Help a Reader: When to Retire

Here's a question left here by a reader recently:

I'm in my mid 40's, and through +20 years of working crazy hours/travel, have managed to accumulate a little over $5M after tax. And the funny things is, nobody else knows it (I love the anonymity of the web).

I still dutifully show up to work every day, but as it's not that exciting of a job, I'm asking myself why? It's either just momentum or inertia or perhaps I just can't convince myself at the gut level that maybe $5M really is enough? Based on the above comments, it sounds like there are definitely some who would bail? If anybody has any first hand experience with this question, I'd love to hear about any advice you might have.

What's your suggestion for him?

Comments

[Josh]

$5,000,000 is enough to live an inflation-adjusted $150,000/year for the rest of your life, and in theory should not have to touch the principle. You could start drawing down even more as you age.

Is that enough for you to do everything you want? If yes, retire, if not, keep working.

I would never keep working just for the sake of working. If you think you would be bored then find a passion, hobby or volunteer organization or even new career that does not pay as much but you find more rewarding.

[Tyler]

Its a lot easier to leave the game than it is to get back in the game. Almost everyone I know who has left the working world in their 40s and 50s with plenty of money have said they wish they had stayed at least a few more years. (10+ people) I really dont know anything about you so its hard to advise.

I considered it a few years ago but I felt it was better to say. Then again, I was certainly too young at that time and it didnt fit my personality.

Id try to find something that might be more enjoyable but I wouldnt leave the professional ranks.

[Matt]

What are you going to do in retirement? Do you have anything that you always wanted to do but because of your job you were limited? What do you find fulfilling? Do you feel you are having a mid life reevaluation of your priorities? Does the thought of doing what you are doing for another 20 years bother you? Is there a career change in there somewhere in these questions?

When I retire I will work on my hobbies which could earn me money if I wanted or needed to. It is also a complement to my profession. I could still do what I am doing in a more limited way.

The answers are up to you.

[KH]

Bail, dude!

But before you do, set yourself an assignment to investigate various things you might want to do in retirement and figure out what you'd like to do.

If you can't figure something out, perhaps start instead giving money away every year to whatever person or cause you'd prefer.

[mysticaltyger]

It sounds like it's time for you to figure out what is meaningful to you. That's no small task if you've had your nose to the grindstone for 20 years. You have enough money to retire comfortably, so, while I wouldn't quit right away, I'd start thinking about 3 things I might like to do (paid or unpaid) and then make an exit plan. But the worst thing you could do is to just thoughtlessly continue what you're doing just because it's what you're used to.

[Jenny]

I vote for working in some capacity. If I were to be able to retire at that age, I would probably still work, but in a less stressful situation. If you don't love your job, find one that you do love. I love my job, but if I could I would love to do it on a part-time basis. Have you given any thought to consulting? I have always had very physically, mentally & emotionally challenging jobs, if I could I would probably step down from that & do something that still used my talents, but didn't leave me feeling like I'd been mowed over by a semi at the end of the day. I do think that I would need to do something on a regular basis, in order to feel like my life had some purpose. It's hard to go from 90mph to 20 mph. Good luck to you & congrats for being in such a good position, you obviously made some great choices.

[Anon]

All the above comments are right on target. I did leave a job I disliked when I thought that I had enough financially to get by (although not quite enough to totally retire). As far as quality of life goes, it was one of the best things I did. But there is a big absence when you do this. I would advise writing a "job description" for yourself post-retirement. Even if your job description involves playing golf every day, put something down. How will you be spending your time? I eventually took some work doing a job I find much more rewarding. I work fewer hours, get paid less, and have better life balance and enjoy myself a lot more. Also, check out this book: "Work Less, Live More: The Way to Semi-Retirement" by Bob Clyatt

All the best to you.

[GE Miller]

$5M?? I would have quit at $1M and I'm younger. $150K a year without touching principle means you can live a hell of a life with no financial stress and you are young enough to enjoy it. Very few people your age will ever have that opportunity. If you love your job, it's one thing. If you don't, just remember, you only live once. The clock is ticking. At least find a new challenge that you like.

