Tag Archives: Retirement

10 Questions For: Retire By 40

Joe Udo and Baby RB40 Photo courtesy Retireby40.org.

Joe Udo and Baby RB40
Photo courtesy Retireby40.org.

Today I’m kicking off a brand new feature on Pretired.org. It’ll be an occasionally recurring piece called “10 Questions For”. For the first one, I felt it only appropriate to feature the man who is basically my blogfather: Joe Udo of Retireby40.org. Joe’s blog is more than a detailed primer on how to escape the corporate treadmill, but is also an inspiring journey. Go back to his first post and read your way forward the way I did and you’ll be drawn in by his complete transparency and you’ll share his joy as he finally makes the move and quits his job. It’s a great blog and I recommend it to anyone considering pretirement. But I wanted to know more so I asked him 10 Questions.

How old were you when you decided to “Retire by 40”?

I think I was 36. Before that point, I was just planning to switch jobs or try to find a job at a different company.

I imagine there was a certain moment when you realized that you were throwing your life away working at a big corporation. Can you share that turning point?

It was a gradual process for me. I started getting some mysterious illnesses like dizziness and panic attacks when I was 35. The doctors never found anything conclusive, but I figured the stress was getting to me. I hated walking into work every day and that’s not a good way to live.

You figured out the path to financial independence earlier in life than most people in America. To what influences do you give credit for learning how to get there?

Actually, we’re not quite there yet. Mrs. RB40 is still working and that’s how she likes it. Our next target is to be able to function without her paycheck and save all of it. I think starting the Retire By 40 blog really helped me figure out how to quit my job. I had to research all the articles I wrote and the more I wrote, the more I learned. I was already reading a lot of personal finance articles, but writing my own blog was a big step toward financial independence.

You could have decided to “retire by 45” or “retire by 50”. You chose 40. Did you ever think about working a few more years to pad your retirement?

Not really. I already stayed at my old job longer than I wanted to. I figure if I couldn’t make it work, I could always go find another job. We also continue to save so our net worth is still increasing. We are not drawing-down yet so all-in-all we are doing fine.

It’s fairly unusual for the male in the relationship to be the one who stays home to raise the child. How did you and your wife decide you’d stay home? How does she feel about it?

She loves that I’m able to stay home with our kid. She knows she can’t be a stay at home mom because she likes to work and she is not the most patient person in the world. It’s not for every family, but it works well for us.

At what age does your wife plan to retire? What are her plans?

I think she’ll keep working until about 60 or so. She is restless and she likes being in the workforce. Perhaps she’ll cut down on the hours if we don’t need her salary anymore.

Your last day at your old job must have been amazing. What was that like?

It wasn’t dramatic because I wasn’t going in much in the last week. I worked from home and just took care of a few things. It felt great to drive away from the office for the last time, though.

Many, if not most, people are afraid to leave corporate life at such a relatively young age. What fears did you have before and do you have any worries now that you’re a stay-at-home dad?

Of course, I was afraid we wouldn’t be able to make the cash flow work. You can plan, but you never know how it’s going to turn out. Things are going really well, though, so I don’t worry much about the finance at this point. 

Do you think everyone should try to retire by 40 or is it only for people who hate corporate life?

It’s more applicable to people who don’t enjoy their job anymore. However, you should still plan ahead even if you love your job/career. You probably won’t love it forever and it would be good to have an alternative plan.

What are your plans for when your son goes off to school? Obviously you’ll have a lot more time on your hands.

I’m still trying to figure it out. I would like to start some kind of micro business or just work more online. How about you? Do you have any plan for when your son starts school?

See folks, this is how nice of a guy Joe is! I’m asking him 10 Questions and he turns it around to find out more about me! But I’ll answer anyway: I’m not sure what I’ll do when Pretired Baby goes off to school. I’ll be 50 by that point so it’s going to be pretty hard to get a real job at that point, even if I wanted to find one. Ideally I’d have a little business of my own or maybe we’ll just do a lot of travel and sort of home-school him from the road. Short answer is I’m not sure yet, but it sure is nice to have options!

Thanks again, Joe! And for anyone who hasn’t already discovered Joe’s excellent blog, be sure to head over to Retireby40 right now!

I’m sure Joe will be stopping by at some point so feel free to say hello in the comments as well! 

PBS Frontline: The Retirement Gamble

frontline

I finally had a chance last night to watch the excellent PBS Frontline documentary on the American retirement “crisis”. If you have a spare hour, it’d be worth your time to watch the whole thing. (Here’s the transcript if you want to take a quick skim.)

The piece covers a lot of ground, but the two biggest points were that the burden of retirement planning has been plopped into the unprepared public’s lap in the form of 401(k) plans and that the 401(k) bucket of cash has been too tempting for plan managers, who have been grabbing the money for themselves in the form of fees.

In fact, the most powerful punch of the show is when it’s illustrated that the fees actually eat up as much as two-thirds of the gains over your working career. Fortunately, they also point to a solution: low cost index funds. Interestingly, it’s the exact same strategy espoused by none other than Mr. Money Mustache. They even interviewed MMM’s hero, Vanguard’s John Bogle! That was pretty cool to see and it was great to get reinforcement of my preexisting opinion about 401(k)’s and financial advisers.

