The emotional side of early retirement
Some say there is a ‘darkside’ to early retirement.
Best think twice before retirement.
Be careful what you wish for – they say!
On and on and on…
But maybe some of these warnings are not wrong. In fact, maybe early retirement is not everything that it is cracked up to be. I have no doubt there is a very emotional side to early retirement. I feel it myself.
Certainly, I see TONS of appeal to my FIWOOT plans (Financial Independence, Work On Own Terms). Financial independence can afford you the opportunity to work on your own terms (or not) but maybe I’m the one that has it all wrong. Should I really be working at all?
The downsides to early retirement
For today’s post, I thought I would explore some of the emotional sides of early retirement including some of the phases I expect to work though in time.
Uncertainty #1 – How much you can reasonably spend?
The simple fact is, retiring earlier means your savings/investments must last longer than anyone retiring at a more traditional age of 65 or later. Factor in longevity risk, inflation, and you’ve got some serious headwinds to navigate.
To help you figure out how much you can reasonably spend, there are tools and services you can take advantage of. I’m running some of those financial projections myself, so you can consider hiring me if you have uncertainty!
Check out my Helpful Sites page to learn more.
When it comes to my own uncertainty, I would be lying to say I didn’t have some now and then. I have my own (minor) concerns if I have saved enough, if I have too much risk in equity investments, and whether my cash wedge is ample enough.
That said, this uncertainly comes and goes. As I continue to run my own projections, I have become far more confident in my early retirement math and have little doubt the following key income sources will be sufficient – if I stick to my plan:
- Max out Tax Free Savings Accounts (TFSAs) until at least age 50.
- Max out Registered Retirement Savings Plans (RRSPs) until at least age 50.
- Maintaining my existing taxable account and letting those assets compound and grow, for juicy, passive dividend income.
- Retaining my defined benefit pension plan from work.
- My wife’s retains her defined contribution pension plan from work.
- I keep my small Locked-In Retirement Account (LIRA), thanks to work at my former employer, in growth assets like these low-cost ETFs.
You’ll notice I have yet to include Canada Pension Plan (CPP) nor Old Age Security (OAS) government benefits above in my early retirement plans. While I do include them in my financial projections, since it will be income for me in my senior years, I remain many years away from tapping any government benefits as an early retiree. I’m simply not age-eligible yet. Sure, those government benefits factor into my long-term retirement needs but I have decided to ignore income from those government benefits in the first 10-15 years of my early retirement. I want other income sources to cover my needs instead.
How much can any retiree reasonably spend?
Of course, the answer to this question is always: “it depends”.
I can say from my Retirement page and performing dozens of case studies over the years, that any income stream from your investments that is near or exceeding your expenses, is likely “enough”.
That’s The Crossover Point for those that don’t know. Meeting that Crossover Point seems to be sufficient for many successful retirees.
When it comes to the often-touted 4% safe withdrawal rate, I won’t go into details.
I’ve written plenty about that before…
Overall, I think the 4% rule is a decent retirement withdrawal rule of thumb to start with. Read on for more articles on this rule:
One might argue does the 4% rule still make any sense???
Conservatively, although I would need to run any retirement projections to show you my detailed math, I would say that any target withdrawal rate of about 3.5% in the early retirement years (3-5) is rather solid.
This is because 50% of the time using the 4% rule you will “double your wealth”.
In fact, 50% of the time (market returns willing) you will finish with almost X3 wealth on top of a lifetime of spending using the 4% rule.
Uncertainty #2 – How will I structure my time?
I enjoy my role at work, although there was a time a few years ago it was challenging. No doubt we all go through those periods and question some things. I’m not writing that here for the benefit of those fellow coworkers that know of this blog – there are a few! Rather, it’s an honest reflection of what I was going through at the time. I write this because regardless of what good days or not-so-good days I might have at work, there are things about my “day job” and my career that I will miss, and other things I’ll be happy to leave behind.
Work provides me with daily structure. It provides some purpose. Work provides some professional and social interaction, and technical stimulation. Countless studies have shown that structure and purpose, in our lives in general, are contributing factors to overall wellness.
Early retirees will need to consider something VERY important: how on earth they are going to spend their time.
Staying active (and a bit busy) has always been important to me. So, remaining active (socially, physically, cognitively) will be important for my health in early retirement and beyond.
I have some ideas on this now, but of course, those ideas are sure to change. Any plans I have today might not pan out at all. What I think early retirement might be and feel like, could be totally different. Plans are good but plans can and will – change. I think it will be very important to me to do some deep thinking on this subject in particular in the coming years. Mainly, to be open to possibilities…
All transitions in life come with a range of emotions – early retirement or even semi-retirement would be a very big one for me personally. These are the emotional stages I expect to go through in the coming years, one is starting right now….
Emotional Stage 1 – Anticipation (<5 years out)
This is my stage right now. Well, semi-retirement at least. I have begun the process of evaluation where I am and where I might be. I’ve started to put some ideas on paper. Those include this Financial Independence Plan.
Admittedly, my anticipation has been building in recent years. In some ways, I’m starting to question and redefine who I am.
Am I an entrepreneur? A consultant? A cyclist? A golfer? A traveller? A craft beer enthusiast?
Maybe I do all these things and more.
Emotional Stage 2 – The Honeymoon (Day 1 to Day 365)
While I am not in this stage, I suspect it exists in some way. I don’t anticipate to be “lost” on Day 1 of semi-retirement but I can appreciate this is a hurdle for others who haven’t thought about the emotional side of retirement yet. After Day 1, any hopes or wishes about retirement become a blunt reality. Too often I’ve read, people make the decision to retire for financial reasons, not for emotional or well-being ones. I believe that is a big mistake.
This is because any honeymoon never lasts forever. It’s just another transitory phase.
Emotional Stage 3 – Reality (Year 1+)
At this point in retirement, the honeymoon is over and potentially it isn’t as enjoyable for some as they may thought.
Maybe some folks go back to work – as part of FIWOOT. There are only so many rounds of golf you can play…
I’ve read feelings of disenchantment can set in for some. Even depression. That’s certainly something I wish to avoid. By maintaining some form of work into my routine (may or may not be daily), it is my hope that I can stay active (socially, physically, cognitively) to support my health in early retirement and far beyond.
Maybe the bucket list starts setting in. Who knows. I do know I need to consider these things and be open to a new type of stability.
Uncertainty #3 – How big is my margin for error?
Traditional constructs of retirement are fading. No longer do most folks retire and cease to work again. That’s just fine by me. Maybe an early but prolonged semi-retirement lifestyle will add many quality years to my life. I hope so.
Many things will change during an extended retirement. No doubt some things will turn out better than expected. Other idealistic plans could fair far worse. There is simply no way of knowing.
One question I have yet to tackle for myself is to define how big my margin for error is. I need to stress-test my plan at some point – and that goes beyond financial plans. My life plan should have some significant flexibility designed-in – and I hope to do just that.
The emotional side of early retirement summary
Nothing lasts forever.
As I move from anticipation to other emotional stages of my semi-retirement, I’ll be sure to chronicle them here. Just like my career and life outside my career, I believe retirements must evolve because everything will evolve with or without you anyhow. Taking on or retaining part-time work, volunteering, participating in philanthropic or community events are just some of the things on my bucket-list even if they continue to be checked off frequently.
It has been said by some it can be hard to be depressed if you’re always helping someone else. I hope this blog continues to help you.
Readers, what say you? Have you considered the emotional side of retirement? Are you there now? What experiences and wisdom can you offer me? Share in a comment – I read every one.