How early retirement translates for the everyman
In some ways, early retirement has become somewhat of a craze lately among young people. Take the popularity of blogs like Mr. Money Mustache, where the author spreads the gospel of minimalism that helped him retire by age 30, and books like "The 4-Hour Workweek," in which Timothy Ferriss teaches his readers how to decrease their workloads through productivity tricks and delegation so they can take “mini-retirements.”
The obsession over early retirement comes at a time when, according to a study by the Pew Research Center, Americans in general are less confident in their ability to save enough for a traditional retirement.
On top of that, trust in the system seems to be waning. College kids are catching on that a degree is no longer enough to land them a steady job. Work-life balance is becoming more and more a concern as productivity and deadlines overshadow the importance of family.
The scariest matter of them all: a recent Pew Research survey shows that 51 percent of millennials do not believe Social Security will be around when they retire, even if that fear may be unfounded. Indeed, it seems the idea of early retirement is more about people wanting to take control of their lives rather than continuing the tradition that has been passed on to them.
No longer a strict definition
Traditional retirement is quickly disappearing. Workers no longer stay at one company their entire career. The number of Fortune 100 companies offering defined benefit plans went from 90 in 1998 to 30 in 2013. Many Americans aren’t disciplined enough to fully take advantage of defined contribution plans, but some have started to invent new variations.
For many, the idea of retirement is more about doing what they want to than it is about not working. In my former role in financial planning, the majority of the younger people I spoke with told me they would never stop working. They had found something they were passionate about and would never want to give it up.
For some of these people, it’s not traditional retirement they seek but release from being a cog in the corporate machine, allowing them to be free to follow or even find their passions. They don’t want to stop working; they just want to pour all their energy into something they find meaningful.
Another alternative is the aforementioned mini-retirement. Ferriss first popularized the idea, encouraging people to position themselves entrepreneurially or remotely in a corporate situation to be able to take extended vacations, generally one to six months, so they can more fully immerse themselves in new environments. The concept is extraordinarily ambitious, but considering the book spent four years on The New York Times best-seller list, it definitely speaks to people.
Is it realistic?
For Mr. Money Mustache, the secret to exiting corporate life is simple: scrap the 10-15 percent retirement savings benchmark. For him, the opportunity hinges on two obvious factors — your savings rate and your take-home pay. But as he describes his "shockingly simple math behind early retirement," it can be difficult for the layman — especially someone who has little informal, let alone formal, education about personal finance — to see the practicality of it.
While it is possible, as proved by MMM’s experience and others who have followed suit, certain things are missing from his equation. For example, he and his wife had their first child after retiring. He also calculated that over the nine years they worked, they averaged just under $135,000 of combined income per year. It’s certainly not out of the question, but what about those who start families early? Or those who opt for professions with lower salaries?
Granted, the math can be scaled for any amount of income, and I even read an inspiring story recently of a couple with 13 kids on a single income who were able to finally start putting away money into retirement accounts at age 40 and are planning to retire at 62. But other factors in play can make it more difficult to reach those higher saving rates.
Similarly, the idea of recurrent mini-retirements seems a little far-fetched for the everyman and everywoman who have dependents and obligations that would make it irresponsible to run off and travel the world for months at a time. But rather than simply dismissing the idea as preposterous, take it as an opportunity to recognize that you don’t have to be stuck in the same mold that has been the norm.
Remember your future
It would be overly optimistic to think that everyone can retire after just nine years of working or establish a career allowing one to take periodic sabbaticals. However, it would be ridiculous to let pessimism about it stop you from setting goals of your own. It can be difficult to find a balance between enjoying the present while building a prosperous future, but when people start shouting that you only live once, they often forget that their future belongs to that life as well. Don’t manage your finances in a way that your 65-year-old self will hate you for.
Ben Luthi is a personal finance blogger and banker who blogs regularly at The Wealth Gospel. He graduated from Brigham Young University in 2012 with a Bachelor’s degree in Finance and currently resides in Arkansas with his wife, Kilee.