As I enter my final year of full-time employment, the emotional challenges of financial independence and early retirement are becoming evident. Faint concerns are slowly growing into nagging worries, self-doubt is beginning to emerge, and there seems to be an ongoing battle between armies of excitement and apprehension.
For many, the biggest worry associated with early retirement is running out of money. This is actually not one of my concerns. In addition to trusting my investment plan and my math skills, I’m confident I could earn money again someday, if necessary. My lifestyle will be flexible enough to handle unexpected circumstances, of which I’m sure there will be many, and my ability to earn income will not drastically decrease after I achieve financial independence.
The only one of my concerns that actually deals with money at all is my apprehension about withdrawing from my portfolio. I’ve spent so many years building up my balances so the idea of actually taking money out is a bit frightening.
The majority of the emotions that I’m feeling now are actually deeper than financial worries or fears of uncertainty. As I approach FI, I am being confronted with questions about life itself.
Rather than dive right in to something as deep as the meaning of life, let’s instead begin this emotional journey up near the surface.
What I’m Giving Up
A question that has been going through my mind recently is whether early retirement will actually make me significantly happier than I am now.
I currently have a great-paying job that is challenging but not stressful, I live in a nice house in a beautiful part of the country, and I have the time and freedom to pursue other things that interest me. Do I really need 100% freedom? Will I miss the rewards that come from delivering value to an organization bigger than one I could ever build on my own?
Procrastination
Going a bit deeper, I’m beginning to wonder whether 100% freedom will actually make me unhappier.
I have many lofty creative goals that I haven’t been working towards because I figure I’ll be able to “properly” tackle them when I don’t have a full-time job to worry about. Deep down, I know that this is really just a form of procrastination and an excuse for putting off difficult tasks.
After achieving FI, I won’t have full-time employment as an excuse anymore. Will I find other ways to procrastinate or will I finally start pursuing some of my creative goals? If I do start working towards my goals, will I fail? Has my procrastination been a way of keeping my dreams alive even though, deep down, I realize they are probably not attainable?
Legacy
These questions lead into the big question: What do I want to leave behind?
I’m starting to wonder whether this question even matters. What is the point of having big goals when I will no longer need to be productive if I don’t want to be?
Mike from Lacking Ambition (site no longer active) wrote a very thought-provoking article titled, Purposeless, in which he argues that one endeavor is no more meaningful than any other so rather than feel compelled to accomplish specific goals, it is reasonable to simply focus on living a life that is as enjoyable as possible.
When you take a look at this amazing visualization of time, it’s easy to see where Mike’s coming from.
Action
None of these questions are easy to answer but as I approach this big inflection point in my life, they are becoming more difficult to ignore.
Rather than be distressed by some of these questions and concerns, I am instead taking action now, in an effort to alleviate some of these issues prior to reaching FI.
To reduce my apprehension about withdrawing from my accounts, I am focusing on building up my passive income streams. If income-producing assets produce enough cash flow to cover the majority of my expenses, I’ll be less worried about slowly drawing down from my accounts, when necessary.
To handle my worry about what I’m giving up, I’ve decided to factor the things I like best about my job into the work I am currently doing on the side. I enjoy the challenge of programming and the process of creating useful things so if I continue doing that after financial independence, I likely won’t feel that I’ve given anything meaningful up.
As far as procrastination and creative goals are concerned, I’m making an effort to start work on some of those goals now. Hopefully by the time I reach FI, I will be over the initial “I can’t do this” hurdle and will be enjoying the challenge of pursuing difficult creative goals.
Finally, the meaning and purpose of my life. I haven’t figured this one out yet and can’t imagine I will anytime soon. That’s okay though, I think. Isn’t that what life’s really about? We’re all just trying to figure everything out as we go along. Maybe it’s the process of figuring things out that gives life meaning? Each person discovers how to live life just a little bit better and we slowly evolve as a species.
