The following is a guest post from one of our readers – Rich. He really enjoyed last week’s article and was inspired to map out his own 7 Phases of Retirement. I think this is a great idea and everyone should make a Retirement road map like this. It will give you some direction so you don’t have to blindly follow conventional wisdom from finance professionals who might have ulterior motives. You need to make your own retirement plan and enjoy life while you can.
I was considerably inspired by your “7 Phases of Retirement” post. Ever since I worked in Advice Services at Ameriprise many years ago, I’ve held that the prevailing binary notion of retirement is flawed at least, perhaps even a self-loathing exploitation of human nature. It reeks of the same twisted religious sentiment which suggests that the more miserable you let yourself be in this life, the happier you’ll be in the next. A favorite book of mine, How to Be Idle: A Loafer’s Manifesto by Tom Hodgkinson, bemoans extensively the harm done to the world by the Industrial Revolution, including the unnatural work rhythm and perverse employment culture which ensued. I have made it a personal goal to disrupt this pervasive paradigm, at least in my own life.
Therefore, I find refreshing your idea of challenging traditional work life templates and thinking in phases which progress away from indentured service to “the man” and toward a life of financial (aka emotional) freedom. However, your model doesn’t fit me for a couple reasons:
- I got married during undergrad, and we had our first child 2 years later while I was working on my MBA and my wife was finishing her BFA. Except for a few brief periods, my wife has preferred donating her skills and being with our 4 children over work for hire. Hence not DINKs, but OILKs (one income, lots of kids)
- In addition, your phases are framed as answering the question “who is working,” but as I think about where my family has been, and look forward to where we’d like to go, I personally find it more helpful to orient on specific financial or personal objectives
For me, the most exciting objective—the one that the rest are subservient to—is not “retirement” or even “financial independence,” but what I might call “employment independence.” This is NOT synonymous with working for myself, which I find even less appealing than regular employment. What I mean by employment independence is achieving a level of financial security that my wife and I can make work life decisions at our whim, without first paying homage to the myriad responsibilities we’ve already signed ourselves up for.
For me, this security requires the following three conditions:
- A net worth of $1 million.
- No debts (or at least nothing I’m paying more than 3% on. AND
- A baseline income stream of $4000/month.
My desire is to make questions like which country we live in, how much we work, and what we’re doing when we work the key decision factors, and to make actual compensation moot. For instance: my wife is highly interested in teaching art, and I’m keen to spend more time with the kids, in the garden, and getting our houses rent-worthy, so I could see us trading roles for some time. Or, we are international travelers, with some desire to do good in the world, so I could also see us taking an opportunity to lead a charity in some 3rd-world country, or spending entire summers as a family contributing to a social cause in some remote location.
Hence, I thought I’d take my own crack at your phases. Just as yours didn’t quite scratch the itch for me, my framework may not resonate with many, but hopefully will for some. The numbers I suggest are clearly subject to scrutiny, but these are the guideposts I’ve discovered along the way.
- Financial consolidation–eliminate all debts charging more than 5½% interest; student loans and mortgages are most likely to stick around, but only if they meet this threshold
- Baselining–achieve a positive net worth, continuing to focus on highest interest debts first; it is possible this objective is met while meeting the first objective
- Growth–establish a strong net worth ($200k), balancing continued debt reduction and establishment of emergency funds ($50k) with maxing out qualified retirement accounts
- Diversification–build a diverse portfolio of assets (>$500k), including non-retirement equities, precious metals, real estate, artwork, etc.
- Income generation–gradually shift some portion of assets toward income generation, with a target of meeting core living needs ($4000/month); continue building net worth (to $1 million)
- Employment independence–make decisions about work from the strength of an ongoing income stream which meets basic needs; do not touch retirement assets, and channel excess income back into income generation or retirement
- Full retirement–don’t do anything that earns income; deplete retirement and other assets until you die
At the ripe old age of 36, I’m in Phase 5 and trying to resist the temptation to prematurely jump into Phase 6, where I envision spending 30+ years. To me, that’s what Retire by 40 means—it doesn’t mean being done with work and entering a life of idleness and leisure; it means things like: not caring when the next paycheck comes; spending at least as many days/hours on family stuff, personal interests, and yard work as I do earning money; accepting jobs or short-term assignments which pay a fraction of my current salary; going for months without work just because; re-claiming ownership of my weekdays; and not being constrained to a certain number and rhythm of vacations and holidays.
One point worth considering: while of course there is increasing excitement moving from each phase to the next, I’ve found that the earliest phases are most fundamental and deliver the greatest emotional reward, doing more to ease duress and instill peace of mind than the later phases. My family’s development and emotional well-being has hinged far more on those early efforts than subsequent successes; consolidating debts and achieving a positive net worth are still the most momentous financial triumphs we’ve made.
Joe> I like Rich’s 7 phases. It is more focused on net worth and income with some solid numbers. What do you think? I would love more guest posts on this subject. Please make your own 7 phases to retirement and send it to me for publication.