[Everyday Tips]

Is there something you really would rather do besides your regular job? I would definitely consider leaving, but only if I had something else that could really fill my time.

[R]

IA will all the above answers. Maybe you could scale back on the regular job and pursue the hobby route/volunteer route. Invest some money (a portion you could take a hit on if worst comes to mind) into a small business even (making cookies? opening up a yarn shop?) Oh the possibilities if I was able to have millions!

[George]

I would bail no matter what. If you can't think of something to do, why not consider going back to school for funsies? Get a creative degree and screw around getting it! If I were you I'd get an English lit or History degree, or an MFA. Or just travel and see if there's somewhere in the world you'd love to retire that isn't where you live.

[jeffinwesternwa]

Life IS short, I worked too hard, got to 2.85M @ 47, owed noone a cent 'cept Uncle Sam for Fed taxes of some of that and quit. shoulda done it earlier....Still will have mo money than time....

[jeffinwesternwa]

Part of that $5M properly invested (example a variable annuity w/ lifetime payout option), along w/ Social secutity, a nice "bucket" strategy..wow $5M is WAAY more than $150K annually w/ inflation protection....

[Bad_Brad]

Either find some inspiration or purpose in your job or get out. Period. You have saved enough that it's not a necessity that you work a job that is draining your time and spirit. Life is too short.

FWIW, I wish I was in your shoes. With a bit of luck and God willing, I will be in similar shoes in another 20 years or so.

[Erik]

An interesting question is what has caused you to contemplate this now? Did you recently go through a big life change? The people that suggest you check out, probably would have given that same advice 5 years ago. You didn't retire then so why now?

I know that you asked us the question but this would be nice to know.

[Old Limey]

You certainly have enough capital to retire right now. The larger question however is how do you want to spend the rest of your life? I retired 18 years ago at age 58, debt free, with a whole lot less than that but my wife and I each had a decent pension and then at age 62 we took social security and that was plenty enough income to continue a nice lifestyle for the rest of our lives. I also thoroughly enjoyed my work as an engineer and used to look forward to going in every day, seeing my buddies, and getting a lot of satisfaction from building software that helped our department do its work a lot quicker and more efficiently. I actually took a nice Golden Handshake from my employer to retire about 6 months earlier than originally planned.

The big difference is that you are only in your mid forties and you still need some significant mental and physical activity in your life that will provide great satisfaction. There are lots of things you could do but you need to search out the opportunities that will keep you happy and stimulated rather than turning into a couch potato. It wasn't until I had been retired 14 years, hit the dot.com bubble just right and was 72 before I had the wealth that you do and I found that with that kind of wealth you definitely don't need to work but you need to keep yourself occupied everyday with something worthwhile. We did a lot of international travelling, about 3 trips/year to different parts of the world but eventually even that starts to get old. I am a hands on person and a keen gardener and I used to spend quite a bit of time making improvements and additions to our home and garden, with help from others of course. I was also a very keen photographer with my own darkroom (until the digital age arrived), as well as a very ardent hiker, backpacker, and skier and spent quite a bit of quality time in those endeavours.
Now at 76 we have both slowed down a lot but have pretty well done everything adventurous that we ever wanted to do and are now very happy and quite satisfied to sit back and enjoy life in the slow lane.

I really hope you are also married and in a loving relationship because having money doesn't necessarily bring true happiness.

[Mike Hunt]

To the original poster,

How is your money invested? What type of returns are you generating on this?

How much do you earn from your job each year?

If the returns from your portfolio or investments far outweigh your salary, you might as well quit. Although as others have said you should look at doing something that will keep you challenged.

I hope you find that to be valuable after being in jobs that pay very well, the risk is that you equate low paying jobs as not being valuable enough for your time and effort.

The problem you have is a good one!

-Mike

[Finance_Student]

I am sure reading all of the above advices/suggestions must have got you thinking.

My simple suggestion would be to first of all take a break, go some place quiet by yourself or with your partner and clear your head before making any major decision(s). I believe having quiet time to think over the above suggestions and some introspection will help you make the right decision. Having certain amount of money shouldn't be the only criteria to retire from working life. Otherwise, many well known and currently active people would have done it long time ago.