Whatever the point is, I agree that making life as enjoyable and interesting as possible is a worthy pursuit. Financial independence isn’t the solution to every problem but it does provide the freedom and flexibility to make changes that improve your life. And for that reason, it is a very worthwhile goal to pursue.
My general answer to most of your questions in the what you’re giving up and procrastination sections is that you’ll never know unless you try. It’s kind of the same idea as a phrase my mom likes to use: you can’t win if you don’t play!
I wonder if some of these concerns come from viewing your future through the lens of your current life. Once you are no longer a full-time programmer, your lens will change, and once you start traveling, it will change even more drastically. So much of how we see and understand the world and even how we see and understand ourselves is influenced by what we are surrounded by each day. Changing your daily routine in a pretty big way (by quitting your job) is going to make you grow as a person, which I think should always be your goal.
That’s a great point, d. My perspective is going to be completely different next year so the concerns I have now may not be relevant then.
Don’t get me wrong, my excitement for the future far exceeds any worries or concerns I have and I’m not second-guessing my plans or anything. I just figured I’d share some of the things that are going through my mind, one year out, since readers of past articles expressed an interest in reading more about the emotions of pursuing financial independence and early retirement.
In my next article, you’ll see why my excitement for the future easily crushes any of the worries I have about this major lifestyle change!
It’s been my experience that having nothing you *need* to do (i.e. retired, unemployed, or just off for whatever reason [remember summer vacations?]) does make you procrastinate more… for a little bit.
When I’ve found myself in such a situation, I will lounge around not doing anything for the first couple weeks… watching TV or movies, browsing randomly on the Internet… but at some point that laziness leads to listlessness, and at some point I hit critical mass and just *have* to do something productive. I always have a list of random projects I’m interested in, so I can usually turn this time into something wonderful.
I look forward to the day when I can once more be lazy until I get my fill.
When I spoke to Mike from Lacking Ambition, for the Mad Fientist FI podcast, he said something very similar. He said that you shouldn’t worry about not being productive after FI because even if some of your time is spent doing nothing, eventually doing nothing will lose its appeal, as you mentioned, and when that happens, you don’t have to motivate yourself to do something productive because you’ll just choose to do it since it’s more fun than doing nothing.
That makes so much sense but since my brain is still looking at things through a full-time-employee lens, as d mentioned in her comment above, ideas like this aren’t immediately apparent.
How long until you can again max out your laziness?
I find when coming up to the great unknown and plunging in that it usually leads to one of the greatest times of my life. Going off to college comes to mind, or graduating from college and starting a career. It’s at those times that you grow the most, and encounter a new wealth of opportunities.
Absolutely, Josh! This transition is definitely on the same level as the other two you mentioned (which is very exciting, considering how enjoyable those other two transitions were).
I don’t have much to add other than I understand where you are coming from and appreciate the way you articulated these thoughts. It seems to me you are approaching these considerations from a healthy perspective.
Kind of reminds me of Winston Churchill’s quote “I never worry about action, but only about inaction.”
Great quote! It’s definitely the inaction that I usually regret and only rarely the action.
you’ll get over it. :-)
Haha, my next article will actually describe the tool that I plan on using to get over everything!
These are some of the concerns I have been thinking about too. How will it feel pulling money out and will I feel successful or needed…(I am not sure if that is the right term)
I wonder how people who have gone thru this very early retirement handled these issues?
Anyone care to share?
Chris
I am actually retired for several years now & my husband took early retirement. We don’t take any of our invested money out to spend unless it’s a major expense, like our daughter’s wedding. We are able to live on current income and even put about $20,000 a year into investments because we just haven’t spent it.
We enjoy lots of road trips and some trips abroad. I have turned to blogging to find a purpose to my life. That and helping our grown family when they need it. My husband loves to tinker and is a regular handyman and car fixer even though his profession was as an engineer. He enjoys that & I enjoy my blog as well as my grandkids!
Hi Maggie, that’s great to hear you still have surplus income in retirement. Do you mind me asking where the majority of your current income comes from? Does it come from the hobbies you listed?
