Everything in life is a trade-off. We may buy a smaller home so that we can afford to send our children to private school. Or perhaps we keep an older car to be able travel more. Retirement planning is really no different, it just has a longer lead-time.
As I’ve talked about before, I planned for my early retirement for about 15 years. During most of that time (especially in the later years), I talked about my plans freely. I remember a comment made by one of my coworkers, a good friend, actually. She said that she didn’t want to have to be so tight with her finances that she couldn’t go out to eat whenever she wanted, or pay for some landscaping to her home. I asked what if doing without those things meant she could leave an unhappy job sooner. She said still, no. Although my decision was different, I respect that she knows what she wants and the tradeoff she is making.
Many people view money as a very transient thing. It comes into our lives and leaves almost as quickly. I’ve seen coworkers start planning how they will spend their next raise or bonus before it even hits their bank account. All of which is fine as long as they are keeping to their priorities.
After I paid the mortgage off, I continued to work for four more years. I had a good-paying job with a paycheck that would afford me a very nice lifestyle if I wanted it. With the mortgage payment gone, I had a very large percentage of the paycheck that could be considered disposable income. However, other than going out to lunch to celebrate the end of the mortgage, I did not spend any extra money or add any extra expenses into my life. Instead, I ramped up my savings big time. In fact, my total expenses were less than 20% of my gross pay.
There were plenty of ways I could have spent a little more. It’s so easy for expenses to creep up a bit, especially when there is money available to cover them. But Quicken kept me honest , so there was no way to fool myself into thinking I was spending less than I was. It became almost instinctive that, anytime I thought of something I wanted to spend money on, I immediately had to answer to myself: would you be willing to delay your retirement for this?
As it turns out, I really wanted to retire more than almost anything I could think of to buy. I didn’t feel like I was denying myself, because I was making my spending decisions voluntarily. It didn’t really even feel like cutting back, it just felt like I was keeping my spending in line with my priorities.
The other day I drove past a horse farm and fondly recalled my teenage years when I rode and showed horses. I loved horses, and in fact some times I miss just being around them. I started daydreaming about owning a horse again, and then thought that, if I wanted to work full-time again, it would be conceivable. But the bottom line is that there is no way I think it would be worth it to commit myself to the contraints of a 9 to 5 job just to indulge this pleasure.
Each of us must ask ourselves what trade-offs we are willing to make. Are we willing to cut back on our spending in order to save more for a long-term goal like early retirement? Are there things we want in retirement that will require us to save more now? Are we willing to work more years to have more discretionary income later? No one else can answer these questions for us, but answering them is a critical step in planning for retirement.
September 9th, 2008 at 10:33 pm
I’ve got a few questions about your retirement planning. What are you doing for health insurance since you’re retiring early? I know there are plenty of options out there, but which did you pick?
Without going into any private information, can you give me some specifics on pricing and other details (deductibles, etc) of the policy/company you chose? and why?
Also, what else changed? I’ve noticed that when you get life insurance, they ask where you work…did retirement affect any of that?
September 10th, 2008 at 5:13 pm
@Wesley - I have a high-deductible individual health insurance policy, with a Health Savings Account (HSA). I talked a bit about this here: http://retiredat47.com/2008/08.....insurance/
I don’t mind giving a few of the specifics: I chose a $2500 deductible policy, which ends up costing me $128/month. Although I hope not to need it, I put the maximum dollar amount into the HSA last year and will do so again this year. That money becomes a tax deduction and is available for health-related expenses. I used eHealthInsurance to compare the many choices, narrowing it down to those plans that were HSA-compatible.
As for other changes, I did give some thought, before I retired, to whether I might need to show income to qualify for something. Basically, I choose not to take on any new debt so I decided it wouldn’t be a problem. If I thought I wanted a loan, I would have tried to obtain it before I left my job.
I teach a few classes (something I’d done for years while working), so I can legitimately say I am self-employed, albeit with a small income, if I need to.