Tag Archives: retirement

Coming to terms with an alternative lifestyle

Even after I had decided that not working at a job was an option for me, it took months to transition to my alternative lifestyle. The hardest part of this was the mental shift required. I’ve had to deal with all sorts of issues and insecurities that came up. I wasn’t expecting to encounter these during what is normally considered to be an agreeable life transition. Many ‘retirees’ (early or otherwise) face the same issues, and many of them never deal with them effectively.

Why do people with lots of money continue to work, often very hard? I suspect that some of them are doing it for the best reason (that they love their work), but many (perhaps most) are doing so for less authentic reasons (e.g. fear or jealousy). I’ve faced visceral issues such as, “Will I go hungry in my old age?” and “Who will look after me when I’m old?” and more esoteric ones such as, “What if I fall behind my friends?”, “What will people think of me?”, and “Is how I spend my time worthy?”

Although each of these took (or is taking) some time to address, we decided to proceed despite our uneasiness. Live boldly! Some of these are issues of risk that can be quantified and assessed. It is possible to evaluate them objectively. The others are insecurities that can be tackled.

Worrying was the fact that one’s 40’s and 50’s are typically one’s most important earning years, when people pay off their mortgage and make serious headway towards their retirement savings. Each additional year worked usually has the concurrent financial benefits of increasing retirement assets or benefits, while lowering the remaining years of cost and life by one. Although financially advantageous, it’s the last item that can be problematic. Life is short enough already. Additionally, both retirement income and expenses are variable. Rates of return, taxation, reliability of pensions, health and other factors all contribute to the uncertainty.

Offsetting the ample incentives to work longer are the facts that life expectancy and quality of life are uncertain. My parents both worked long and hard to subsequently enjoy short and health-challenged retirements, having giving most of their precious time to their employers and leaving the bulk of their largest assets, their pension plans, unexploited. Even if one lives to the statistical average for their demographic (the best guess for most people), research shows that spending drops considerably as people age, even when controlling for health.  People can only spend so much money as they get older. Having more than this may be unnecessary and you can’t take it with you. So, working longer doesn’t add much value after a certain critical threshold has been reached.

In the end, all the financial issues come down to the question of “how much is enough”. Most financial planning books begin with an assumption about one’s income requirements in retirement, when this is by no means given. Retirees are less likely to have the sedate lifestyle once touted by society. They are more apt to travel and enjoy the fruits of life. Given this, deciding how much is enough can be, or should be, a much more considered process.

As for my issues of insecurity (e.g. image, jealously), these can be addressed also. It does not matter what the opinions of others are as long as what I know that what I am doing is right, and then I am impervious to criticism. I will run my own race and what other people think of me is none of my business. Taking these principles to heart however, takes both time and practice. Ultimately, like everything, how I live my life is a choice. I will try to live the lifestyle that is optimal for me, regardless of societal conventions. This means coming to terms with my own issues and insecurities, and not focusing on the perceptions of others.

Are you living an ‘alternative lifestyle’? If so, how are you dealing with the issues and insecurities that you face?

My context shift

Have you ever experienced a change of perspective, paradigm, or context so significant that it literally transformed your life?  I have.

While trekking in the mountains of Nepal in the fall of 2009, I was walking with a friend and talking about a potential career change.  I was brainstorming all kinds of creative ideas (new jobs, business opportunities, writing a book, etc.) when he asked the question that changed my life, “Do you need to work?”  At first, I almost laughed at the simplicity and apparent naiveté of the question.  I didn’t know how to respond.  For some reason I wanted to say, “Of course I need to work”, but that wasn’t strictly true.  No one needs to work.  It is, like all things in life, a choice.  So I thought about it and then answered, “I assume so.  I don’t really know.  I’ve never really considered it”.  And so, I considered it.

Answering the question wasn’t easy nor quick.  It was six months before I emailed my friend to answer his question.  I replied that I could, with a reasonable probability, live a lifestyle that would be acceptable to my wife and I, without needing a job.  Notice all the caveats in that statement.  That’s because deciding to stop working is not a simple thing.  Despite what the advertisements for banks and investments imply, it is something closer to an educated guess than an exact science.   For many people, I suspect it is easier to just keep working than to even answer that question.

Although finding an answer took a while, the change of perspective was quick.  I needed only to open my mind to the most obvious scenario, the one that was staring me in the face.  In business cases, the status quo is almost always considered.  Potential alternatives are compared to one another, but also to continuing to do what we’re doing now.  But somehow, I was overlooking this.  Although I was not working at that time, my mind was so locked into the idea that I needed to work, that I failed to see the obvious.  I needed only to see things differently to realize a world of possibility.  Dream Big.

Have you ever experienced a context shift so significant that it changed your life?

How can we afford to live like we do?

I’d like to be able to report that I’m one of the impressive people who travel continuously, funded fully by a sustainable income from a  location-independent business, e.g. http://manvsdebt.com/     Although this could happen eventually, I’m not currently actively pursuing this. But people often ask how can we do what we do.