None of our income comes directly from our hobbies. We save a lot of money by learning new ways to cut costs. We are fortunate in that my husband has a decent pension. Most people don’t have that anymore. We rolled over our 401k into a fund that’s geared to our ages and stage in life. That has done well, but there are no guarantees with that of course.
This was a problem for me when I first achieved FI a few years ago. I def became unhappier at first. I was 33 or so. I didn’t do much but have a good time. It got old after a few months. Managing my time effectively also became really, really difficult. I dicked off a lot more, so trying to find and impose structure on myself took many, many attempts and some real changes to what I thought I wanted.
I don’t know if it’s my jesuit education or what. I’m not religious, but I have found that achieving FI has made me really think about what I want to do and what kind of mark I want to leave. For me, I came to the conclusion that it’s a bit of a cop out to just say I should enjoy myself and be happy at that. Well, let me back up. The main problem I guess is that I discovered me just enjoying myself wasn’t enough to actually make me totally happy. If it did make someone who is FI totally happy though, I wouldn’t really begrudge them that.
For me though, there’s too much need in the world, much of it desperate, and just b/c I figured a way out of it, or perhaps BECAUSE I figured a way out of it, I feel like I owe something. Once I understood this, I started signing on to different causes to try to give back. Unfortunately, it can be a black hole and once you start giving, before you know it, you’re working 90 hour weeks again b/c you’re so wrapped up in the cause.
So I dunno. I still struggle with it. I left my last campaign a year ago and I’m starting to get the itch again so I’ll probably sign on to something else soon.
As far as pulling cash out of your portfolio, I’d HIGHLY encourage you to look for some passive income options and consider adding at least a multifamily property or small commercial property to your portfolio. I net on a tax advantaged basis almost $70,000 / year on three properties. The idea of “passive” income is a little misleading though. Over the course of a year, I probably spend an hour a week dealing with the properties. So it does take some work. The money doesn’t just roll in for free.
I’ve also found investing in really solid MLP’s and in general weighting my portfolio towards under-followed but high quality dividend payers with lots of hard assets provides both protection and yield. It’s pretty easy to make about $1-2k a month on safe options strategies as well if you have a decent sized portfolio ($300k or so would more than do it).
Anyway, the property thing is something you should heavily research before doing and only deal in markets, locations, and demographics that you know or feel comfortable with, especially at first. But the yield is there. Best book I’ve read on it is called “Making Money on Small Income Properties.”
Any “program” or method of investing in them or any of that Rich Dad, Poor Dad bullshit, I’d ignore. They’re a simple investment class. If you understand discounted cash flow analysis for stocks then you can value real estate fairly easily. Here’s the link to this guy’s book. It’s really readable but it’s not all touchy feely like most of the crap out there. It’s more like a textbook. http://www.amazon.com/Make-Money-Small-Income-Properties/dp/0471433411
Good luck bud! Enjoyed the column as usual!
Thanks a lot for the comment, Daniel.
I can imagine that focusing purely on your own enjoyment probably isn’t the most fulfilling way to live.
My wife and I have discussed possibly volunteering when we live abroad to not only help the communities where we spend time but to also pick up new skills in the process. I’m not very handy around the house but I want to learn so it’d be great to pick up some of those skills by helping build some simple houses in some of the poorer countries we plan on living in.
I definitely agree creating/purchasing passive income streams, rather than drawing down from my accounts, will be the best way to go. I’d much rather take a big chunk out of my portfolio to buy an income-producing asset than slowly draw down my balances.
Real estate is very appealing to me but I don’t think now is the right time for me to invest. As you said, it really pays to know your market inside and out so I want to be better prepared before I dive in.
I actually took a real estate investment class at one of the world’s best business schools as part of my master’s degree and as you said, if you can understand discounted cash flow analysis, you can value real estate. Knowing the market you want to invest in is the really important thing so once my wife and I settle down again somewhere, I’m going to focus on real estate and see what happens.
I have added the book you recommended to my reading list though and look forward to reading it. It’s right up my alley, as far as the strategy and niche are concerned (i.e. buy and hold and small multifamily), so I’ll definitely check it out.