Of course the program had to include some “real people” to add some emotional weight to the story. This is where the piece was at its weakest. One gaping hole was that they didn’t talk about these people’s spending rates and didn’t even mention whether they still carried a mortgage or not. For example, one woman said she had $500,000 in retirement funds at age 48, but somehow can’t imagine being able to retire until she’s in her mid-70s! Another fellow was shown at what looks like a waterfront home, talking about how he has to work part-time in his senior years. I actually liked him because he said he’d downsize into a tent if he had to. I think that’s the attitude that got him his waterfront house.

The reporter, the always intrepid Martin Smith, uses his own retirement as an example, noting that he dipped into his nest egg multiple times over the years. The financial adviser tells him he has to work full-time until age 70 and “from age 70 to 75, I have you working part-time.” The reporter notes that his savings went to his kids’ education, a divorce and “the crash of 2008.”

The real tear-jerking segment featured Debbie Skoczynski:

I freaked out when I took the money out of my 401(k). It was hard. I mean, it’s— you know, you never— every day on the news, I’d listen to it and I’d be, like, “Oh, God, it’s really bad. Will I be able to keep my house? Will—” you know, “I— what if my car breaks down? I can’t afford a car payment.” It just can’t be this hard to make— it can’t. You know, you hear these big companies with these people taking these huge bonuses. You’re thinking, “Well, what happened to the average Joe?” They just don’t care. They made their money already.

Now, I feel bad for Debbie, but you can see her one-dimensional thinking here. She asks “What if my car breaks down” and answers that with “I can’t afford a car payment.” I don’t want to pick on her, after all she’s having a rough time, but I was thinking, “Um, you can’t think of ANY other solutions to that potential problem?” Like maybe “car repair”? Or “cheaper car”. Or “the bus”? To me, she really represents how Americans have been trained to deal with life: just throw money at the problem and if I don’t have any money, that’s OK because I’ll have money later.” Had she not been too far stretched with (apparently) a large house payment and other expenses, she could have easily weathered the storm without tapping her retirement money.

The remainder of the show was mainly the strongly worded accusations and squirming insiders that make Frontline such a fun show to watch.

Unfortunately the show didn’t once talk about buying too much house, how to get rid of your mortgage, mindless spending, how much one needs to retire, or whether people should pay for their kids’ education.

If the show had a fatal flaw, it was that it uses a “Retirement Plan Consultant” to endorse the proposition that Baby Boomers don’t have enough to retire but then calls such advisers out at the end of the piece for giving bad advice and scooping up all the money in fees.

In fact, the financial planner at the beginning even pulls out the old “$1.5 million” trope again, saying one needs 10-20 times your yearly income to retire. Um, why? Not explained. Just gulped down by the reporter as if it were just handed down on a stone tablet.

I advocate trying to “pretire” as soon as possible, which means generating enough money through passive means to support yourself indefinitely. If you reach that stage before traditional “retirement”, then you should be able to get a nice raise when you retire. If we accept that as the goal, then your yearly salary becomes completely irrelevant to how much you need to have in your nest egg when you retire. There is NOTHING about how much you make today that helps you determine what you need to retire. The only thing that matters is how much money you need each month and how you’re generating that money.

The program does a great job of exposing many problems, particularly that the general public is completely clueless about this stuff and that they’re being robbed via fees. Sadly the reporter himself is in this category. His ending has him exploring online calculators(!) and finally comes to the conclusion “I will keep working.” Hopefully they’ll go deeper next time and explore the real math of retirement and pretirement: bringing in more than you spend.

Pretired: What’s it all about?

What does it mean to be “pretired”? EgyptVerdantEuphantineIsland_id_2674974074_PD

In recent years, friends of mine, as well as many folks online, have struggled in search of a term to describe this concept.

Many terms have been tossed about: “early retirement”, “pre-retirement”, “semi-retired”, “working part-time”, etc. None have really captured the exact meaning as well as “pretired” has.

If retirement is doing nothing, then pretirement is doing what you want to do. Obviously the term comes from shortening “pre-retirement”, not from combining “pre” and “tired”, although it feels that ways sometimes.

In practical terms, pretirement is about financial independence. If you want to keep working for enjoyment or extra money, that is your choice. But the important point is that it is a CHOICE.

There are two ways to reach pretirement:

One is to go out and make and then invest a large sum of money to such an extent that your passive income covers your monthly bills.

The other path is certainly to make and invest money to cover your bills, but it also includes cutting your overhead to bring that goal much closer. A slight variation is to cover MOST of your bills and then work a small amount or at something you don’t hate for the remainder. That, in turn, forces you to think about what’s really important in life.

So the goal is simple: enough passive income to cover my monthly expenses.

Certainly you could cut your expenses down to zero and enjoy homelessness. While that certainly has an upside of lots of freedom, here at Pretired.org I live in the real world and realize I do need certain comforts. But I also have found jettisoning many of these “things” cluttering my life makes me happier and I feel more free.

I am not pretired today, but am working on reaching this milestone as soon as possible. I’ve created this blog to help me clarify my thinking, work through challenging issues and if a handful of people find any of my struggles helpful, that’s all for the better.

And with that, I begin.

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