In my last post, I gave some introductory thoughts on the concept of financial independence. I touched on what I would consider to be traditional thinking about when someone should retire. To close out the post, I asked why more people aren't retiring early. I claimed the short answer is that it's not easy. Other short answers that come to mind are that we can't afford it or that it's not the way we do things- we should remain a "productive member of society".
Before I go any further, I want to give credit to the places that have been helpful as I've been learning about personal finance & financial independence. They've been instrumental & inspirational as I've developed some new ways of looking at the world:
Now back to the topic at hand. I think it's important to ask the question "why?" in response to the short answers I proposed. Why isn't it easy to retire early? Working 40+ hours a week for 40+ years of your life isn't particularly easy either, but plenty of people do that. I would venture to say what makes it especially "not easy" is that it's not "normal". More to come on this in a future post.
Why can't people afford to retire early? The typical responses might be as follows: "Because the cost of living is too high." or "Because the wealth is all concentrated in the hands of the 1%, and we are lucky if we can get by while putting a small portion away".
The first two answers are complaints about the economy. In the first case the complaint is about the cost of basic expenses in the local economy, while the second case focuses on economic inequality. The political and moral implications of these complaints are beyond the scope of this post. Instead, let's focus on the areas one can have a real impact. In my opinion, one is going to have far greater success in changing their own "economy" than in changing the local or national economy (or waiting for it to change, for that matter). There are certain ways one can go about this. One can relocate and effectively lower their cost of living. I acknowledge there are certain limits which may prevent one from picking up and moving on the spot, but I do think this is more of a short term barrier, especially in the internet age. Maybe you've decided to stay where you are despite the high cost of living because you enjoy the amenities too much to consider living somewhere cheaper. This is fine- just recognize that it is a choice. And yes, there is a large income disparity, but putting all that aside for a minute- is there anything you can do personally to increase your income or decrease your expenses? Voting for the politician that makes better promises regarding taxes doesn't count. I am going to bet that there is at least one thing. And no, that one thing is not going to mean suddenly you are on track to retire early, but it may start the momentum in that direction.
Finally we reach the last short answer- "it's not the way we do things." If you've made it this far you know I'm going to ask "why isn't it the way we do things?" Is it because the government has encouraged arbitrary ages to withdraw from the workforce based on tax code for retirement accounts? Do we trust the government to know when the best time for us to retire is?
Now to address the part about being a "productive member of society". This idea operates on the assumption that having a traditional job is the best way to contribute to the economy. (It also is indicative of our dismissive attitude toward the elderly). I would point out that many people who retire early are often still involved in the workforce in one way or another. It just happens to be on their own terms and may take a less traditional form than we are used to. But isn't it possible that a person working under these favorable circumstances is going to be even more productive? Or let's even say that the early retiree does no work whatsoever and instead lives off dividend income. But maybe doing so allows them to be around for the formative years of their children. Would we not say this is a benefit to society as well?
I'm sure there are plenty of other responses someone might give for why more people don't retire early. But I hope this post has at least got you thinking about the reasons it is so uncommon, and maybe even breaking down some of the assumptions we hold about work.
Before I go any further, I want to give credit to the places that have been helpful as I've been learning about personal finance & financial independence. They've been instrumental & inspirational as I've developed some new ways of looking at the world:
- The Root of Good blog. I'm not sure how I stumbled upon this one but his post $150,000 Income, $150 Income Tax was especially eye-opening to me. His monthly financial updates have also given insight into how a family with kids can keep expenses low while still living a fulfilling life.
- The Radical Personal Finance podcast. Initially I found this podcast about a year ago simply by searching for a podcast on finance. But I came back to it recently when I saw that there was an interview with Justin from Root of Good. Joshua, the host of RPF, puts out a crazy amount of content.
- The Early Retirement Extreme blog by Jacob Lund Fisker and his book of the same name. I found out about Jacob's work via the Radical Personal Finance podcast. He is an incredibly smart guy. I am halfway through his book so far and really enjoying it. He has a lot of great points but my biggest takeaway from his work so far is a shifting in thinking from "get really good at one thing so I can afford to pay people for everything else I want" to "strive to learn to do a wide variety of things myself".
- Finally, I must acknowledge the work of someone close to home. David Carlson went to my high school and college and has been putting out great content for 4 years at Young Adult Money. Whenever I'm learning about a financial concept I'll often cross-check it on YAM to see if David has anything to say on the subject, and more often than not he's written about it. David is an extremely hard worker and has at several times since I've known him given me encouragement to keep writing.
Now back to the topic at hand. I think it's important to ask the question "why?" in response to the short answers I proposed. Why isn't it easy to retire early? Working 40+ hours a week for 40+ years of your life isn't particularly easy either, but plenty of people do that. I would venture to say what makes it especially "not easy" is that it's not "normal". More to come on this in a future post.
Why can't people afford to retire early? The typical responses might be as follows: "Because the cost of living is too high." or "Because the wealth is all concentrated in the hands of the 1%, and we are lucky if we can get by while putting a small portion away".
The first two answers are complaints about the economy. In the first case the complaint is about the cost of basic expenses in the local economy, while the second case focuses on economic inequality. The political and moral implications of these complaints are beyond the scope of this post. Instead, let's focus on the areas one can have a real impact. In my opinion, one is going to have far greater success in changing their own "economy" than in changing the local or national economy (or waiting for it to change, for that matter). There are certain ways one can go about this. One can relocate and effectively lower their cost of living. I acknowledge there are certain limits which may prevent one from picking up and moving on the spot, but I do think this is more of a short term barrier, especially in the internet age. Maybe you've decided to stay where you are despite the high cost of living because you enjoy the amenities too much to consider living somewhere cheaper. This is fine- just recognize that it is a choice. And yes, there is a large income disparity, but putting all that aside for a minute- is there anything you can do personally to increase your income or decrease your expenses? Voting for the politician that makes better promises regarding taxes doesn't count. I am going to bet that there is at least one thing. And no, that one thing is not going to mean suddenly you are on track to retire early, but it may start the momentum in that direction.
Finally we reach the last short answer- "it's not the way we do things." If you've made it this far you know I'm going to ask "why isn't it the way we do things?" Is it because the government has encouraged arbitrary ages to withdraw from the workforce based on tax code for retirement accounts? Do we trust the government to know when the best time for us to retire is?
Now to address the part about being a "productive member of society". This idea operates on the assumption that having a traditional job is the best way to contribute to the economy. (It also is indicative of our dismissive attitude toward the elderly). I would point out that many people who retire early are often still involved in the workforce in one way or another. It just happens to be on their own terms and may take a less traditional form than we are used to. But isn't it possible that a person working under these favorable circumstances is going to be even more productive? Or let's even say that the early retiree does no work whatsoever and instead lives off dividend income. But maybe doing so allows them to be around for the formative years of their children. Would we not say this is a benefit to society as well?
I'm sure there are plenty of other responses someone might give for why more people don't retire early. But I hope this post has at least got you thinking about the reasons it is so uncommon, and maybe even breaking down some of the assumptions we hold about work.
Great post David! If you have me some good podcasts to look into.
ReplyDelete