Although buying real estate is probably off of the table right now for me, I’m looking into buying other types of income-producing assets (which I’ll hopefully be writing about soon). Hopefully I can build up my “passive” income enough to at least cover my expenses so that I don’t have to start drawing down from my accounts.
As far as your option strategy is concerned, are you just selling covered calls or are you doing something a bit fancier?
Thanks a lot for the interesting discussion and for sharing some of the challenges you’ve faced. I look forward to hearing from you again soon!
I am really enjoying hearing about how your readers who have been there did it. Thanks Guys!
Me too, Chris. I’m always so appreciative when other people take the time to chime in because it great to hear other perspectives.
Yeah, the skills thing is something I’ve been doing as well. Like have always wanted to learn more about art and photography so have been trying to both learn on my own and craft travel experiences around them that involves experiential stuff. Ditto for wine.
The volunteer route is something I’m also heavily considering, especially the opportunities that allow real involvement with the cause. I mean really though man, writing your blog is also obviously helpful to many people, so that in itself is giving back to people on a regular basis. I don’t think everyone needs to save the world or anything. It’s just something I’ve found I kind of needed to feel fulfilled.
For real estate, if you’ve taken a reputable class from a real university, you probably already know everything that’s in that book so might want to just save the money or read some of it on amazon first to make sure it’s even worth it. I was coming from 0 knowledge, so it was immensely helpful for me and it’s devoid of all hucksterism. It actually helped me make the investment that ultimately provided the capital for all my subsequent investments. I basically had about $30,000 in 1999 that I was starting with from stock options before the bubble burst and built from there. Managed FI around 2008ish. I made a great investment with that money, but I also got VERY lucky. Could have been luckier if I’d picked the other place I was looking at at the time, but I’ll take what I can get man. lol.
Anyway, for options and stock investing in general, a great no BS place to learn is fool.com. I’ve been at it awhile, so I use the whole range of stuff from naked puts (not recommended for newbies), to covered calls, to LEAPS, to calendar spreads. All of my option strategies start from the underlying stock’s value though, so it’s a little different approach than what many people take. Bull call spreads or other calendar spreads using a little leverage if you have a low cost brokerage like interactive brokers, are the safest way to really lock in a lot of yield with very limited downside especially with margin rates at 1.5%, but yeah with all of it I’d go slow and work with a reputable site like Fool or morningstar for awhile until you get your sea legs. And you obviously know enough to stay away from leverage unless the look-through downside risk is acceptable to you.
You can use options to hedge out the volatility in your portfolio though too which is a nice thing to do if you’re trying to protect what you have. There are some low-cost/freeish ways to do it like ratio index spreads and currency hedges that can give you some protection.
But yeah, that said, I introduced this one guy I know to options after teaching him about real estate and stuff and he had some inheritance that he ended up blowing through b/c he wouldn’t listen to the caveats. He kept writing massive numbers of naked puts on realllly volatile chinese small caps and I kept telling him that he was going to get assigned if the market turned against him and he’d be really screwed, but he just loved getting that money up front man. Well, long story short, even with the huge risk premiums, he was way overweight for his total portfolio size and he wiped out like half his inheritance in one swoop — and it was a sizable inheritance for a kid in his 20s.
He used that real estate knowledge to knock a few deals out of the park though and he’s about back to where he started now. But I felt freaking terrible man. I guess he probably would’ve blown the money somewhere else anyway b/c he just hadn’t learned his lesson but it was like watching a bad gambler in slow motion or something. lol.
Ahh anyway, well, thanks for the post again. If you ever want to visit new orleans, give us a holla! That’s where we’re posting up now.
Best,
Dan
I still think I’d get a lot out of that book, since it focuses on investing in small multifamily properties. The real estate course I took dealt mainly with commercial real estate investing, doing deals for big investment firms, etc. (it was geared towards MBA students rather than individual investors). The principles are likely the same but it’s always nice reading about the type of investing I could imagine myself engaging in.
