Why do we leave retirement to the end?
I love spreading early retirement propaganda. It is honestly one of my favorite past time activities. On the surface, it is a very simple…
I love spreading early retirement propaganda. It is honestly one of my favorite past time activities. On the surface, it is a very simple concept. Save a bunch of money. Keep going until you supplement your living expenses. Conversation over, right? Wrong. Turns out, there’s a lot more to it.
I ended up having an interesting discussion recently with my colleagues Troy and Nina over beer (all good conversations involve beer). The question we deliberated was this:
Why do we leave retirement to the end?
If you’re in the traditional mindset of retiring at 65, this might seem like an odd question. How else would you have it? On the other hand, If you’ve discovered the wonderful world of financial independence, it’s a perfectly fair question. Why do we leave it to the end?
The end can certainly be very long. You can stay retired for 60 years. But it still comes after continuous chunk of work.
So what’s the alternative? One option is to take 6 months off right now. Do your thing. Then come back and work some more.
This actually has a great benefit. You get to discover what it’s like to be financially independent without having to wait for years for your savings to accumulate. It’s like shopping at Costco without membership. Fantastic!
The first time I heard about this concept was back around 2011 when I read Tim Ferriss’s 4 hour work week. In the book he talks about having mini retirements throughout your working life. I thought the idea was profound. It definitely changed the way I viewed retirement.
The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich
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Except there’s a problem. Lunches aren’t free. In this case, it’s your TTF (Time To Financial independence). If you are taking time off work to travel and “find yourself”, you’re not earning any money. If you’re doing it for 6 months, you just set yourself back by 6 months.
It gets worse. Since you are unable to perform photosynthesis, you also end up spending money. Your TTF moves back by an additional number of months it would take you to save what you’ve just spent. It can be summarized as follows:
Your TTF moves forward by the amount you save and moves back by the amount you earn.
You save less than 100% of what you earn. Hence, it will take you longer to make up the hole in your savings than the time you took off.
There’s a second downside to the concept of mini-retirements. People seeking financial independence (effai seekers) tend to fall in one of two (or both) camps.
You are looking for freedom — expressed as autonomy from the work schedules.
You are looking for security — expressed as autonomy from the business cycle.
Mini-retirements address the freedom part at the expense of security part.
Imagine you’re a technology worker in 1999. You decide you’re burned out. You’d like to take 6 months off and travel to Thailand. Great! except when you come back, there’s no job waiting for you. It’s likely you won’t have another one for a while. Once you do get one, it’s going to be half the salary.
None of this means you can’t be financially independent but recessions and economic downturns are things most people want to avoid. One such way is financial independence.
Does this mean my professional opinion is that mini-retirements are a bad idea? Absolutely not.
You could mitigate the downsides by taking less time off. 3 months might suffice to find who you really are. The damage to your TTF is eased and your employer might even agree to keep your position open for you. Just be aware of the risks. I have been always too scared to take the time off.