hope to retire at 65 with 80% of your pre-retirement income.” Gee, I wonder who wrote that text? Certainly not the people wanting to get their grubby hands on my retirement money, right?

First of all, age 65?? No thanks. I barely survived the last 15 years. I’m not doing another 20. TWENTY!

Secondly, “80% of your pre-retirement income”? Say what, now? Let’s say I made $100,000/year. Do I really need $80,000 every year forever? What the hell for? What if I’d been making $300,000/year? Do I then need $240,000 in retirement or I have to eat cat food? These online calculators should be ignored with extreme prejudice.

The nonstop lectures to “save for retirement” are absorbed shallowly like warnings to not drink too much or give up smoking. Yeah, yeah, I’ll get around to it later…. The implicit message is to live it up now, but make sure you save a little as you go along, not too much, less than you’d tip at a restaurant. You won’t even feel it. And, like I always say, that is absolutely true if you start early enough and work until you’re a senior citizen.

However, if you DON”T want to spend your whole life working, you have to challenge authority and go about things a little differently. You’ll have to live frugally early. You’ll need to invest heavily as early as possible. But most of all, you’ll have to stop thinking “retired” and start thinking “pretired.”

Why Generation X is so hot on pretirement

As Herman Cain would say, “I don’t have any evidence to back this up,” but from the empirical data that I see every day, it seems Generation X is embracing the idea of pretirement like no other.

I have several friends in similar situations as myself, looking to get out of the rat race. (Some have already made it and are floating along just fine with home-based business and part-time work.) I have a few other friends also in or seeking pretirement that are not Gen Xers, but they are older Millennials or young Baby Boomers*, so in some sense, socially they identify more with Gen Xers like me than their “official” group. I fully expect the Millennials to be even more grounded in what’s really important in life and to embrace pretirement even more broadly than my generation. That may be a post for another day.

I’ve wondered for many years why Generation X is so interested in the pretirement phenomenon, but only in recent months have I settled on a few possible reasons:

  • We’ve spent our entire lives watching Boomers waste their own, and now our, money. Boomers had very cheap homes, easy credit and now, of course, will get their sweet, sweet Social Security and Medicare while the next generation (me) gets our benefits cut. How many Baby Boomers do you know who fumbled through life, have nearly no savings now and have been living off their parents’ estates and government help? I’m guessing more than a few.
  • Not only has it been tough to get ahead career-wise, the Congress, now run by Baby Boomers has moved the goalposts for the generation behind them, cutting retirement benefits and moving the age farther away.
  • Health care has been a skyrocketing expense, rising just as we age to the point where we need it most.
  • Our parents were frequently divorced, setting us behind financially and causing widespread depression and misery. There is a reason goth is the music of my people.
  • Even if our parents were still together, typically both were working so we came home to empty homes and mischief.
  • Because our parents are now old, but our kids are still young (we had our kids at an older age), we have a double-ended care hit like no other group.
  • Our education system was being gutted just as we were coming up in it. The only good news is we did better than the nearly illiterate generation behind us.
  • Dismissed as slackers, we actually had to work much harder to get ahead.
  • We’re now getting to that age where the excitement of our early careers is wearing off and we’re realizing how much it sucks. OK, maybe that happened awhile ago.
  • We just got shaken up by a massive economic collapse. Many of my peers lost jobs, homes and their basic sense of security. I would be willing to bet that Generation X also leads in Doomsday Prepping.
  • We’ve been told constantly since we were in our twenties that retirement was a hopeless dream for us (actually we were told that about home ownership, too). For example:
  • Perhaps worst of all, our generation was impressionable just as the seductive sickness of Reaganomics was taking hold. Even as it crippled our ability to get ahead, my generation supported wacky supply side nonsense more strongly than any other. Talk about putting your own head in the noose.

So Generation X, labeled early on as a generation of whiners, actually had a lot to complain about. Oddly once we were firmly in the ’90s, I didn’t hear too much whining from my peers. We were saved economically by the internet, instantly making us the most valued workers and making Boomers close to useless. Not to mention growing the economy at a critical time. We became optimistic, entrepreneurial, and very, very independent.

But the nice thing about being disillusioned early is you take on a healthy distrust of any authority. We question doctor advice, challenge politicians, stand up to our bosses. We won’t be micromanaged. We always think there’s another way to do things.

Which is why I think pretirement is growing as a movement. We question the bullshit advice that you need to have $1,300,000 invested before you can retire. We think the only way tiny contributions to a 401K get us to retirement is to become wage slaves for endless decades. And we don’t like being tied down. Most of all, we challenge the very premise of consumerist America that there is no way we can opt out.

Starved of our parents’ love, we want to spend every possible second holding our own children. Dumping our kids off at daycare breaks our hearts. We leave work ON TIME because A) FUCK YOU and B) I have a LIFE.

We share a goal, nearly all of us. To spend the days doing as we please. We want time to explore, to learn, to love. The rat race is for suckers. We want out.

This site is dedicated to those who share these goals but don’t know how to get there.


*Even though it should be obvious, I am speaking in generalities here. Clearly not every member of any generation fits its stereotype.

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