It’s amazing what you can do with options, isn’t it? A few years ago, I spent some time researching option strategies but I never put any money on the line. It is definitely interesting stuff though and I could see myself using some of my fun money to play around in the options market someday.
I’m glad you told the story about your friend though because options can be extremely dangerous if you don’t know what you’re doing (or even if you do know what you’re doing). Chinese small caps on their own sound scary to me so I can’t even imagine writing naked puts on something so volatile! I’m glad to hear he landed on his feet though (a little bit wiser, no doubt).
I’d love to head down to New Orleans again sometime so I’ll definitely get in touch if I do. I was there last year for a conference but my wife’s never been so I’m sure we’ll make it down there for a visit at some point.
If you’re ever up in New England, let me know and we’ll grab a beer or something. I’d love to hear more about your journey to FI because it sounds like a very interesting one.
Take care and hopefully speak to you again soon.
Glad I’m not the only one concerned about making the transition. FIRE is potentially 3 years away for me but anxiety is already creeping in. Hopefully it subsides as I get closer. Looking forward to your next post.
Hey Prob8, good to hear from you again!
I imagine that the anxiety will slowly be displaced by intense excitement so hopefully that turns out to be the case.
P.S. Are you still up for getting together next month in St. Louis?
Absolutely! Let me know when and where.
I still have no idea what the plans are for that weekend but I’ll definitely be in touch
First of all, humongous congratulations to you for hitting FI! I suspect if you’re the kind of man who ‘s been able to work hard and hit this goal early in life, you’re also the kind of person who’ll have plenty of projects going in your “retirement”, and you’ll still be doing useful work, even if it’s unpaid. I’ve been on sabbatical from my corporate gig for about 11 months, and I’ve stayed busy doing a major landscaping project for my house, starting a blog, and just about to launch a website. You’ll do great!
Thanks, GP FI! Good to hear from you again.
What kind of website have you been working on? Let me know when it’s live so I can check it out!
I don’t know if this is a direct answer to my request on a previous post, but again such descriptions of the emotional and personal parts of the transition are *very* useful to me as I am looking to follow in similar footsteps in a few years =)
Yes, actually it is, Greg. I usually like to focus on the math behind financial independence but recently I’ve been receiving quite a few requests to talk more about the emotions of FI so since I’m about one year out from quitting my job, I figured it’d be a good time to discuss some of the things currently going through my head.
MF,
Enjoy your blog. As a 29 year old still figuring out his plan, can you talk on how you will actually use your portfolio to pay for expenses once FI? Right now I am putting money in my 401k and Roth IRA and will soon have some small rental income. Rental income is an obvious source, but how do you pull money (dividends, or if need be, selling shares) from your other accounts? Do you have a taxable account you will use first, before using funds from the 401k or Roth IRA? Do you move those tax sheltered accounts to a taxable account? I guess I am fuzzy on how to use tax sheltered funds for ER since they were meant to be used when 59.5+ years old. Thanks!
Hey Mark, I do have taxable accounts that I will draw down from first but I also plan on slowly converting my other retirement accounts into my Roth IRA after FI (take a look at the Retire Even Earlier article and read the Roth IRA Conversion Ladder section).
I plan on writing a detailed post focusing on Roth IRA Conversion Ladders so look out for that in the next month or so. Hopefully the brief summary in the Retire Even Earlier post gives you a good idea of how it works though (if you still have questions, let me know).
There are other ways to get your money out of your retirement accounts early without paying any fees (e.g. 72(t) Substantially Equal Periodic Payments) but the Roth IRA Conversion Ladder strategy allows you to keep your money in the tax-advantaged accounts, if you decide you don’t actually need to access that money before standard retirement age.
Hope that helps!
MF,
Thanks for your reply.
