Updated Joe’s 7 Phases of Retirement

7 phasesI wrote The 7 Phases of Retirement in 2011 and it was a great exercise. The idea is that we shouldn’t think of retirement like jumping off a cliff. Retirement would be much easier if we take it in phases, one step at a time. This way we can gradually work toward full retirement and enjoy the journey along the way.

It’s been 8 years since I retired from my engineering career and there have been several major changes in my assumptions. I thought Mrs. RB40 would continue to work until she’s in her 50s. However, she has seen my quality of life improved immensely. Now, she wants more autonomy too. I didn’t think this would happen because she used to be a workaholic. She enjoys working and contributing to society. As I always say – you might like your job now, but that can change pretty quickly. So now she is planning to leave full-time work by 2022. (Or at least take a year off.) That’s just 2 years away. I need to rework my 7 Phases of Retirement and take this into account. We’ll look at this as a married couple who are working toward a common goal.

Here are my 7 phases of early retirement. Take it one step at a time and ease into it.

Phase 1 – Establish Good Habits

This is the start of your working life. Many young people who found a good job right out of college start spending too much money right away. The most important goal of this phase is to establish good financial habits. Keep your spending under control, increase your income, and learn to invest.

Lucky for us, we were both pretty frugal because we came from financially challenging backgrounds. We kept our lifestyle relatively modest and we saved a significant portion of our income as soon as we started working. I also started investing right away in individual stocks and my 401k. I was a terrible investor, but I learn from my mistakes. Now, I have an investing strategy that I’m comfortable with. It took a long time to get here. That’s why you need to start investing and learning ASAP. We also started out with minimal student loans and consumer debt. That helped a lot.

Phase 2 – Generate income outside of your full-time job.

Most households stay in Phase 1 until they retire. Our goal is to retire early so that doesn’t work. Living frugally is great, but there is only so much you can cut. Once your budget is stable, you need to increase your income. Since the goal is to retire early, we’ll look outside of the main job for the additional income. This will help ease the transition into early retirement.

Some people advocate concentrating on earning more income through your main job. I think that’s a good idea, too. However, it would be a more jarring transition to retire. Your big salary would go away and you’ll have to rely on your savings. For us, the path to early retirement comes from having multiple sources of income.

  • Rental properties – We started by renting out our old home. It can be a lot of work to be a landlord, but it should pay off in the long run. The nice thing about being a landlord is that rents keep increasing and the property also appreciates over time.
  • Real estate crowdfunding – Now that I’m getting older, being a hands-on landlord isn’t much fun anymore. Also, I need to travel more so we’re moving our real estate investment online. It’s been working out really well so far. Check out my real estate crowdfunding page for more info.
  • Dividend stocks – I love our dividend portfolio. I used to invest in growth stocks, but I transitioned to dividend stocks when I planned my early retirement. We should receive over $15,000 in dividend earnings this year.
  • ETFs and mutual funds – Our retirement portfolio are invested in low-cost Vanguard funds. These funds should appreciate over time and generate capital gain income for us in the future.
  • Online income – I started this blog to share my journey, but I also knew that it was possible to make some extra income. Originally, I was hoping to generate about $500 per month from blogging. However, the blog exceeded all expectations and I’m making a nice side income from blogging. Thank you for all your support!
  • Mrs. RB40’s part-time work – Ideally, Mrs. RB40 would find a way to generate some income after she retires, too. I would be happy if she can make $1,000 per month or something like that. We’ll work on this over the next few years.

It’s a bit hectic to have many sources of income, but it’s nice, too. If one stream slows down, you have other sources to count on while you try to get something else going. This theory works very well in 2020. Some sources of income slowed down a lot, but we’re still doing okay financially.

Phase 3 – Wean yourself from full-time income

This one is probably the most difficult step of all. Most households depend on income from their full-time job. Losing a job can be devastating. I’ve read a ton of stories about someone getting laid off, losing their home, and having to start over from scratch. Everyone always tries their best to keep a miserable job whenever there is an economic downturn. In contrast, we are actually striving to get rid of our full-time job. That’s what early retirement is all about.

Once you’re fully immersed in phases 1 and 2, then it’s time to prepare for the big step of quitting your job. By 2011, we were able to live on just Mrs. RB40’s paychecks and I saved all of my income. This gave our savings a big boost and it also gave us a chance to test drive our retirement budget. We were able to function financially with just Mrs. RB40’s income and it gave me the confidence to quit my corporate job. For Mrs. RB40, we need to be able to live without her full-time income by 2022*. That will give us a year to try it out. Time is actually pretty short so wish us luck.

