When Should I Retire?

While it seems backwards, ask anyone managing money for a living and they will tell you: when you need to hit certain performance thresholds in order to make your living and pay for your monthly nut, you will not perform as well as you would if this wasn’t a concern.

There is something about the need for short-term performance that pushes investors to focus on near-term catalyst driven opportunities that often are binary in nature (we call them “zeroes or heroes”).

The funny thing you learn about the stock market and business in general over time though, is that binary events are not as BI-nary as you were led to believe. Most of the time, heroes only exist in comic books and movies, and zeroes are the reality of business and the market.

When you are not under a time constraint, it frees your mind from short-term performance bias and focuses you instead on buying great businesses that are undervalued. (People often forget that Warren Buffett had over $2.5M in today's dollars by the time he was 27 years old. Meaning when he launched his investment partnership he had enough money to live on for the rest of his life and therefore was not dependent purely on returns). While these great businesses rarely produce homeruns over 6-12 months, their “on base percentage” is significantly higher, and they end up creating more long-term wins (read: wealth) than the binary homerun/strikeout/swing-for-the-fences type of investment.

With that being said, what puts you under a time constraint more than anything?

Not having an active income, that’s what.

The biggest mistake we see people make in retirement is that they give up all of their active income. It not only means that you need to withdraw more money from your savings/investment accounts every month, but it changes your mindset of how you invest your money.

The reason it changes your mindset is because you have no idea how long you and your spouse are going to live, and you are scared you will outlive your money. We know that advances in medicine will very likely mean either or both of you will live longer than “average”. And unfortunately, the low-interest rate environment doesn’t provide any easy answers for earning a respectable return on one’s money to pacify those concerns.

We believe outliving one’s money is going to be a real problem for a number of retiring baby boomers. The solution: DON’T GIVE UP ALL OF YOUR ACTIVE INCOME WHEN YOU RETIRE!

Let us say it again, nicely this time: PLEASE DON’T GIVE UP ALL OF YOUR ACTIVE INCOME WHEN YOU RETIRE.

But wait? Isn’t that the point of RE-TIRE-MENT?

We don’t think so. The point of retirement is to transition your life from one where you are working on someone else’s schedule, someone else’s calendar, someone else’s demands and requests to spending your time how you want to spend it. Does this mean you need to stop working all together though? Absolutely not. In fact we believe that work is an integral part of our purpose as human beings. But you do deserve to work on something that is more meaningful to you, on a schedule that better fits with your lifestyle.

We aren’t saying that if you were a partner at a law firm you need to continue pumping out 50+ hour work weeks where you come home grumpy every night and only get two weeks of vacation a year. We are saying you transition your life to use the skill sets, knowledge base and connections you have to do something more enjoyable, more rewarding and on your own time table. If you were a contract lawyer, maybe you start doing legal consulting for some non-profits with missions that you care about. Or setup a small business to help other small businesses button down their makeshift contracts.

If you were a dentist, maybe you start teaching at a dental school 3 times a week. If you were a tech guru Lord knows there are a number of start-ups (particularly here in Seattle) that could use your expertise as a consultant. If you are a medical professional you can get paid for roles at international non-profits and potentially get an opportunity to see many parts of the world as well, while you get to do incredibly meaningful work with travel partly paid for by the company.

If you are coming up on retirement, you need to ask yourself: “Do I really want to spend every day for the rest of my life playing golf and watching TV?” Most would answer no, and for most of those who have tried it, they tend to get bored after about three months. (If you really do love golf and are passionate about it, get a part-time gig at the golf club teaching youngsters how to master their swing.) The reason they get bored is because…

What you really want out of retirement isn’t rest from work. It is freedom and meaning.

You don’t want to wake up every day and feel like your time is enslaved to someone or something else. You want freedom to spend part of your day working on something interesting to you and part of your day babysitting your grand kids. You want to be able to take a trip to Tuscany for a couple weeks with your spouse without having to wait for the “slow season” at work.

You also want to find more meaning in what you do. As you’ve aged, you’ve discovered that the “daily grind” is less about working towards a destination and more about enjoying the journey. More about enjoying the day-to-day with the people you care about.

Is it possible to structure your life where you control your schedule, you get to spend time with people you love, and still not entirely give up your active income while you do meaningful and interesting work on a reduced schedule? We think so.

Now that you understand what we mean by “retire” (as in, transition to more meaningful work on your own schedule), we will have a second post coming shortly which actually answers the question “when should I retire?” Stay tuned.