I know these are 2 different games, using money in retirement when your age is 59.5+ vs. FI or ER. I am looking for a strategy not too far off from this from M*
http://news.morningstar.com/articlenet/article.aspx?id=612655
Most important/difficult is getting money into the proper accounts to minimize taxes. Someone like MMM who pretty much lives off of rental income may not necessarily need to withdraw money from his taxable or tax-sheltered accounts. If in that situation, what penalties/stipulations apply to withdrawing money from the taxable account vs. the tax-sheltered account. I think a full post would be a huge help to people. As the M* article suggests, it is actually harder to figure out how to use your funds once in (early) retirement to minimize taxes and maximize your future returns than it is to just accumulate the portfolio. Thanks!
Hi Mark, that article made some good points.
By slowly converting my 401(k)/403(b)/Traditional IRA to a Roth IRA after FI, however, I likely won’t have to worry about things like Required Minimum Distributions and income tax on my distributions because those problems don’t exist with Roth IRAs (i.e. there aren’t RMD rules and distributions from Roth IRAs are tax free).
I’ll definitely write a post about my withdrawal strategy as I get closer to FI though so stay tuned!
I’m struggling with some of these same questions as I just retired at age 33. There’s always that thought at the back of my head that I could run out of money, but then there’s the reassurance, as you point out, that it isn’t that hard to get back in the game and make money if the need arises.
But it is the bigger questions that bug me. What’s our purpose here? Do I have to be productive? One month in to retirement, I’m taking a look back at what I have done, and what I hope to accomplish. And working on a blog post about that exact subject to hold me accountable.
Thanks for sharing this very introspective post.
Hey Justin, thanks for the comment and congratulations on your early retirement! I imagine the first few months of ER will be pretty interesting, as you try to figure out your new way of life, so I look forward to reading about your experiences.
I’m also looking forward to checking out the blog post you mentioned so feel free to link to it here after you finish it.
Thanks again for stopping by and I hope your transition into early retirement is a smooth and enjoyable one!
Sure, here’s the link to my quick update 1 month into retirement:
http://rootofgood.com/one-month-into-my-early-retirement-adventure/
Here’s a link to what turned out to read like a financial bio:
http://rootofgood.com/early-retirement-at-33-an-overview/
I like your idea of getting some free education. I have thought about going back to get a masters in History or some other subject that is interesting to me but wouldn’t translate into a career necessarily. So far I’m sticking with some online foreign language learning and blog development/html/social media research and learning.
Great stuff, Justin! I really liked the detailed overview post.
Yeah, my master’s is definitely not going to translate into a career or anything but because I’m not using it as a stepping stone for something else, I’ve been able to take a really diverse set of interesting classes. My program director must think I’m all over the place but it’s been a great way to explore my varied interests.
Learning a language is probably a lot of fun as well though and is something I plan on focusing on after FI. I can’t wait to settle down in a foreign country and not leave until I can at least hold a long conversation with the locals!
Hi MF, I enjoy your posts and I especially enjoy your podcasts. You should do more. Congratulations on almost reaching FI. I think it will be great and you will figure out what to do. Travel is great because you can always be learning new things and having new experiences, which is great for us types that like variety and have a lot of interests.
Here is a link regarding different types of withdrawal strategies. Just curious if you have heard of all of them and what you think.
http://www.marketwatch.com/story/the-most-common-retirement-rules-deliver-dire-results-2014-02-03
Thanks very much, CT!
I actually have an interview coming up that I’m really excited about so look out for another podcast episode soon.
As far as withdrawal strategies are concerned, no one strategy is going to be perfect so I think flexibility is key. I will likely just keep an eye on things and adjust my spending, when necessary. I do enjoy reading about the various strategies though so thanks for the link (if you’re interested, here’s another good article that describes even more withdrawal strategies – http://cfiresim.com/blog/2013/09/25/withdraw-more-money-in-retirement-by-being-flexible/).
If living life is about being happy, then the journey is key. And few journeys are as introspective and important in the 21st century as the questions of financial independence. Maybe the biggest takeaway is just the fact that you’ll have more time to do what you want, when you want and how you want. You’ve already won.
Very well said! I didn’t expect so many benefits from the journey itself but it’s definitely been a great ride so far!