*2020 update – Over the last few years, our passive income was enough to cover our living expenses. Mrs. RB40 wants a little margin so she is still working for now.

Phase 4 – One person stops working full time

This is where we are right now. I left my engineering career in 2012 and became a stay at home dad/blogger. It’s been 8 years and we are doing quite well financially. Our net worth increased by about 150% since I quit my job. We haven’t had any financial problems yet. We did it in steps, but you don’t have to. You can skip this step and both retire at the same time if that’s your goal.

Phase 5 – Two persons stop working full time

The target date for this next goal is 2022. Mrs. RB40 will hand in her resignation letter and join me in early retirement utopia. I see several ways to do this.

  1. Mrs. RB40 works part-time – This will help us pay the bills so we won’t have to draw on our retirement fund until later. We’ll have to figure out what she would like to do over the next few years.
  2. I work a little more – I can work more and expand my online presence.
  3. Start drawing down our retirement funds – If we need extra money, we can build a Roth IRA ladder and draw down our retirement funds that way. Our annual expense is less than 2% of our net worth so it should be fine. I really hate to draw down our retirement portfolio while we’re still in our 40s, though.

We’re in a good position today. Our passive income + side hustle income is more than enough to pay for our cost of living. As long as we minimize lifestyle inflation, we should be good.

Phase 6 – Passive income covers the cost of living

This is a very difficult goal to achieve. We achieved financially independent in 2011, but it took several more years for our passive income to cover our cost of living. Over the last few years, we finally grew our passive income to that point. I’d like our FI ratio to stabilize at 120% for a few years.

After Mrs. RB40 retires, we will rely on a mix of passive income and side hustle income to pay the bills. We came a long way since 2011.

Phase 7 – Work optional

Imagine working without worrying about income. Wouldn’t it be great if you can work on what you want, when you want, and where you want? You can follow your own agenda and if that doesn’t align with the organization you’re working with, you can find something else to do. When money isn’t a major concern, you have a lot more control over your destiny.

That’s the best thing about FIRE. I have 100% autonomy. Blog income is way down this year, but I’m not worried. I’ll keep working at my pace and I don’t have to stress out. Work is a dream when money is secondary.

Getting to the next level

In 2011, we were in phase 4. Today, we are at 5.5! Hopefully, we’ll get to phase 6 by 2022. Let’s look at our passive really quickly (from last year.)

passive income

We are doing well, but there are some expenses that are hidden. For example, we will have to buy health insurance after Mrs. RB40 retires. That’s why I’d like a little margin with our FI ratio. Side hustle income will help a lot.

7 Phases of Retirement

It’s a good idea to break down retirement into phases like this. You can work on it one step at a time and mark your progress as you go along. If you want to retire early, this can really help you organize your plan. I would love to read about your early retirement plan. I encourage you to work on your 7 phases of Retirement and send it to us for some feedback from our readers.

What do you think of my 7 phases?

You can read previous guest posts also.

Passive Income Earner’s 7 Phases of Retirement

Bryan’s 7 Phases of Retirement

Rich’s 7 Phases of Retirement

Ben’s 7 Phases of Retirement

Tracy’s 7 Phases of Retirement

Tawcan’s 7 Phases of Retirement

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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37 thoughts on “Updated Joe’s 7 Phases of Retirement”

  1. It’s a very sensible set of steps you’ve put forth. Your #1 is spot-on. The end-goal is very difficult to achieve without adopting good financial habits and improving your money skills on borrowing, spending, saving and investing.

  2. The phases of retirement are pre-retirement, retirement, contentment, disenchantment, reorientation, and routine. Although not everyone will experience all of the phases, they show that retirement is both an emotional and financial adjustment.

  3. I like your steps. We are going to be both working part-time right now. Thanks for sharing your passive income and expenses chart, that must be satisfying to see!

  4. Some very good ideas. Having been in the advice industry for 30 years or more I have noticed many people are keen to retire, but for the reason to escape the drudgery of their current employment. Daily commutes, office politics, being passed over for a promotion and pay increases, psychopathic managers etc, all contribute to wearing a person down.

