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Ben’s 7 Phases to Retirement


I wrote The 7 Phases of Retirement in 2013 and encouraged readers to submit their plans. You need a road map to find your way to early retirement because you probably won’t get there by accident. Today’s post is from one of our readers – Ben. Everyone who would like to achieve financial independence should come up with a plan to get there someday. It’s not going to happen by accident so you need to work for it. Check out Ben’s plan and tell him what you think.

ben's 7 phases to retirement

Ben Shearon is an English teacher living in Sendai, Japan. He blogs about teaching and living in Japan at sendaiben.org.

I have been enjoying the “7 phases to retirement” series and was inspired to write my own. It is fairly similar to the ones published already, especially in the projected endgame (phases 6 and 7). My journey towards financial freedom started a few years ago when I inherited some money and had to figure out what to do with it. Several catastrophic mistakes later (investing in a hedge fund, selling at the bottom in 2007…) I am a wiser, more experienced investor. Here are my seven phases as I see them going forward.

1. Waking Up

This first stage was the most important for me. Basically it involves waking up from normal financial behavior such as borrowing money to buy things, buying unnecessary things, misusing credit cards, spending money you don’t have, and living above your means. Talking to friends and family, it is surprisingly difficult to spark this phase in other people. It seems to be something that develops from within when people are ready. I have not yet managed to persuade anyone else to take the red pill.

2. Building Basic Habits

Getting into the habit of saving regularly and investing in appreciating or income-producing assets. This requires a change of perspective and some knowledge. Luckily I find reading about investing fairly interesting. Books like Millionaire Teacher and A Random Walk Down Wall Street made a big impression.

3. Financial Stability

This phase is where it all starts to come together. The financial cushion starts to build up and money is not really a worry any more, but rather something fun and satisfying. This is where you have two or three years of living expenses saved up and are able to add to your savings regularly.

4. All-out Effort

At this point you realize that the habit built up in phases 2 and 3 will result in financial independence eventually. This realization spurs you on to greater efforts to maximize spending effectiveness and save as much as possible.

5. Financial Strength

Here is where you have 5-10 years of living expenses saved up and start to see significant (10-50% of monthly expenses) passive income coming in.

6. At-Will Work

The culmination of phases 4-5, you have 25 years of living expenses saved up/100% of monthly expenses covered by passive income. Work becomes optional, and the choice of what to do with your time is yours.

7. The End of Work

Traditional retirement. You cease working in favor of leisure activities, travel, volunteering, or spending time with family. It is also very possible to ‘retire’ temporarily, for example to travel, and then go back to phase 6 later on.

Right now at 36 years of age I am at phase 4. It took me a long time to get through phases 1-2 above (in my early 30s) and I am now very much in phase four. I get a real kick out of buying ETFs, dividend shares, or peer-to-peer lending and seeing my passive income build up. I’m enjoying the journey and look forward to learning more and more as I go deeper into the rabbit hole. Personally I really enjoy my job, so will probably flit between phases six and seven above once I reach the end of my financial journey.

RB40’s comment

Thank you for sharing your plan with us! I particularly like the measurable goal of saving 25x of living expense. I was very lucky to get through phase 1 and 2 quickly. I never had much consumer debt and started investing as soon as I got out of college. I think the end goal for me will be going back and forth between phase 6 and 7 as well. It would be quite nice to work 6 months out of the year on something I like and take the rest of the year off. Good luck on your journey.

Joe’s 7 Phases to Retirement

Rich’s 7 Phases to Retirement

I would love more guest posts on this subject. Please make your own 7 phases to retirement and send it to me for publication.

The following two tabs change content below.
Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 30 comments… add one }
  • [email protected] August 21, 2013, 1:59 am

    I’m at phase 5 but defined very differently. Bulk of my assets are in 401K, and Roth IRAs that will set me for life in 20 years. Other assets in real estate that I take no money from with the end game of paid off properties in 7-10 years. We’re still maxing out all retirement accounts, focusing on our taxable accounts.

    From an asset perspective I’m at a 5, from a cash flow I’m at a 4.

  • sendaiben August 21, 2013, 2:37 am

    Hi Charles

    Thanks for chiming in! One big difference for me is that as an expat I feel responsible for my own future. I don’t have a pension in the UK.

