Keep working…don’t jump off the band wagon
My mom came to visit me this weekend. It’s always nice to spend time with her, particularly as I get older. My parents worked hard my entire life to provide for our family. I remember them hustling us when we were young and unfortunately they did not have much time for their other life interests. Now as they get older, I see them enjoying other activities more. So it always is surprising that when I talk to my mom and tell her I want to retire early that she just looks at me and emphatically says “Why?”
Life is short, relatively
I understand that life is short and without guarantees. That the time we have with our young children is fleeting. That going to work and churning widgets, whatever widget it may be, is not necessarily the end all, be all. So I asked her “Why not?” Her answer was straightforward; you have to work to provide for your family. She is right. We all have an obligation/duty to provide for our loved ones and ourselves so we do not become a burden on the rest of society. So what does it take to get there, to be financially free and able to stop working, well it depends on the definition and you’re spending.
I was thinking of this topic all weekend during my mom’s visit. It interestingly timed with my reading of Tony Robbins’ book “Money: Master The Game” (book review to come soon). In this book Tony describes various levels of financial wealth that include security, vitality, independence, and freedom. Coincidently, today a fellow blogger “Physician on Fire” posted a piece on the same topic “Financial Independence versus Financial Freedom”. So I figured this would be a good place to start assessing what I truly need to stop or at least decrease my current work pace.
This basically is what you need not to get buy without having creditors come after you. This includes the mortgage, utilities, food, transportation, and insurance per Tony. It does not include other expenses such as clothes, CDs (does anyone buy those anymore), or nights out. Easy right?! Well sadly enough, I am not even here from an asset allocation standpoint. For me, security would come at $1.9 million. Now granted I have an expensive mortgage and could decrease this if I wanted to, I also have life insurance, umbrella policies, and disability which can not go away until I am at least financially independent.
This category includes the above costs plus all other daily living costs. The clothes, restaurant trips, nights out, travel, and basically anything you do on a day-to-day or better yet month-to-month basis. This is easy to figure out if you just keep a budget for a few months. At this level you could retire and I would argue that most people in the Financially Independent Early Retirement movement would retire when financially independent. For most of us who are thinking about this, time is more important then a few material possessions. For me to be financially independent I would need $2.8 million in assets ($12,000 a month). This is even more daunting then the above number for security as my goal is independence in 10 years. Saving $3 million in 10 years would require a much higher savings rate then I am currently undergoing.
Freedom is independence plus more stuff. This would mean being able to enjoy most everything you like. I would say that this category equates to how I currently live my life as my High Income allows me to afford my day-to-day living plus spend money on wine, travel, and restaurants when I want. This comes out to $3.25 million ($13,500 a month). For me the difference between Independence and Freedom is not that much ($450,000 in total assets) but would allow for a more comfortable retirement.
So I calculate that I am at:
Security $1.9 million
Independence $2.8 million
Freedom $3.25 million
This is reassuring but also does not account for my desire to be mortgage free by the time I retire which would decrease all of the above calculations by approximately $3,000. Still, if I compare myself to Physician on Fire we can see that my cost of living is by no means frugal. He describes needing $1.75 million for independence (which he already has achieved) and $2.5 million for freedom. His independence comes to my level of security. Once again this demonstrates that lifestyle bloat (which I have definitely endured to some extent- especially with my recent mortgage) can affect how and when you retire.
What do I need to do
So I have 10 years to save at least $2.8 million and pay off my school debt and mortgage (or down size). Is it possible…maybe but it would require some lifestyle changes. After assessing my current situation I suspect I will continue my aggressive savings (last year it was approximately 35% of my take home pay) and plan on going part time at 45. Working 60% would still afford me health benefits, a steady and hefty salary to continue saving and enjoying life as a Financially Free individual, and allow less stress now.
So back to my mother. Without saying it she basically told me to “Suck it up and work”. For now as I am nowhere near even being financially secure, I will “Suck it up”. However, I will not buy into the notion that I have to work until I am 65 years to be a good father and husband. What about you, do you think we should work until old age just to provide more things for our children?