Winston Churchill was 65 in 1939 when World War 2 commenced. He had his most important, and arguably his best years, ahead of him.
Ray Kroc founded McDonald at 52 years of age. And Harland Sanders founded Kentucky Fried Chicken when he was 62.
Betty White got her major acting break at age 51.
Nelson Mandella was 75 when he became the first democratically elected president of South Africa.
Stan Lee didn’t start publishing comic books until her was nearly 40.
Charles Darwin published On the Origin of Species when he was 50.
Henry Ford was 45 when he created the Model T and continued to work in the business until age 82.
Often when I ask new clients when they would like to be able to retire the answer is “tomorrow”, with a smile and a chuckle.
Retiring as early as possible is seen by many as the pinnacle of financial success. This is interesting, because if you had someone who had been made redundant and was finding it difficult to get back into the workforce – early retirement but not at a time of their choosing – they’re unlikely to be in a happy state.
This week I want to explore a few alternatives to retiring early, and some reasons why you might like to consider these as part of your plans. If early retirement is the choice in life that you’re shooting for, go for it, by all means. But if your deeper goal is to live a happy and healthy life, perhaps these alternatives might provide a viable way forward for you.
A good place to start is reflecting on why early retirement is something that you aspire to. Is it because you’re working in a high stress role that is not sustainable and it’s making you miserable? perhaps you have a real passion in a different area and want to have the time to pursue that interest? Maybe it’s because you want to have more time to care for elderly parents or grandchildren.
With clarity on your reasons for seeking early retirement, we can come up with alternatives that might be easier to achieve, and make you happier in the process.
Let’s first consider the scenario of the high stress role, something that a lot of the clients we work with face. The job pays well, very well usually, but the employer isn’t dishing out those dollars just because you’ve got a nice smile. That money comes with a lot of pressure and expectation, and usually that means there’s only a limited time where you can sustain that intensity.
Instead of early retirement, a sabbatical, or extended break, is likely to be a better solution. Whether you actually resign from the role, which can help in terms of leaving the worries and pressures behind, or you take extended leave, perhaps on half pay, so that you have the peace of mind that there’s a role to come back to in the future, extended breaks can be a fantastic way to recharge the batteries without exiting the workforce entirely. It’s quite possible that with six or 12 months out of the daily grind, you have an opportunity to reflect on what you want for your future and maybe returning to that high pressure role is not the pathway forward. You might also find though that you miss the challenges that came with your old job, perhaps you miss your colleagues, or the sense of achievement.
And what you do with this time off can be interesting too. I met a couple who spent two years travelling around Europe, creating a blog about vineyards and their cellar door experiences. Someone else I came across volunteered at a not for profit organisation for a year. A friend of mine rode his bike down the West Coast of North America from Canada to Mexico.
Taking this opportunity to hit the reset button can be of enormous value. It’s also something that you can likely do much sooner than fully retiring.
You’re in one of these high pressure roles and you can see that you’re not going to be able to sustain it into your 60s. If your exit plan is early retirement, then that might mean sticking at it for 10 years or more to build up a large enough nest egg for you to support yourself through investments alone, for 40 or more years. But if instead your plan is to take a year out, and decide what is next, but with the full expectation that you’ll go back to earning an income on the other side of that break, then quite possibly you could do that with only a year or two’s planning.
What if your reason for chasing early retirement is dissatisfaction in the job that you’re doing? Perhaps deep down you’re a creative soul, but your Monday to Friday requires consistency and precision. Or maybe you’re a people person, stuck in a cubical looking at a screen all day. A viable alternative to early retirement here is a career change, something we explored in last week’s podcast with Kate and in several other episodes, the most memorable for me being one of the early episodes I did speaking with Tim who made a career change from bank manager to primary school teacher.
Career changes take planning. Usually there is some training involved and that costs money and likely requires time out of the workforce. But with some good financial planning we can normally find a way to make it work. And in comparison to achieving early retirement, taking a couple of years out of the workforce to go back to school and learn a new career is a lot easier to achieve.
The other great attraction with a career change is that often it has the opposite impact to early retirement. With a new challenge, people tend to work later in life, which will easily compensate for the short term pain involved in retraining, and perhaps a lower wage as you get started. Career changes often involve a one step back, to take two steps forward, phase. This is something you need to be aware of, but certainly something that we can plan for.
Another reason I often hear for people chasing early retirement is to have more time to do other things, frequently caring for either elderly parents or grandchildren. Both of these needs are quite time sensitive. At the time that your elderly parents need assistance, it’s not much good saying “let me build an investment strategy to make that possible 10 years from now”. Helping out with the grandkids before they reach school age is much the same.
Almost certainly a more feasible approach is to cut down the hours that you work rather than retire fully. Reducing your paid employment to two or three days a week might enable you to spend the family time that you want, but also ensures you continue to bring some income in to meet your expenses, and retaining the stimulation and connectedness that a job provides.
As with the career change, it’s likely that cutting back to part time will mean that you can continue in the workforce for longer. These extra years can easily compensate for the lower superannuation contributions and other savings that you would have made had you stuck at the full time load.
Achieving early retirement is hard. It can involve a lot of sacrifices, and most of those sacrifices tend to occur when you’re in the prime of your life health wise and with respect to your family. Is it worth working 12 hours a day in your 40s so that you can retire in your early 50s when the kids have moved out of home and your fitness isn’t what it used to be?
Those who have retired early commonly report mental health struggles – feelings of isolation, loneliness, and a lack of purpose. Often, they just get bored.
As you’ve probably heard me mention before, a large part of the work we do for our clients is financial modelling and scenario analysis. We usually compare several alternative scenarios to help you decide how best to move forward. People are often amazed at the difference working an extra few years can make to their financial position. An extra few years of super contributions, an extra few years of nothing being drawn out of your super, and often an extra few years of building other investments outside of super, can have a big impact on the level of retirement income you’re able to generate, and reducing your longevity risk.
To retire at 50 on an income of $100,000 per year, you would need to accumulate savings of around $2.5million. But to retire at 70 on the same income, around $1million less in savings is needed. The retiring at 70 option provides a lot more opportunity for you to have fun over the full journey of your life.
I encourage you to give consideration to whether an extended break, a career change, or shift to part time work, might be the alternative to early retirement that enables you to live a happy and fulfilling life.
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