I have only recently started reading this blog and am really very impressed by the information shared.

[Louis]

You are in a good position to think about what is the meaning of life ?

Having the finance portion being taken care of, you can consider other aspects of life (eg. relationships, coaching, volunteering, etc)

Even working may achieve some of your longer-term goals too. eg. in work, you can be more expressive on behalf of team or give constructive ways for improvement, not concern too much about appraisal. That in some way, allow you to help other fellow company mates.

Good luck in your re-looking of life from a higher plane of view.

[Kenny]

Guys, search for the study done by a New York University.....Their search finds that people who retire early, live longer! Yes. This is contrary to most logical thought process.

To answer the question, get off the rat-race and migrate to a job in your corporation that you like and will enjoy. Then keep scaling back the hours, and when you have FILLED YOUR WEEK with a great alternative activity that you enjoy thoroughly, then you are ready to quit.

Never do a BIG LIFE change. Do a cross-over (like a graph that is pointing down and another line that is pointing upward).

I am planning this same plan, and have hit pretty high numbers also (no disclosing here) although older than you and have paid off everything since age 41.

Healthcare and Long Term Care are HUGE obstacles unless you plan to live in a 'cheaper country'. I am making plans to do that as a back-up plan since I just cannot see beyond 5 years when it comes to Medicare/Healthcare between age 65 and 85.

Finally, invest your money with diversity, cause one dot-com bust, another real-estate bust, and couple other blow-ups coming (Social Security, Medicare, Obama-packages etc). Also, look into BRIC, Africa/Vietnam/Phillipines and other countries that are booming (although wild gyrations too)!

Good luck guys (all readers) since each one has to figure out that money does not buy happiness, it is only a means to get to happiness through freedom.

Kenny

[billyjobob]

Well I wish I was you. If it was me I would quit work right away. If your tired of it, quit and find other things to do. Travel, take classes for things that really interest you. If you really need work, volunteer to do something that would give you more satisfaction. Also... you can make a life out of playing.... go golfing, skiing, kayaking, windsurfing, bowling, traveling, yada yada yada.

[Susan]

When choosing between time and money, I opt for time. Of course that's if I was in that secure position such as you. I know that it will be a valuable learning experience that might prove even more profitable. Several years ago I took off a year from the lackluster position I had been in for 12 years. Even though it was a somewhat disastrous financial move, I learned a lot myself and what I really long to do. I worked at odd jobs along the way, did some creative projects, read a lot and overall got an idea of the big picture that I wanted for my life. Is there anything that you are afraid of losing if you leave your job? You certainly have the bills covered and you're only in your 40s. For Pete's sake, GO FOR IT!!!

[Ellen]

It sounds to me like you have been all work and no play and do not have a balanced life. If you have only been working for all of these years and do not have any interests outside of your job you will find it very difficult to retire. One cannot play golf or do yard work for 40+ hours a week. I see this all of the time (I live in a golf community with many retirees). It is easy to work all of the time but much more difficult to define an interesting life. Good luck.

[Susan]

And I think Kenny's thoughts are really sound advice, Yep! I think that's a good approach, a way of methodically removing yourself from a routine to which you've become accustomed and gradually begin your new life. Congratulations.

[Carol]

Congratulations! You must really be very focused in order to save that kind of $ at your young age. That said, I would guess that you have the disipline to leave your present job, and to work through what your next move might be. When people work at stressful jobs and have long hours, there isn't alot of psychological energy left to think about what one would like to do. It's like needing a sabbatical to recharge, re-energize, and re-vision one's life. Due to your diligence and hard work, you have to opportunity to take time off. If I were you, I would at least have a volunteer activity that I could go to. It's important to have some kind of structure. So, get to work on visioning a structure for yourself while your figuring out your next move (i.e., going back to school, new job or starting a business). Good luck!!

[jim]

I'd certainly retire with that much money. But it does depend on what your current standard of living is and what you want it to be in retirement. If $150k a year is good for you then retire.

