No way I can work at a dead-end job until I’m 65
It’s difficult for me to talk about my own situation.
In addition to my many embarrassing financial mistakes, there’s a worry of being a know-it-all among people I know or just being judged for every crazy move I make. Not to mention issues of privacy and security.
So I’ll be a bit vague on some of the details, but will try to provide enough information to explain where I’m at and where I’m going.
Your first question is: Are you “pretired” currently? And the answer to that is no by my own definition.
For myself, I try to be pretty strict about the definition: ALL monthly expenses are covered by passive income. (For others, it may mean being just close enough to work part-time to cover the bills.) Now I’ll get into some numbers and complicating issues soon (such as inflation), but for now it’s the concept that is important. Many (many!) have written about this before, most notably Robert Kiyosaki in Rich Dad Poor Dad.
Unfortunately most of what is out there is either fairly benign advice about saving relatively small amounts of your income, and trying to game the tax system OR it’s selling get rich quick schemes, usually in real estate.
What I have learned is the standard investment advice (401K, Roth IRA, mutual funds, etc.) may be great advice if you want to be a wage slave for several decades, but if you want to get out of the rat race, you’ll need to do much more. (NOTE: I’m not saying those investments are bad ones, just that the standard level at which we’re advised to invest at will be nowhere near enough to let you opt out of the game.) What’s more, retirement accounts that lock away your savings until you’re old will be great to have when you reach that age (although I doubt there will be many people who can actually live on a 401K) but you won’t be able to use that money in the meantime.
Put more simply, the mainstream advice is this: put aside a small amount of money from your paycheck, let it grow in the market as you age and through the magic of compounding, you’ll have enough cash to live on in your golden years. And you know what? They’re absolutely right. It can work quite well, especially if you make a decent wage and start early enough. (Although even then, I have my doubts about whether a 401K will be enough, especially as Generation X gets screwed over yet again with cuts to social security and Medicare.)
But what if you don’t want to spend 45 years WORKING? I know I don’t. That’s where pretirement comes in. By making strategic adjustments as early as possible, it is possible to short-circuit the game and live the life you want to live. I’m not there yet, but I’m close enough that I think I can see how to get there. But, very worst case, I should have an even more comfortable situation when I’m older and will be able to look at my social security (if any) as a bonus, not as critical survival funds.
I may choose to work even after I reach pretirement. Perhaps I’ll want to feather my nest a little bit or maybe I’ll decide I need a little more breathing room on my monthly income/expense ratio. Or maybe not. I’ve never had trouble finding things to keep me busy so maybe I’ll never go back. Either way it’ll be up to me. And that’s why I’m pursuing pretirement.
