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Is the juice worth the squeeze? Set yourself up for early retirement

Early retirees fundamentally reject the default setting.

Is the juice worth the squeeze? Set yourself up for early retirement
[Source images: deagreez/Adobe Stock; Stock PK/Adobe Stoc; denisismagilov/Adobe Stock]

As the country bounces back from pandemic pandemonium, many economic indicators—from surging home and stock valuations to plunging unemployment claims—suggest we’re approaching a near-normal recovery.

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But in the wake of COVID, one metric goes way beyond normal: Millions of Americans are opting for early retirement. Between the third quarter of 2019 and the third quarter of 2020, 3.2 million Baby Boomers retired. Prior to 2020, about two million Baby Boomers retired each year, according to data from Pew Research.

Some of these early retirements are involuntary, but much of this boom in early retirement is voluntary, motivated by a “life is short” mentality, reports Bloomberg. A Google search for “you only live once” delivers 2.6 billion results, and The New York Times captures the zeitgeist of this “YOLO economy.”

REJECT THE DEFAULT SETTING 

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Early retirees fundamentally reject the default setting.

The typical life arc: We embark on our careers in our twenties and hope to exit (if we’re lucky) sometime in our sixties. We commit ourselves, consciously or not, to enduring a 40-year career ultra marathon, despite the pervasiveness of burnout and workplace dissatisfaction. Then, the thinking goes, when we get to that distant finish line, we’ll be free to do what we wish we could’ve done all along.

How crazy is that? Yet that’s the default career and life setting for most Americans.

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With career on default, we typically approach financial security the same way. I believe that everyone wants financial security, but most people lack the urgency to create it.

FLIP THE MONEY-TIME EQUATION

Millions of Americans are acting on the growing sense that the “juice” from this ultra work marathon doesn’t justify the “squeeze” of professional misery along the way. As a result, they’re flipping the perennial money versus time equation.

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There are two currencies in life: money and time. Money gets all the attention, but time has the biggest impact on life satisfaction. How we think about time markedly influences our behaviors and correlates with happiness. For an enriched life, be deliberate and purposeful in how you spend your time.

As part of my 25-year research into the work-life equation, I have interviewed high-achieving professionals all over the world, from a variety of domains. Invariably, control over time is often cited as the ultimate expression of success.

ACCELERATE FINANCIAL SECURITY

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The first time I felt handicapped by financial insecurity was when I realized my inability to walk away from a cushy paycheck at a major Hollywood studio—despite the misery that I felt at work, which polluted the rest of my life.

Financial security is foundational. It’s not the end goal, but the starting point. By accelerating financial security and creating optionality, it’s much easier to create an enriched life of meaning and relevance and all the things that really matter.

There are both offensive and defensive reasons to accelerate financial security. Offensively, financial security buys optionality so that work becomes a choice and not an obligation.

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Defensively, financial security reduces dependency on a tenuous paycheck. Even if you view the pandemic as a once-in-a-century event, the past 25 years are littered with disruptive one-off events: the 2009 Great Recession; 9/11; the dot-com crash; and the Asian financial crisis. Those are just the exogenous shocks. There are also the long-term downward pressures of corporate consolidation, technological disruption, globalization and outsourcing that relentlessly chew up industries and white-collar jobs.

Ok, so you get the logic of accelerating financial security. But when most people take 40 years to achieve that goal, how can it be fast-tracked?

THREE STEPS TO CREATE OPTIONALITY

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First, rethink how much is enough. The short answer is, probably much less than you think. Numerous studies indicate there’s a diminishing marginal benefit to increases in income and wealth after some point. At what point, exactly, is enough, enough? In 2018, researchers looked at income satiation internationally. In North America, they found that income satiation occurs at $105,000 (or $115,000 for the highly educated). To be clear, I’m making a qualitative and not quantitative point. We don’t need as much as we think.

Second, commit to a shorter time horizon. Rather than committing to that ultra-marathon course, figure out how to sprint toward financial security in, say, 20 to 30 years. That’s doable with a lower hurdle rate, and if you scrutinize both sides of the money equation: your income and spending.

Then, do what most Americans don’t do: Create a written financial plan to hit your fast-track goal. Three-quarters of Americans don’t have a financial plan, or even think they deserve one, according to research from Charles Schwab. By committing to accelerating your financial security, and making a written financial plan to see it through, you’ll place yourself in an elite financial minority. And the compressed time frame for financial security means you will make markedly different and more thoughtful spending and savings decisions along the way.

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Todd Miller is the author of ENRICH: Create Wealth in Time, Money, and Meaning
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