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.”

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12 Thoughts on “Early retirement vs. Pretirement

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  2. Rich Schmidt on May 12, 2013 at 4:35 am said:

    Plenty of Gen-X’ers are going to have pensions when they opt for “early retirement.” They’re in public sector jobs like public school teachers, policemen, firemen, etc. If my wife works to 55 (we’re 38 now), her pension should cover all of our basic expenses and then some… which means all of our other investments will be cushion, money we can invest in others, give away, etc.

    • Pretired Nick on May 12, 2013 at 5:45 am said:

      Yes, there are plenty in real numbers, however not that many on a percentage basis. That’s awesome that your wife has a pension, although it sucks that she’ll have to work into her 50s!

      • Rich Schmidt on May 30, 2013 at 9:57 am said:

        Yeah… we’ll see what happens with that. It was certainly her intention to work to 55. We’ll see if she sticks to it or not. If not, we should be fine, based on our other investments, my income, etc.

        • Pretired Nick on May 30, 2013 at 12:44 pm said:

          That feeling of being fine is what pretirement is all about. Very nice to be able to make working to 55 an option instead of a requirement. But, wow, 55 seems like a long time!

    • My wife works in a school system but her pension is defined contribution. And more than half the contribution comes from her paycheck (arguabl, all of it, but no need to split hairs).

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  7. Good article Nick. I guess a lot of this comes down to challenging almost everything we’ve been raised to believe on society. If you are making hundreds, or even millions of dollars a year, you can easily still be a slave to the system. Just look at all the ex-pro athletes that are now bankrupt.

    A lot of people (myself included for the longest time) never bother to take a step back and truly think about what makes them happy. It’s much easier to be told by a commercial or a billboard what will make us happy – just look at that attractive family on a cruise ship smiling and laughing on the commercial, they MUST have it right.

    Unfortunately its not always easy breaking away from the norm, people will question and sometimes even mock you, if not treat your ideas with scorn because its much easier to dismiss something different and continue on with the status quo.
    Tom recently posted…Taking a chanceMy Profile

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