How will you know when the time has come to quit your full-time job? Plan your retirement exit strategy.
One day, you will stop working at your 9:00 to 5:00. I know this is blunt, but you’ll either die unexpectedly or you’ll choose to retire. I encourage you to have proper estate planning and life insurance coverage in place, to be prepared for the former event. You should also prepare for the latter. Whether you’re saving for FIRE (Financial Independence, Retire Early), traditional retirement, or semi-retirement, the goal is to be prepared to leave your job before your health requires you to.
But how will you know when it’s time to take the leap into retirement? Have you considered the consequences of not making the move, once you’re financially able to?
Why bother planning a retirement exit strategy?
Americans are not good at preparing for the future.
1. We’re bad at actually saving money
Half of American families have zero or nearly-zero retirement account savings.
I recently featured a post from my friend Brian at Debt Discipline, who shared that he used to work 75 hours per week — and he did not save any of it. Brian’s story has a happy ending, but working hard yet not saving is the clear pattern in our society.
If you want to be prepared for retirement, or other future financial goals, you will need to be intentional. The data clearly shows that Americans are not haphazardly wandering into appropriate financial preparation.
2. Time is precious
I don’t work 75 hours per week, and I feel like my life is a blur from Monday to Friday when I’m at my office job. When you’re bored or doing repetitive work, it’s unpleasant, and it’s easier to just disengage mentally. I can focus on my lunch break, my podcasts on my commute, or the work at hand and the days sneak past me. Months and years fly by and, frankly, I hardly notice.
The remaining time we have to live our lives is our most scarce asset. So, even though I am saving for the future, it’s upsetting to realize that time is slipping through my fingertips. This may sound dramatic, but the full-time work grind reminds me of the dementors in Harry Potter, consuming our life force — time and happiness. (I was not a Harry Potter reader growing up, so, apologies if that’s not a perfect metaphor.)
Working is necessary and helpful. But don’t trade your time to your employer without counting the costs.
3. We’re bad at decision-making and the world is complicated
The human brain is vulnerable to dozens of heuristics and decision-making biases that affect our choices.
Plus, the world is complex and choosing the best option is difficult when there’s incomplete information — and there almost always is.
Professional poker player Annie Duke’s book Thinking in Bets has become a popular resource in the personal finance community. There are a lot of parallels between poker, investing, and decision-making in general.
In the book, Duke says “Poker is a game of incomplete information. It is a game of decision-making under conditions of uncertainty over time. (Not coincidentally, that is close to the definition of game theory). Valuable information remains hidden. There is also an element of luck in any outcome. You could make the best possible decision at every point and still lose the hand, because you don’t know what new cards will be dealt and revealed. Once the game is finished and you try to learn from the results, separating the quality of your decisions from the influence of luck is difficult.”
Because of this incomplete information and uncertainty, retirement planning (and poker) will always be risky. But, remember, you’re also combatting the risk of retiring too late or not retiring at all.
There are steps you can take to manage these risks. Learn more about biases so you can intentionally minimize their effect. Consider a semi-retirement phase that gives you more flexibility for your income and retirement withdrawals. Diversify your investments and avoid single stocks.
But, at some point, it will be time to take the leap.
“Do it if you’re gonna do it!” — start drafting your retirement exit strategy
The SR Wife and I like to watch HGTV real estate shows occasionally. A show we’ve watched a few times, Home Town, is set in a small Mississippi community.
In one scene, Ben, half of the husband-wife home renovation duo, is preparing to tear down a front porch support pole with a rope connected to his pickup truck. After a moment of hesitation, Erin (Ben’s wife) tells him (heavy Mississippi accent included) “Do it if you’re gonna do it!”
We live in the south too, so I feel qualified to poke fun at the southern accents.
“Do it if you’re gonna do it” has become an oft-repeated mantra in our home — typically after hesitation to get off the couch and clean up the dinner dishes or go to the gym.
In the same vein, recall Nike’s “Just do it” slogan. Or the viral video of Shia LaBeouf shouting that same phrase.
When the time comes, take these slogans to heart. Get out of there! Summon your courage and “do it if you’re gonna do it!”
How do you plan your retirement exit strategy?
We’ve covered that you need a plan so that you can execute it at the right time. The planning will be challenging, and the execution will require courage.
But how will you know when you’re adequately prepared or what steps you need to take to get there?
1. Identify your purpose
Take the time now to define your future. As Stephen Covey said, “Begin with the end in mind.” That’s the only way you’ll know what steps to take along the way.
What would you do if you didn’t need the income from your full-time job?
2. Outline the steps to get there
Next, what would you have to do to achieve that ideal future? There may be several steps required, and that’s okay — you just need to get started.
Consider using the SMART goal format. Set goals that are Specific, Measurable, Actionable, Realistic, and Time-based.
For example, “become a community college professor” (one of my own ambitions) isn’t a good SMART goal. The timeline isn’t clear enough. “Complete my master’s degree in 2020” is a SMART goal, though, and it’s one of the steps I need to take to put myself in a position to teach later in life.
3. Understand the math
There are a few tools you can use to understand your progress.
If you’d like to walk through your own financial numbers step-by-step, check out the free workbook I share with my newsletter subscribers. You can get access to it here!
A few other numerical tools you may be interested in are the 4% safe withdrawal rate and breaking down retirement into 2 stages — an initial semi-retirement phase followed by a full-time retirement phase.
4. Don’t look back
Once you have your retirement exit goals in place, pursue them with a sense of urgency. Go after them relentlessly.
Seriously, just do it. Take the steps to move towards your dreams for your future.
Trust your plan. After your years of work and preparation, when the time finally does come to leave your job, do it with confidence. You’ve been planning for this. You will be ready.
If you find that you have doubts as you approach your retirement, remember that it’s reversible. You can always un-retire. Seriously.
Part-time work is one of the major benefits of semi-retiring, for example. Give yourself the flexibility to make adjustments in your retirement if you need to financially or to maintain a feeling of productivity and mental or social engagement.
But, if you hate your corporate desk job, don’t waste extra years there in hesitation. Once you’re financially prepared to make the move… Do it if you’re gonna do it! Plan your retirement exit strategy now!