    So it’s no so much the devoting of time to working that fires up retirement desires but rather an escape from their unsatisfying current situation. Therefore by pursuing a lifestyle totally sans of work and building an investment strategy to support this may not always provide the most suitable solution for many people. I, therefore, advocate a FIRE strategy that would also include piecemeal or ad hoc employment within roles that give people self-esteem, satisfaction and some useful income. It also allows plenty of freedom for travel and in a perfect world might be able to be done on a remote basis.

    Ther are many ways to ‘skin a cat’ and it’s not necessarily ‘all in’ all the time. Thanks for your post.

  5. Hm… I think we skipped a number of your steps. Passive income definitely doesn’t cover expenses. We don’t really have any side-income. And yet… I think we may be work-optional at this point. Though I’d like to keep earning because I like not having to think or worry about money.

    If you or any of your commenters are interested, on our blog today we have someone asking if she can retire yet and I bet folks here could give a better answer than we could. (FIRE really isn’t our thing!)

  6. i like the approach of stages of retirement. we have lived off one income a couple of times and that part went fine. mrs. me is working part time but thinking seriously about pulling the plug soon. she’ll be more productive than me without a traditional job and probably figure out how to bring in some money. i’ll add one little stage that we were did in the transition. we stopped investing so much and the past couple of years i only contribute to my 401k. this year we even have a net negative investment as i wanted to get used to selling shares and pulling some money out. it’s less than 2% of our next egg and we’re having a great investing year but to start selling shares is harder than it sounds. i would rather train for it when we don’t need the money.

  7. Well planned, and you have to fit life around who you are. In our case I loved working and my wife loved raising kids and being the home engineer. So she became the stay at home parent and I had a longer career. I wasn’t in a position to do side gigs because my job was kind of all consuming but I did something similar. I built a skill set in a narrow field of technical consulting as part of my job. That let me go straight to a part time six figure retirement hobby job, which I did the day after I retired from my 9 to 5. Its paid all our bills for the last five years and adds to my quality of life. But it wouldn’t have been possible if I hadn’t planned it years in advance. Great post, a planned deliberate intentional life has a so much better chance of success!

  8. As a single income household some of the phases don’t apply to me but it is still a useful gauge.

    This year I am hoping my passive income exceeds my household expenses. Last year it came pretty close.

    That would definitely be a huge margin of safety as it would not require cannibalizing any of the capital (ie the 4% rule) to be completely FI.

  9. Congrats! My math showed that I can retire by 38… but since I would have completed 28th grade at 35 to become a full fledged radiologist, I know I will work beyond 38 🙂 for many reasons, one of which is simply that at the age of 38, I would actually be at the prime of my capacity to contribute to society as a physician. so time for me to give back the wonderful education and training I’ve received.

  10. I have recently decided to actively work towards an early retirement, I have done countless calculations and the goal seemed to big to grasp. Then I came upon you post and the goal was divided into several steps rather than one big. The relief I felt and encouragement was great. Thank you for sharing. I took the liberty to share it with my readers over at my blog: https://retiredrevolution.wordpress.com

  11. Long time reader, first time poster, slightly older than you. I’ve had a recent epiphany on this topic.
    We’ve been chasing FIRE for quite some time, about 10 years. We are now technically in Phase 7 due to earning a good salary, paying off our mortgages and car loans, and live comfortably with a set budget that’s less than our after-tax investment income.
    Similar to many who chase FIRE, I believed that there is a golden gate at the end of our journey that went something like this: “once we achieve FI, I can retire and pursue work that I am truly passionate about”. Unfortunately, I had been struggling for quite some time what that was.
    Now that we’ve achieved FI and work has become optional, I have come to realize that passion is really just a choice and a frame of mind, and not necessarily something you find deep down after extensive soul searching. Similar to Jiro in “Jiro dreams of Sushi”, it’s the pursuit of something meaningful that gives us happiness, and this pursuit can be derived in everyday work. That is the case for me. I am FI and I have made a choice in my mind to see my job as a way to meaningfully contribute to society, and not some corporate rat race to escape.
    So, in my search for FI, I have found that for me it was never about FI, but about the pursuit of a meaningful life, and I could have done that day 1 long before FI. Ironic, isn’t it?

    • Thanks for your thoughtful comment. I have heard that from a few readers. It is really your frame of mind. FI can free you to not have to worry about money. If you already like your life then that’s great! Cutting back a bit on work is quite good for most people, thought.