Another key is figuring out what you want to do with your life. You don't seem to love your current job and you're likely doing it on inertia. What else would you want to do? I'd take some time and decide for myself what to do with your time. Maybe you actually enjoy working enough to keep doing it, if thats so then fine. But you need to figure out how to fill your days.

[sammysosarules]

As much as I enjoy my work, I can think of a 1,000 I'd rather be doing if I were rich. Bail dude.

[Mike Hunt]

Something about this post doesn't make sense. The author has said that after working 20 years he has saved up $5 million. That means $250k of savings per year after paying taxes. Given he is mid 40's that would mean he had to be making a very high income since his 20's.

Basically it would be a $8 - $10 million income level over 20 years with averages out to $400k - 500K a year.

I would wager that this person:

a) Got a big inheritance
b) Hit it big in the stock options lottery
c) Sold a business and is now in a maintenance role for the acquiring company.

Maybe the poster can help clarify this, because it seems nearly impossible to save up this money on salary alone.

-Mike

[Jeffinwesternwa]

I retired at 47 w/ $2.86~ M. Graduated college and started at age 22 w/ $9K a year income in 82 and about $2K~ in assets. Saved/Invested 15% or more since day #1. Never made more than a modest military salary by age 32. By then had about $225K. Stared business and first year made UNDER $5K. Made low $100's to almost $500 for next 16 years. Invested a LOT, paid lots of taxes. Think you forgot compunding! No inheritance, no stock options or "big" hits, got less than a few K when sold out in 2007. slow, steady turtle...

[Mike Hunt]

Hi Jeff,

Thanks for your comment.

What investment strategy did you take to get such good levels of compounding?

You salary alone would have paid you $1.6 million (100k X 16 years) - $6.4 million (400k X 16 years) before taxes.

I plan to write a post on FMF talking about career lifetime salaries and how to make the most of them.

-Mike

[FMF]

Mike --

I'd LOVE to have that article from you!!!!!!!

[Penta]

Wow, I actually posed this question in response to another FMF article titled, "How Much do You Need to Feel Rich?" and just noticed that our host re-posted my question above...So thanks for all the great feedback, makes me think my head really may be in the sand....

A little more detail- grew up middle class, now 44 years old, married, no children. Began as an engineer but snuck my way into an MBA program...Came out of that at 30 years old not owning a dime, but not owing a dime either. Took a job with a Fortune 500 on corporate tread mill path. Hated it (though loved the money) and stuck with it till "911", when an opportunity to run a small near-bankrupt company came up...Much debate because perceived it as super risky, but made the leap as my current job was drying up anyway and after 5 years of lots and lots of pain, (and little sleep) finally got it growing and rec'd offer to buy (from a Fortune 100 company); with the hitch that I had to stay for 3 year "earn-out" period....Long story short, the earnout period proved lucrative and during it I rec'd more stock options with the Fortune 500 co. Now, at 44 here I am..., Have moved all over the country and seen lots of interesting things, but haven't yet really settled anywhere as always uprooting....So, like everyone else, just trying to figure out what to do next with my life, but with the interesting ace of $5.4M in liquid assets to weigh into the decision...Now for the record, like many of the above comments, if someone had asked me 10 years ago if I'd keep working with +$5M backing me up, I would have cavaleerly (sp?) said "No way!"...But ironically, when actually faced with the decision in real life, the answer doesn't come so easy....

My lingering 4am question,

-- $150K per year after tax (mentioned above) is more than I've ever spent in my life in one year, but in the aftermath of a stock market where it dropped over 50% in 2009, its difficult to get my gut to really believe that I could safely withdraw that much, every year, for the the next 50...? Any further insights from anyone who has actually done it...?

[Mike Hunt]

My feeling was correct, Penta's situation is a combination of #2 & #3 as posted above!

Penta, good for you. I have been in a similar role- turning around a near bankrupt company and selling it to a bigger group. My 2 year effort rewarded me with $500k as an extra bonus only so you did very well. I definitely understand how draining it is from personal experience, after 2 years I'm ready to pack it in myself!

Penta, is the $5.4M of liquid assets still tied up in stock options or is this now exercised stock? If so I would recommend (IMHO) to take a good portion, at least 50% off the table and turn this into cash or a fixed deposit. I say that because of the 50% stock market drop scenario you are talking about.

