Level 1 – The Basics – Your Life in Retirement
You are on part 9/9 in the Level 1 – The Basics series. Next up: Level 2 – On Your Way
I don’t know about you, but when I was younger and thought about money, I assumed it was just math, dollars and cents. All you had to do was understand how simple math worked, make a bunch of money, save it all and invest. You are good to go! As it turns out, this was only part of the equation…
Without a doubt, having the knowledge around the math of early retirement is a must, but just as important is understanding the physcological components of money, and your life when you no longer “earn” money.
In the final article in the Level 1 – The Basics Series, I’ll explore what your life in retirement might look like and discuss some things to ponder before you pull the plug. Prior to moving to early retirement, be sure to do some self-reflection on your emotions, relationships, and what you plan to do with your time.
Emotions of Early Retirement
When you make it this far, you have likely amassed enough assets (25x your annual spending) to call yourself financially independent. Quite an accomplishment! To do so, you likely mastered several emotions that could have derailed you along the way, primarily, fear and greed.
In the wealth accumulation phase of life, mastering the emotions of fear and greed will help you achieve your financial goals as soon as possible.
Fear. It’s a perfectly natural thing, a defense mechanism to protect ourselves from devastating loss. Humans have an innate ability to shelter ourselves from the worst possible scenarios. Whether it be bodily harm or great financial loss, we look at each situation and quickly choose the option that looks the “safest.” For the most part, this has served humans well for millions of years. Same when it comes to money, we are very quick to pull back at the first glimpse of volatility. This is precisely why so many investors get things wrong, and so many fund managers are out of jobs, they try to time the market due to fear. Market starts to fall, next thing you know your portfolio is down 20%! Everyone starts to sell to avoid further loss. Wrong approach.
Armed with the proper knowledge, you can confidently invest, without letting fear take over, and without trying to time the market. Once properly informed, and acknowledging that you’ll need to battle the emotion of fear, you are set for future success.
Greed. The same goes for greed as well. A natural emotion that has governed “survival of the fittest” for millions of years. Humans always tend to get greedy. They always want to one up their peers. Snag an extra bushel of grain for the winter, procure an extra few acres of land to hunt on, or achieve 11% market gain vs. 9% market gain. It’s a way to assert ourselves as superior. However, it comes at a cost. To gather these one-up accomplishments, it would take extra work in the field, additional security of your land, or extra mental energy to out-invest your peers.
Each of these have an opportunity cost where you remove energy from other fronts. You can’t do everything, after all. And, of course, there is no such thing as a guarantee. You go all in on your grain crops and have a drought. Buy or conquer extra land and a wildfire burns it to smithereens. Research stocks out the wazoo and hit an industry glitch no one saw coming and your two or three rockstar stocks plummet. It happens all the time.
For the reasons above, I fully endorse index fund investing every day. I know it is boring, and you’ve heard it from everyone else before, but it’s a slow and steady way to win the race, and a great way to ensure you don’t get greedy and go buying individual stocks.
Now, once you hit financial independence, you have choices to make.
Retire Early? First choice is to decide if you want to continue working or pull the plug. Same as the example above. Will you let fear govern your decision? Work a few extra years to buffer against worst case scenarios? Will you enjoy time now, knowing that tomorrow is never a given. You can always make more money, you can never make more time.
You can ask any early retiree if once they became financially independent, were they confident that they had enough? Answer is pretty much always no.
Even though the numbers agree, you have enough money to last through a worst case scenario (run some numbers here FireCalc Early Retirement Scenarios), most people fall into the trap of working another 3-5 years. In reality, someone that is within +/- 10% of their financial independence number can EASILY make things work in a worst case scenario. A side hustle pulling in $5-$15k a year should close the gap if we had a 40% market drop due to recession.
Once you get past the “not enough” fear and pull the plug, fear can still sit front and center in those first few years of early retirement. After years of accumulating money, are you mentally prepared to start spending it down?
This a tough for most people. Think about it. You spent your entire life saving and growing your savings up to this point and then, BAM, it is time to start going the other way.
Picture this, you are Dale Earnhardt (famed race car driver) in the prime of your career. Each Sunday is race day and along with it comes several hundred miles of left turns around the track. Each race is run in a counter clockwise fashion for hours on end. Precision driving and muscle memory take over as you execute each left turn with the utmost exactness. A carefully honed skill mastered over decades. You are one of the most decorated drivers of all time.