    • I love this comment! I’m 41 and am more than halfway to FI, so I routinely mull over what my situation will be once I’m FI. I’m not comfortable fully retiring at 47 or 48, especially since I don’t hate my job and don’t want to relinquish my outstanding health benefits. Ideally, I’d just like more free time to pursue things I enjoy, not just stop working. 95% of the time, I find great rewards in my job. The remaining 5% is where my job is a drag. But I don’t want to do it forever. I know my job will change over time, so will my body (I have a physical job), and I’ll need an alternative. Your comment and and the stages of retirement blend well together. Having passive income and a pared down lifestyle allow for both fulfillment and the freedom to work less.

  12. This is great Joe! Thanks for sharing!

    My wife and I are working on retiring her early so she can be a stay at home mom. We’re currently actively investing and trying as many things as we can to bring additional income while we can.

  13. Thank you for sharing this! A lot for me to think about. I’m planning on working full-time on my sites next year during our trip and then come back only to retire officially from my current day job. It seems like far and close at the same time. There surely are risks, but I feel I need to give it a real try. This post will surely help getting more organized on this project!



  14. My favorite parts about this are creating different income streams and buying appreciating assets. Buying appreciating assets is so underrated in this day and age. Additionally, with different streams of income, it’s like people forget about dividend stocks because they aren’t “sexy” . . . they aren’t Tesla or Facebook or GoPro, so they don’t own them. There are some fantastic dividend opportunities out there right now.

    On top of that, there are ways to make decent money online, but it takes work. People are afraid of that for whatever reason.

    Anyway, I like the write up!


  15. I’m in phase 7 right now and my wife is still working full time. Finally figured out what I wanted to do with the rest of my life, write a book on financial independence and then start preaching about how achieving FI will change a persons life for the better. I’m struggling with some aspects from my former life and need to keep reminding myself to stop chasing the money and just enjoy what I am doing. It was hard in the beginning but things are starting to come around nicely and I’m starting to smile a lot more now.

  16. I’ve never talked with you about your framework but this is good, I think a lot of folks find the Phase 3 hard – it’s hard saving up all that money. 🙂

    One thing that I’ve grappled with is finding purpose after you no longer work. I know for you it’s not an issue but for some it’s a challenge because they work so hard to get *free* and then aren’t sure what to do with that freedom.

  17. It was fun to read your 7 steps. I wish I had seen it 30 years ago. As for me, it took a lot of hard knocks and 20 extra years to get to step 7. When I was 52, I realized I needed to draw the line in the sand as golden handshakes were drying up. Age 62 was the number I put on the line and I started working for it, then 3 years ago I decided I needed to plan to leave early if the opportunity came up. So over the last 3+ years I have worked on increasing my Step 2 passive income stream, as 1 and 4 were already covered. I had 3 covered by cutting my expenses to match the requirements of number 6. I was set to pull the trigger any time after January 2016, then low and behold about six weeks ago, the shoe dropped and I got laid off. I was ecstatic!! I felt like I hit the lottery!! Getting laid off gave me a buffer to work on a smooth landing into 5 & 7. I am still pinching myself!!
    I talk with a lot of folks that are in their 40’s chasing the corporate gig thinking they can work (on their own terms) till they are 70. I am here to tell them they are just dreaming. It’s okay to have that as a target date but be ready to jump off the wagon by 60, if not before. Your steps are definitely in right directions to a better life and financial freedom.

  18. Thanks for allowing us to share our story with your readers in this series. We are at Phase 7 and almost ready to leave our jobs. However, it has not been an easy journey for us, with plenty of mistakes along the way. We have moved back and forth from Phases #1 to #3 quite often.

    We hope you are enjoying Costa Rica!

  19. I’d say your first three Phases aren’t time-limited, they should apply throughout your working life, and during retirement as well. It’s always good to increase your income and decrease your expenses, because either will improve your savings rate and the time duration over which income is optional.

    Interesting how your Phase-4 situation on the surface resembles that of the typical couple who go from being DINKs to single-income after the birth of a child. In that case, though, getting to Phase-5 is probably decades into the future. What sets your situation apart is that the single-income is really “single-W2”; your total income is diversified across several sources that are (or will be) comparable in size. In such case losing one part by choice is more reachable.

    I think drawing down a retirement portfolio at a low rate when passive income alone doesn’t meet expenses is fine, so long as the rate is sustainable. My own game is investing for capital gains rather than dividends, and my experience is returns are lumpy so I expect marked to market losses in some years and don’t plan to let that affect my spending. My redline would be pulling out more than 2% in any one year or more than 5% in any five-year period. So I’ve skipped Phase-6.

