Posted by Canadian Dream on April 7, 2011
For a while now I’ve been rolling around the idea of semi-retirement in my head, but I’ve also had an issue with planning something like that. You see I’m a little unsure on how to pick the minimum to earn each year during those years and then how do you transit then to full retirement. It’s always been a divide I have yet to come up with a good way to bridge since I’m aware that any income I could generate from writing would be erratic at best.
So yesterday while discussing that issue, out of the blue, my lovely wife asks me a question “Would you be willing to go back to school for a bit?” I have no idea what she is talking about, but I reply “Depending on what, yes.” Then she lays out her idea: I could work in her daycare. Pardon!?! Then she reminds me of a interesting fact that if she had a second employee she can take on some extra kids. The profit margin at that point would likely be close enough to cover are entire budget once the house is paid off. Therefore allowing the investments to grow at their full rate, but you could always fall back to the investments if you have a low period of income.
I stare at my wife in nearly shock. In a two minutes she has manage to propose an simple, realistic solution to bridging the divide when I had yet to come up with a plan after rolling the idea around in my head for the last few months. If I haven’t mention it lately, I really do love my wife.
While I’m not sold on the idea entirely yet, it does provide a potential base for me to actually run a full-blown analysis on semi-retirement. This partly rolls out of the fact the way I wife picks her clients. She takes great care to ensure her clients will fit in well with the other kids in care and the parents will work out as well. So the result of that is her income stream is very stable and she has very low turn over of clients.
So you might be wondering, why I would bother looking at semi-retirement when I am already on track to retire at 45? The reason is actually rather simple. I like the idea of transitioning out of work more slowly. I think a full stop on work at 45 could be a little too much at once. So that is why I’ve been rolling the idea around in my head.
If you were semi-retiring, what would you be willing to do to bridge the divide between full work and full retirement?
Posted by Canadian Dream on October 13, 2010
Occasionally I sit down and reflect on plan to retire at 45 and wonder if I’m going about it all wrong. Why? I know there is a significantly hole in my plan. I assume during my calculations that I never earn a dime of money again after I retire despite the fact I do intend to do some work. I even found out the other day that my wife is toying with the idea of continuing to do some work once we are financially independent. So the question becomes am I doing this all wrong because of a false assumption?
Perhaps the way I should be looking at my savings if the liberation from having my day job (but not all work) and treat the money as a giant version of an income stabilization fund. That way my savings would have just two phases: money for actual retirement around 60 and then backup money for the years that we don’t earn enough to cover all of our expenses.
So in that case let’s say I need about $200,000 for actual retirement (I’m picking round numbers out of thin air here so don’t take the value seriously). Then if my expenses are about $25,000 a year, an additional $250,000 would provide a giant income stabilization fund. So that fund would be 10 years of completely not working or 20 years of just earning $12,500 between my wife and I. The advantage about thinking in these terms is you only need your ‘income stabilization’ money to keep pace with inflation since you don’t have to rely on the income generated from that money.
Also because you only need that ‘actual retirement’ money at 60 you don’t need to save the full $200,000 before you quit your current job. A portion of that can be gained from compound interest over the next 20 years. Obviously you don’t to pick too high of a rate of return in your plan if you don’t save all the money upfront, as that could set you up for failure later on. Yet a modest rate could likely take care of some of your savings for you. So in reality if you earned a 4% real return on your money for 20 years you only need to save about $100,000 before quitting the day job.
So in theory I could get by with a ‘retirement’ savings target of $350,000 rather than double that for full financial independence at about $700,000 in savings. If that were the case I could potentially hit the lower target in about five years. It’s a tempting line of thought to explore.
Yet temptation also exists on keeping working the day job just a year or two more beyond the $350,000 mark. Why? Because at that point every year worked plus compounding interest gains approximately another $100,000 in savings which continues to reduce your reliance on income from a job.
So where is that line in the sand if you choose semi-retirement? On hand you can leave earlier by relying on your ‘work’ more in semi-retirement and the other hand you can reduce your dependence on any work. Which freedom do you want more: freedom from your day job or freedom from all work.
Posted by Robert on August 9, 2010
My thinking about retirement leads me to explore alternative visions to my preconceived notion. Maybe it’s possible to retire without quitting work. I have not read Timothy Ferris’ The 4 Hour Work Week, and I won’t, because the author strikes me as someone who takes himself too seriously. So I picked up Stanley Bing’s Executricks. I am told he has a similar message to Tim Ferris, but he is prepared to laugh at himself. I started skimming through it with every intention of immediately returning it to the library. By the time I realized it, I was on chapter 3.
The subtitle of the book is: How to Retire While You’re Still Working. With a tongue-in-cheek manner, Stanley Bing proceeds to illustrate spending company time and money on the good things in life. The reason, he suggests, is that retirement isn’t a dream come true. He presents two alternatives: either the poor schmuck works all his life and drops dead within six months of retirement, or who putters lonely through the last 30 years of life without the resources or network to really enjoy it. In this way, there is no longer a choice between being rich with time or being rich with money; the cunning executive can have it all.
“Retiring” while working requires control. You must use people to do your work for you, as much as possible. You can then use email and cell phones to delegate and communicate while living life outside the office. The author encourages the reader to legitimately expand unproductive time such as breakfast meetings and business lunches to replace tedious working hours. Then, using the expense account and sound business reasoning, travel for business with the goal of personal enjoyment. The irony is that you must work hard to develop the environment in which to hardly work.
The humour is obvious, but this fits into the category of “It’s funny because it’s true.” And it’s not possible to tell if he isn’t being honestly sociopathic at some level. At one point, he cites Machiavelli, with the suggestion that he was a fun-loving and pragmatic thinker. As an investor, I don’t want to ever think that people are abusing company resources in this way in companies that I own. Realistically, it’s accepted practice, and explains why I prefer to own small companies or family businesses.
The book ends on a serious note. Perhaps the inspiration for the entire book was a piece of advice the author received from his father-in-law, who made just enough by age 50 to be able to retire to a golf community in Florida. After 20 years, at age 70, he said to Stanley, “Never retire. Never.” The alternative to retiring while you work, that the author suggests, is philanthropy. In reality, tutoring, mentoring, volunteering, organizing and other forms of philanthropy are ways of working in retirement.
I am reminded of the admonition: “Be careful what you wish for; you might get it.” By age 45, will I really know what I want to do with the next 45 years of my life? Do I really want to limit my options? My answer is “No.” I want to continue working, so that I can maintain my social network and continue to benefit from more-than-adequate financial resources. I only want to have no debt and enough assets in the bank to be beholden to no one. Then I can be retired while working and truly enjoy the good things in life.