    Japan does have a pension scheme that I am fully paid up in, but due to the demographic and financial troubles facing the country I am not sure it will be there for me when I retire.

    Because of this I am not accounting for my work pension in my plan 🙂

    Hopefully it will be worth something and provide me with some bonus spending cash, but in the worst case scenario I won’t be short money I was relying on.

    • retirebyforty August 21, 2013, 8:08 am

      I didn’t know you can participate in Japan’s pension scheme. That’s interesting.

      • sendaiben August 21, 2013, 8:31 am

        You can (in fact, according to a penalty-less law, you must!) if you live and work here in Japan 🙂

  • The Warrior August 21, 2013, 5:33 am

    I’m 29 and definitely in step 2 striving for step 3. For me, it’s a matter of staying on the path.

    Instead of focusing on step 6 and 7 since they are so far off for me, I am focusing on your comparable step 5. If I can get to that financial strength where opportunities can be taken advantage of without fear of going broke, I’ll feel financially secure. That doesn’t mean 6 and 7 are out of the question, but that they are just out of focus right now.

    Thanks for sharing your breakdown Ben!

    The Warrior

    • sendaiben August 21, 2013, 8:31 am

      Phase 4 is a nice place to be. I imagine 5 is even better, as the passive income is snowballing into your investments…

  • C. the Romanian August 21, 2013, 5:48 am

    Very nice phases, I really like this approach! A goal of having saved up 25 years of expenses makes a lot of sense and the possibility of switching and redoing phases 6 and 7 over and over again sounds really nice. As I said, I really like this approach and I might want to “borrow” it too 🙂

  • Jamie V August 21, 2013, 6:02 am

    I’m really enjoying reading these phases! I can’t agree with you enough on #1. I woke up just a few months ago, and I feel a fire inside that is building (it’s so exciting to feel this way after feeling stagnant for years!). But I haven’t been able to open anyone elses eyes, even my boyfriend, as much as I try to explain it. While I feel jump-started, I’m still going nowhere. I suppose making a plan of 7 phases might help me out, too. Congrats on getting yours put together, and having the success you are having! Keep up the excellent work, Ben!

    • retirebyforty August 21, 2013, 8:10 am

      Good luck! Writing it down will really help because you’ll have a plan to follow. I would love to see your plan. Work on it! 🙂

    • sendaiben August 21, 2013, 8:34 am

      For me I think the seed was planted when I read Your Money or Your Life, which completely nails the possibility of early retirement. Unfortunately it’s a bit dated on the investment side of things, but still a 90% value if you haven’t read it before.

      Give your boyfriend a copy 🙂

  • Insourcelife August 21, 2013, 6:48 am

    Very concise and simple path here – good job! I am currently at stage 4 or 5 depending if I were to count tax sheltered retirement accounts. The tough part is building enough in your taxable accounts or other income producing investments to throw off good income before the traditional retirement age.

    • retirebyforty August 21, 2013, 8:12 am

      Saving for both purposes is pretty difficult. We are still focusing mainly on building up our retirement accounts more. We can work a little bit before full retirement so we can have a little income. It will be harder in full retirement to work much. We’ll see though.

  • No Waste August 21, 2013, 7:22 am

    I like how clear and straightforward this plan is.

    Re: #1 – I can’t agree more, it reminds me of the allegory of The Cave. Everyone is stuck in a cycle of consumption and lifestyle inflation. Getting out of the cave can be the hardest step of all.

  • EL @ MoneyWatch101.com August 21, 2013, 8:13 am

    Great steps to apply action to a retirement process! I will have to say that most people need an additional step after the wake up in order to pay off debt. Paying off a large amounts of debt is a step on its own because it can take years and a lot of money out of the equation. Thanks for the post.

    • sendaiben August 21, 2013, 9:04 am

      Definitely true. I was lucky in that my student loan was only around 10,000 USD and I disliked my first real debt (loan to buy a motorbike) so much that I never took another one out after paying it back 😉

  • Julien @cashsnail August 21, 2013, 8:26 am

    I’m starting phase 3, finances are under control, money is not a worry.
    But I can’t find out how to save more than 25% of our income. We enjoy a lovely 55% taxes rate & 20% of VAT on every purchase so even 25% of saving is really not much in absolute value.
    For now the only solution I see is to move to a country with lower taxes rate (as starting a side business while doing a 9-5 job + handling a 18 month super active girl is pretty hard)

    • sendaiben August 21, 2013, 8:36 am

      We are very fortunate and currently saving around 50%. I think the key is to maximise income and minimise spending at the same time.

