The blogosphere is filled with early retirement (ER) advocates. They are great! I am totally on board with working towards financial independence (FI) and early retirement. I do not, however, support the idea that you should cut your lifestyle to the bone and save every spare penny so that you can sit around and drink mai tais on the beach from 42 to 85. Why? Because in order to live a fulfilling life, you have to have meaning. And for many people, working (in some capacity) is a critical part of their identity.
Retirement through the Ages
If you are over 60 and retired, this post is not targeted at you. If you have created a hoard and are now enjoying the sun, grandchildren and golf, then by all means carry on! I highly advocate spending some of your time volunteering for nonprofits that support a cause you value, and being engaged in your community, but this post is less applicable to you.
If you plan to retire in your fifties you are considered to be a member of the ER community. If you are in your thirties or forties and you have built a self-sustaining hoard that provides enough annual return on investment to support your lifestyle, then you are an extreme early retiree. In order to get to this place, you have likely a) gotten a large inheritance or b) earned a decent to excellent salary and stripped down your expenses to a basic level (typically $20k – $35k/year). Sweet! Kind of.
My goal is not to retire early; it is to be ABLE to retire early. And that is the essence of FI. I want the comfort of knowing that if I get laid off, it’s no big deal. If I get tired of my employer, I can leave. If I decide I no longer want to be an engineer, I can switch careers without financial stress. I can take a major pay cut and there will be no material effect on my life.
Getting to FI requires the same discipline as ER, and many of the same financial practices which I will talk about on this blog. Both FI and ER are about freedom.
But one can lead you to crouch on top of your hoard breathing FIRE (ha ha!) on anything that costs money, while the other allows you to manage your hoard while expanding your life.
Many extreme early retirees actually work. They write blogs. They consult. They teach financial principles to others. They are not “retired” in the traditional sense. The blogger crowd chafes when you point this out, but it’s true. They have retired from their “official” careers, they are financially independent, and they STILL WORK. Why?
Work as Meaning
In his classic book Man’s Search for Meaning, Viktor Frankl says that there are three things that give meaning to life:
- A project
- A significant relationship
- A redemptive view of suffering.
All three are needed for humans to feel that their life has purpose and direction.
For many people, the “project” element is fulfilled through their career. When we go to work we have a job to do. We have both little and big successes. We feel competent. We feel respected. (If you don’t, definitely get another job!) We receive praise and we build a community of colleagues. Even if you detest the treadmill, as almost all of us do, you likely derive much of your identity through your career.
Note that a career is not the same as a job. A career implies long term potential for growth.
Leaving your career can create a large void in your life, even if you have significant relationships and plenty of money. Many retirees (early and “late” alike) feel adrift after their first few months of retirement. They are no longer “needed” and there can be very little sense of achievement from wandering around in your pajamas after 10am. As a result, they often begin looking for projects that will fulfill their innate need to create meaning.
It is at this juncture that many people begin volunteering although, to the extent that I can tell, fewer retirees in their thirties and forties follow this path; it is much more common among those in their fifties and later. Hardly anyone starts giving money at this stage. It is more about time.
An Abundance Mentality
Instead of striving to never have to work again, I advocate striving to never have to do a job you do not want to do again. Now that many of us are living into our eighties and nineties, the idea of not “working” at all for fifty years is ridiculous. That’s a lot of time to fill! It probably seems exciting when you are stuck in a cubicle typing up memos, but in practice it’s quite boring unless you have a plan. All of your friends will still be working (or at home with kids). They will not be around to go for a walk at 2pm on a Thursday. Furthermore, you will be living on a fixed income. No expensive tee times for you!
Now, you can live a great life on $25k/year without a mortgage. I know, because I do it (excluding my mortgage and charitable giving – I am not financially independent yet). And I could live on much, much less. But even when I pay off my mortgage I don’t intend to retire early. I intend to switch gears.
I WANT to be gainfully employed at a job that gives me purpose. That might mean starting my own business, it might mean working for a nonprofit, or it might mean doing a part-time consulting gig. Even if I have enough money, there is absolutely no reason for me to not work on something productive in my forties and fifties.
The key difference to me is that having this mentality allows me to expand my concept of money. There will always be more. Not from being forced to be a Wal-Mart greeter because the market crashed and my dividends aren’t paying out, but from meaningful work that I will do.
Striving for financial independence allows me to be frugal while also having an abundance mentality.
It also means that I am able to both give AND grow my hoard.
Every Dollar to Charity Delays my Independence
Look Dragon, I can hear you saying, I know where you’re going with this but if I give to charity now then I postpone my financial independence! And I can give so much more after I get there!
I totally disagree. The time to give money is when you are MAKING money, not when you are on a fixed or reduced income. Establishing a philanthropic mindset in your younger years will benefit you for your entire (hopefully long!) life. Plus, the tax implications are very clear for this; giving when your tax burden is high allows you to obtain significant leverage from your donations. You can even set up a Donor Advised Fund during your prime earning years to stash your cash, get a big tax break, and then distribute it over the following years when your income is lower. This is important.
That said, giving while you are saving (for retirement, for college, for a house, whatever) can feel counterproductive. Some of that is mental; if you are primed to hoard money it is hard to transition to giving it away. And some of it is real. A portion of every dollar you give, depending upon your tax strategy, will definitely be diverted away from your savings account. But that’s okay. Nearly all of us have room in our budgets to accommodate charitable giving; it’s a matter of defining and executing on our values.
Also, if you are a medium to high earner (which you likely are if you plan to retire early) then you can benefit from spending a day creating a financial plan. And especially one that includes charitable giving. You don’t have to maximize all angles when you start; the plan can evolve. But you have to start. Think about your values in the shower. Talk to your family about their values over dinner. Listen to a podcast about poverty in Africa or prostrate awareness on the plane. Whatever YOUR values are, thinking about them is a very good use of time. Allocating money towards them is an extremely good use of time.
Postponing Your Philanthropy
Delaying your philanthropy is akin to delaying travel until you are retired. No one ever looks back on their life and thinks “I wish I hadn’t gone to visit Ireland” (unless it rained the whole time, of course…) Similarly, no one looks back and thinks “I wish I had given less to charity”. Think about that. Which will you regret more, giving too much or giving too little? This, alone, is a reason to jump start your plan.
Using Philanthropy to Grow Your Options
As I discussed earlier in the week, philanthropic circles provide excellent networking opportunities. If you’re on the path to financial independence and trying to figure out what to do once you quit the corporate grind, consider joining one while you are still working. Expanding your network and talking with people from all different industries may give you the idea juice you need to start your transition.
In addition, honing your values while you are working and experimenting with different nonprofit organizations will help you figure out how you want to give both your time and money in the future. Not all volunteering opportunities are created equal! And not all organizations are worthy of your time. Furthermore, and contrary to popular belief, it’s actually hard to fill a huge amount of time with volunteering activities unless you take a position with an organization (hint, that’s work!) If you have a vague plan to quit your job and volunteer you may find yourself frustrated as you cycle through multiple organizations. It’s far better to know in advance what type of volunteer work is right for you.
If you are the type of person who is motivated, organized and smart enough to achieve financial independence at an early age, you are probably also the type of person who will need to find meaningful work after that time. You will likely get paid for that work. You can have an abundance mentality and both give AND grow your hoard. Trust me, it’s awesome.