Once you can afford to retire, you can’t afford not to

Everybody in the Early Retirement community had their own events and experiences that started the idea of Early Retirement and gave them the drive to live below their means for years and decades. Here’s our story:

For me (Papa ERN) the seed of retirement planning was planted very early. Grandpa ERN, my father, was already in his late 50s, when I was a teenager. Frequently, I would hear about his idea of “early” retirement, at age 62 rather than the normal age 65. About the incentives from his employer, and how wonderful it’s going to be to finally retire. So, one day in school the teacher asked what we look forward to in life, and the 14 year old version of Papa ERN responded “I look forward to retirement”. Everybody got a good laugh out of that, though I’m almost sure people laughed more at me than with me. In 2018, when I plan to retire most of my classmates, likely even the teacher, will still be working and I will get the last laugh after all.

Once you can afford to retire, you can’t afford not to

My dad passed away in his early 70s, having enjoyed only about 10 years of his retirement. His quality of life was compromised by multiple health issues that, ironically, started soon after retirement. Monetary budgets can be stretched but the one budget that has much less wiggle room is your remaining time on planet earth, not just in years but also in health and quality of life adjusted years. Retiring early, enjoying life and living healthy will not just give you decades of quality life before age 65, but may even be the one recipe for better health and sanity after age 65. Hence, when I announce my retirement in 2018, no pay raise, promotion or corner office will convince me otherwise. I won’t need the money, but I do need the time. In fact, we can’t afford not to retire early. We got ourselves a motto and a tagline now! A close second choice would have been “Stay frugal, my friends”

Personal

Having a child is a great motivator to retire early. Of course, financial planning started way before I became a dad. But sharing a place with a newborn who doesn’t sleep through the night when you have to go to work the next morning reassures you that it wasn’t so dumb to forego buying that Maserati a few years ago and invest in the exit strategy instead. Now my daughter is older and she sleeps well, but it’s painful to leave every weekday morning and miss 10-11 hours of playtime with my daughter and quality time with my wife.

My wife, Mrs. ERN, decided to quit her job and stay at home with our daughter. As much as we like and trust the nannies we had in the past, there is just no substitute for our daughter growing up with her mom. Besides, once you factor in all the costs from taxes, nanny, work clothes and commuting, the marginal after-tax benefit of one hour worked easily drops below the minimum wage. This is a classic Your Money Or Your Life (paid link) exercise.

The inefficiency of the M-F 8-5 work week

I am lucky enough to not require a long commute to work. Most days I can walk to work, so I avoid the daily grind of traffic or our dirty, crowded and inefficient public transportation system. But nevertheless, even I feel the drain and the inefficiency of working a corporate job. Driving to a ski resort on Friday night, or driving back home on Sunday night? You will be stuck in traffic and the drive takes twice as long as it should. At the ski resort, you stand in line at the lift again. Be prepared for a 10-minute wait for a 5-minute lift ride and a one-minute ski run. On the rare occasions when I get to ski on a Wednesday, it’s so empty the lift attendants would greet me by name. But then you have to “waste” a vacation day for just for one day of skiing. Retirees have it much easier. We plan to do our grocery shopping, anything entertainment, etc. during the week, starting in 2018!

Same with travel in general. Currently, we pay a premium to fly on “convenient” days because all the other M-F minions around us want to fly on those days as well. Often, we pay extra to fly direct to keep the stress level down. Once in retirement, you can take your time. So what if you have a 6-hour stopover somewhere? Bring something to read or maybe even do a quick city tour. It’s Uncle Bob’s birthday and flights are expensive that weekend? So what, fly Wednesday to Wednesday and do some other touristy stuff on the same trip.

Working in Finance

The benefit of a finance career is that the industry pays very well. It is a very high margin business, so much so that some financial institutions didn’t even lose money during the Global Financial Crisis in 2008/9 when everybody thought the world is going to end. Well, in many cases there were accounting losses due to writing down assets, but they turned out to be way too aggressive and the excess write-downs padded earnings in later years. During normal times then, finance is as close to a license to print money as you can (legally) get. Base salaries are already quite nice, but the real kicker is bonus season when, every January or February, you get another 100-120% times your base salary, at least for mid-level highly educated professionals. Obviously, less for secretaries and more (much more!) for upper management.

The dark side of finance is that it’s also ruthless. I have survived multiple rounds of layoffs here. I have seen individuals get the boot, entire divisions being shut down, you name it. The most traumatic experience was in 2009. On one Monday morning, everybody had one-on-one talks with their respective managers to find out if they still had a job. Some people went to their manager’s office and met their new manager because the old one got the boot, or was reassigned. I was lucky to keep my job. But I did get a new boss that day. The lessons: never take your paycheck for granted and treat each paycheck and bonus check as a gift from heaven because it could be your last one. Some people save money as screw-you money. But for me, it’s more about money in case my employer screws me.

Conclusion

The ERN family invests the maximum in our 401k each year and invests each bonus in a taxable account. Savings are between 60 and 70% of our net income. Many years of doing so, consuming wisely, investing wisely, keeping my/our nerves during the big crashes in 2001 and 2008/9 to invest more and also a little bit of luck catching a nice long bull market since 2009 have created a nice stash that we will start putting to use in 2018!

So, stay frugal, my friends, because you can’t afford not to retire early!