Also you would need to pay whatever taxes are due, not sure what the estimate would be after tax.

-Mike

[Penta]

Nice to meet a fellow "whatever-it-is-we-are", Mike. Definitely draining and leaves you very tired of corporate bureacracy, etc, doesn't it....And yes, I smiled when read your earlier hypothesis on accumulation scenarios...

To your question, as of this week's stock options exercise, the $5.4M is completely free and clear of taxes, etc, and currently invested 50%, 40%, 8%, 2% (Stock index, Bonds, House, Cash)

So do you think you could safely withdrawal $150K after tax for 50 years? (with added caveat that want to leave a nice estate for cancer research one day)

[Mike Hunt]

Penta,

That is very good. According to this life expectancy calculator, at age 44, you can expect to live another 34 years. If your wife is of the same age she can expect to live another 38 years as a median number. So you can plan on 50 years to be safe.

http://www.ssa.gov/OACT/STATS/table4c6.html

You said that you have never spent $150k per year, so why start now? I think you can withdraw $100k a year (2% of portfolio) with a near zero chance of running out of money.

There are no perfect places to hide in terms of equity preservation. Bonds held to maturity can default, the stock market can crash, and cash gets eroded by inflation. Have you thought of investing in a small business and having a manager to run this or even rental income, maybe this is a good hedge.

Given that you have shown you are a rainmaker once, do you have it in you to do it again? With a war chest of cash you can be choosy in picking the next opportunity. Certainly there is no need for you to stick with your day job now I would think.

Congratulations on having something to show for your efforts.

-Mike

[Penta]

Thanks to everyone for some great insights, particularly enjoyed Old Limey's and Mikes for expressing views from different perspectives than my own.....

So as a punchline, I'm going to work exactly one more year and have set my early retirement date for Dec 31, 2011...At that point I won't necessarily do Nothing, but I do want to get off the crazy merry-go-round of centering my life on work....This view became particulary clear as Obama, Pelosi and Reid "vilified" those of us who work like crazy to create jobs in the mistaken belief that we are not only helping ourselves, but also the country...The liberals have completely deflated my desire to create and build; Perhaps one day if Captalism becomes a good thing again in this country I will re-engage, but for now I would recommend that everyone do as our president requests and limit our aspirations to "middle class"...

P.S. I will be investing heavily in China, a country that once like our own, has embraced the idea of rewarding those who work hard...,

Penta

[Mark]

@Penta: Are you seriously saying after all this well-thought-out debate that you are quitting because of the "liberals"?

Personally, I am working precisely 1 year and three weeks more to cash in on a lucrative opportunity.

I have started reading books on retirement planning, because I realized some time ago that I have the money I need. What I lack is the ability to spend my time in a way that will make me happy. If you have been in a busy and/or high-stress work environment, the big issue in your life will not be how to spend $150K per year. It will be how to spend your time from wake-up to bedtime.

A close family member retired at 35 and was back at work full-time at 40 for this very reason.

[Penta]

Mark -- As it sounds like you "get it", people in the most demanding jobs are rarely willing to endure the relentless grind, travel and sacrifice for money alone...It has to be about something bigger to actually get out of bed at 4:00am on a cold morning for the 1000th time... There was a time in this country (Remember Reagan?) when everyone genuinely appreciated the hard work from the 10% of Americans who pay 70% of the Federal taxes and create the lion's share of jobs. Rather than enlisting, or working on a cure for cancer, you could do your part by creating the growth engine that enabled the former...

But under the Obama liberal regime, doesn't it feel like your hard earned tax dollars are just thrown away on building a massive government that will only waste even more as it grows..., Well, I surrender..., So I'm checking out of the "working-for-a-living" game and am going to live like a "liberal" for a while...

As for your own search for a way to spend your time in a way that will "make you feel happy", do you suspect that the liberal culture of bashing the "rich" and stealing (eh hem, taxing) their money to create yet another round of entitlement programs might have something to do with why you can no longer find satisfaction in your work? An honest introspective answer to this question might point you in the right direction...Penta