Then, one Sunday, you wake up to find the race will be run in the OTHER direction. Right turns instead of left. Can you get past this and still win? Absolutely. But it takes dedicated effort to do something different at the same level. Muscle memory isn’t there.
Same goes for your investing mindset. After saving for years and investing continually, you need to be prepared for the future. Right turns only, no more left turns. Start planning well in advance of how you will tackle the fear emotion, and make sure you are comfortable with spending down your wealth instead of adding to it each month.
Greed is up next.
Same as your accumulation phase, greed will persist in early retirement. Be ready for it. This ties directly to the fear mentioned above.
You’ll have run the numbers many times, quadruple checked, all is good. However, you just can’t get past wanting more to have a better buffer. You are likely being a bit greedy. Will you be more comfortable with more money saved? Yes, but wouldn’t we all? Plan for how you’ll address this scenario to ensure you feel comfortable spending money in retirement. After all, money is just a tool, and you saved plenty over the years, now is the time to make sure you get as much enjoyment out of it as possible!
Relationships in Early Retirement
This one is typically overlooked by most people and can completely undermine everything you have worked for.
You saved and invested for years to be able to spend more time doing the things you love: hobbies, reading, travel, exercise, and…spending time with those dearest to you.
Continually overlooked is the fact that cherished relationships have likely been built around interactions with full-time job schedule constraints. Forty to fifty hours a week are spent at work. Sure, you have weekends and vacations, but there has always been something else there to provide a little time away, a buffer to recharge. This isn’t a bad thing, just reality. You have likely gone a decade or two interacting with someone on a rigid schedule that limits time together.
Having retired early, you’ll likely be around MUCH more. Again, not a bad thing, but something that needs to be monitored. With so much more time together, you must be aware how much is too much with the ones you love.
If for some reason relationships become a bit rocky, don’t worry, but do acknowledge the fact that things have changed, and adjustments need to be made. Adjustments are being made with all relationships, and this situation is no different. Good news here, at least you will go into it eyes wide open, and have plans for how to adjust as things go.
What To Do With My Time in Early Retirement?
One of the biggest questions I get is “Will I get bored in early retirement”?
I don’t have any data to go on, but I would guess 10% of those that retire early will “be bored.” With a number so small, chance is, you likely will not be one of them.
Here is my thought process:
Most people that are working to achieve FIRE are driven, highly entrepreneurial, and have endless projects they would like to tackle when they plan to “stop working.” In reality, many of these folks will likely be working even harder after they quit, but on their own terms, on their passion projects, and on their own time frame. I believe there is a strong correlation with those that retire early and those that have plans for the future.
Now, you may not have a business, or a side hustle, but I would guess those that work hard enough to achieve such a feat will be highly active and engaged for years to come in early retirement.
On the flip side, I’m sure a smaller portion of those that achieve FIRE in their 30’s and 40’s did so because they happened to make a lot of money, invested without thinking much about it, and just woke up with enough money to their name to call it quits. This speaks to your consistent approach over the years, which should be applauded. However, if you plan to retire early, just be sure you have a passion to fill your time in the future. I’d guess 10% of folks fall into this category, while the other 90% is derived from people like myself, that map out a plan and find every way possible to achieve FIRE over the years.
Neither way is right or wrong, but just be sure to know yourself and make sure you know what your life in retirement will look like.
• Your life in retirement will be heavily impacted by emotions, relationships, and how you plan to fill your time.
• Fear and greed can prohibit you from enjoying your FIRE achievement.
• Relationships will likely be different now you don’t have typical constraints of time
• You will need to have a good plan on how you will occupy your time in retirement
Your Next Steps:
• Are you ready to start spending your savings? How do you plan to address the fear that will ultimately pop up?
• What relationships do you need to monitor now that you will be around more?
• Make a plan for the first 6 months. What will your days be filled with?
Congratulations! You are now a Level 1 – The Basics graduate! Hopefully after the Level 1 series you have a better idea of the primary components of personal finance and why it is important to master money. By mastering money, you can gain the most valuable thing of all, freedom of time.
Now that your making progress, it’s time to move on to Level 2 – On Your Way. Level 2 will go into more detail on most of the topics from Level 1, providing real techniques you can implement today to start accelerating your progress towards financial independence and early retirement. The journey is just beginning, but together, we can achieve your goals.
Commit to making a change, formulate a plan, and stay the course. Let’s go.
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