The key to financial independence is having the correct balance between financial inflows and outflows on a continuing basis.

Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.

Charles Dickens in David Copperfield, 1849

On the Income Side

Both my wife and I worked full-time for over 15 years.  We each worked for one primary employer during this period, and we were both successful within our organizations.  During this time, we utilized ‘pay-yourself-first’ techniques to pay off our mortgage at an accelerated rate, and to invest in equities (mutual funds in RRSPs and rental real-estate).  We also received a small inheritance with the passing of my parents.  As a result, we currently have passive income to fund the majority of our lifestyle, and we are slowly drawing down the principle of our investable assets.  In our sixties, we expect to continue doing this (at a reduced rate), as well as receive government benefits (CPP) and a modest defined-benefit pension from my employer.

There is still considerable uncertainty as to whether these income sources and eventually the liquidation of the underlying assets will provide a life-long source of income.  There is lots of published information on this topic (e.g. Unveiling the Retirement Myth by Canadian Jim Otar, many related technical articles at http://wpfau.blogspot.com/).  Both the magnitude and sequence of investmen returns have such significant and variable impacts on the probability of outliving one’s assets that unless the majority of one’s income is annuitized (e.g. defined benefit pension, secure government benefits, annuities, etc.), or one has huge assets relative to one’s expenditures, one can never be totally certain nor completely secure.

As a result, we don’t rule out the possibility that we might need to find additional sources of income.  We also might choose to work or own a business for the gratification they might provide.  If so, we will only do things we are passionate about, so they don’t feel like work.

On the Spending Side

There are several things which make our lifestyle, if not feasible, then much easier than it might otherwise be.  We do not have children.  We are both in good health.  We live and travel according to our own rules, not those of others.

We try to live a cost-effective lifestyle, obtaining maximum benefit at a reasonable cost.  I’d call us frugal (hopefully not cheap), but only to the extent that one can be deemed as such while living what some consider a desirable lifestyle.  As a result, we prefer long duration, low budget travel.

In this process, we have traded some of the material benefits we might otherwise have enjoyed (a bigger house, a newer or second car, some of the latest toys) for far more satisfying and lasting benefits like authentic experiences, good health, leisure time, intimacy, and making contributions to others.

Most Importantly

The single most important thing that makes our lifestyle possible is a change of context.  A simple but powerful change of perspective.  Like many people, I’d always imagined that I’d work hard until my mid-fifties or later, trying but never quite living a balanced life, then retiring to start pursuing my dreams in earnest with the time and health that I had left.  This all changed in the blink of an eye, when a conversation with a friend opened my mind to the possibility of something else. I experienced the pre-requisite paradigm shift that made our lifestyle possible.  Without this, I’d still be working too hard, commuting too far, and stressing too much.

The limiting factor is never time nor even money.  It is imagination.

Early ‘Retirement’

People ask if we have retired.  I don’t really know how to answer.  In the early days I responded just that “we’re not working”, which didn’t seem satisfactory to my interrogators.  This subsequently evolved into, “we don’t really have any plans to return to work”, which gave the questioner more of an indication that this was a not just a short-term phenomenon but a longer term trend.  However, it still didn’t answer the question of whether we weren’t working by choice or by happenstance.  Although I believe that everything is a choice, I’ve preferred to leave it this way, in part because of my own uncertainty regarding what the future might hold.

I didn’t want to proclaim that, at the age of 42, I was retiring, only to subsequently return to work by necessity.  This would, in the eyes of others, and most importantly in my mind, likely be seen as a failure.  No one wants to fail at retirement.

But it seems that we’re not alone.  Like the definition of family, the definition of retirement seems to changing over time. It is now exceedingly rare to work for the same employer for 35 years, retiring with the gold watch and a defined benefit pension.  Many baby boomers are realizing that they need to change their expectations of retirement, perhaps retiring later due to insufficient savings, a recent financial shortfall after the 2008 market adjustment, or a change in the status of their pension plan (e.g. Nortel employees).

It would have been nice to have a grand recognition of our retirement.  To be honest, being able to stop working so young is something that I’m proud of, even though it is due only in part to my diligence.  I’m careful to say this because studies have shown that successful people have a tendency to overweight the perceived value of their own contributions to their success, and underweight external factors (i.e. timing, luck).  This is analogous to how politicians credit themselves for the success of the economy while blaming everything and anything else when it falters.

It would have been great to invite all of our friends to a party to formally recognize our
attainment of this important milestone in life and then, to head off into the sunset with both resolution and certainty.  However, life is a lot more fluid than this.  As it was, we kind of just slinked off into retirement, proceeding bravely but prudently as we dipped our feet into an alternative lifestyle.

How has your reality or perception of retirement changed over time?  Will you be able to identify this milestone with certainty and recognize it in style?