      Check out Mr Money Mustache if you need some inspiration. That guy is brutal (if you are feeling really brave, send him your financial situation so he can do a tear-down on it) 🙂

      • Julien @cashsnail August 21, 2013, 9:56 am

        I do follow MMM 🙂
        And yeah, I know I could be more efficient (mostly optimizing grocery shopping & vacation) but the car/phone/internet are paid by company so it’s hard to save on it 🙂
        And rent is relatively cheap, so with some effort I could probably hit 40/50% saving
        But going up to 75% I don’t see how at all

        Congrats for being able to handle few jobs at the same time !

    • sendaiben August 21, 2013, 8:38 am

      On the other hand, I have had at least three jobs for the last ten years or so… it’s exhausting but ultimately worth it.

  • SavvyFinancialLatina August 21, 2013, 8:51 am

    We’re on phase 2: building the basic habits.We are in our early 20s. Every day I think of ways to gain financial independence. Of course, it all involves making more money, and spending less money. We both really want to start a side business. The next six months will be focused on turning that want into a fact. At least filing the paperwork to start a business.

  • Mr. Utopia @ Personal Finance Utopia August 21, 2013, 8:53 am

    I think no matter how you slice and dice the phases to retirement, the important thing is to educate yourself, take action, and work hard toward achieving your goals. Once you make the original paradigm shift, it’s just a matter of time until you get there with the variable being how hard and smart you work at it along the way. Congrats Ben for taking the steps to achieve your aspirations.

  • WalletEngineers August 21, 2013, 9:19 am

    Reading about other regular people being able to accomplish these goals and move through these steps to retirement really gets me motivated. Currently my wife and I are in the early steps but just last week we were able to go buy a used Prius with cash. Being able to tell our friends that no financing was needed when we show off our new car is a very enjoyable experience. I really hope to influence others in my generation to start looking at these 7 step processes more seriously, most of them are still asleep (phase 0).

    • retirebyforty August 21, 2013, 11:42 pm

      That’s great! I hate those monthly car payments.

  • Pretired Nick August 21, 2013, 2:46 pm

    I like your seven phases, Ben. I’ve still gotta cough up my own one of these days. Interesting that you highlighted “waking up” as a phase. I hadn’t thought of it that way, but it’s actually kind of true. Good food for thought!

    • sendaiben August 21, 2013, 11:56 pm

      Thanks Nick! In a lot of ways, it’s the most important phase… all the others depend on it 🙂

  • Dividend Mantra August 21, 2013, 3:41 pm

    Great post.

    I agree with you that living below your means and changing your financial lifestyle to a more sustainable one is something that people must want for themselves, to start “within” as you put it. Nobody pushed me. I just realized that I wanted more out of life.

    I’m in phase 5 right now, anxiously working towards phase 6. I’m excited for the day when work becomes at-will, although I already know how that day is going to go (hint: 2 weeks notice).

    Best wishes!

    • sendaiben August 21, 2013, 11:57 pm

      Fantastic. I love your blog too… I have my own small dividend stash growing every month to supplement the main indexes 😉

  • krantcents August 21, 2013, 5:29 pm

    I never realized there were phases of retirement. I probably feel this way because I think I will continue to have some involvement in something forever. I formulated a plan for financial freedom when I was 31 and reached my goal when I was 38 years old. That was 28 years ago and I have enjoyed my life by doing what I like to do vs. what I have t o do. For the last 12 years, I have taught high school and officially retire in 3-4 years. I will keep doing something for many years after that.

    • sendaiben August 21, 2013, 11:59 pm

      Wow, that is impressive. I too can’t imagine not working, but I definitely want it to be on my own terms…

      Teaching is a great way to keep contributing and stay sharp 🙂

  • Drew @ financialvoodoo.com August 22, 2013, 5:22 am

    I look forward to the day I have 25 years of expenses covered and 100% passive income. That’s a fairly large order for me though, unless I find a way to increase my income. I could get a second job, but I would rather enjoy my late twenties and thirties.

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