    Today’s Barron’s has an interview with four retirement planners that may be an interesting read. One thing they mentioned you might want to include– namely a dry run before ditching any W2 income source. Apparently those at the higher end of the income scale tend to underestimate their expenses so they often don’t have the buffer they thought. Another issue is with respect to long-term care, which while it may seem to be eons away– well that’s how most people feel about retirement, right? I think provision for this part of life is part of the early retirement equation, especially for couples. And finally it appears to be pretty common for boomerang children to derail retirement plans, so it’s very important that Jr gets a good indoctrination on the rules of the game. While you probably aspire for him to retire early, it could be bad for you if he chooses to do so before finishing high school!

    • Thanks for the thoughtful comment. I don’t expect Jr to be a boomerang, but I guess it can happen. He will have to make his own way after college.
      A dry run is the best way to see if retirement will work for you. Long term care is very depressing to think about. That’s why everyone put it off…

  20. Wouldn’t it be a better path sell the condo and secure lower cost housing while aggressively paying off the rental note? I would want to keep the appreciation and monthly income of the rental, but also keep the tax-deductible primary mortgage debt until I’m able to pay it totally. I never understood why anybody would want to pay off the note on a rental AFTER paying off their primary mortgage.

    • We plan to move into the rental so it will become our primary residence. That way we can take advantage of the primary home tax benefit when we sell. When we both retire we won’t have much income so we won’t need the mortgage interest deduction.

  21. Hi Joe, I enjoy reading your posts so be be assured of the constant support from me ;). It’s a pleasure to see other people doing well, retiring early and not being crushed under financial obligation and work.

    I know you’ve mentioned about pulling out of the P2P lending before but at 7%, it’s beating the market right now. There are many ways to generate side incomes and I agree that she should start something before retirement so that quitting her job is an easier transition. She can pick one thing that fits her skills best the way you picked yours, which is writing.

  22. Really appreciate the updated article Joe. Generating a decent online income will definitely help your family toward the last phase of retirement. Seems that P2P leaning is getting quite popular in the US, for someone that’s outside of US, do you have any other income source streams that you think are worth exploring?

    I’d be very curious to see a family with a single income source writing about their 7 phases of retirement.

  23. Good job Joe explaining the choices and how the transition will change things in the 7 phases. I think tweaking a few things, like adding to the dividend portfolio, moving to a lower COL city, or building a cash fund with the extra income coming in today to fund a few years of retirement will help the Misses retire sooner. In 5 years if the markets still perform well, that 10K in dividend income will probably turn into 15K or more. Good luck.

    • Moving to a cheaper location would help a lot. We will try to lower our cost of living here first, though. We love Portland and don’t really want to move. I’m thinking about selling our condo, payoff our rental, then move into the rental. That will cut our monthly expense quite a bit.

  24. I realized our path to early retirement was a little shorter. 😉

    1. Save a ton and invest it well
    2. Quit working
    3. Have fun, and maybe make some money off your fun

    Mrs. RoG is still working on item number 2. She just resigned but they countered with an unbeatable work from home for less than 40 hrs for full time pay deal. So it’s still WIP.

    #3 was more of an afterthought since we expected to live on passive income from dividends and sale of investments. I started the blog just hoping to pay the $100-200/yr in hosting fees and domain registration fees plus miscellaneous blog expenses. Like you, it turns out that you can make a decent side income from this blog hustle!

    I guess as a household, we fit in well on your 7 phases paradigm. We’re at Phase 4 right now with just one of us retired, though the other one no longer works a full 40 hour/week schedule.

    • Wow, that’s amazing. They really don’t want to let her go. She should negotiate a nice severance package. She can help train the replacement and set a solid timeline.
      I know I’m making it a bit too complicated, but it more fun to see some progress. Good luck to Mrs RoG.

  25. Great post – I think this is a great overview about how it can work.

    And you are right in that most people stay in stage 1 for most of their lives, which is quite sad. If only they had an overview like this!

    Well done on your blogging income – I haven’t monetized my blog at all but I would be impressed if my blog made even one tenth of what you make from yours!

    • Thanks! I’m really lucky that I can make some money from blogging. I’m very grateful to all the readers. Good luck with your blog.


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