work less live more, the new way to retire early (2005)
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Work Less,
Live More
The New Way to Retire Early
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Work Less,
Live More
The New Way to Retire Early
FIRST EDITION OCTOBER 2005
Editor BARBARA KATE REPA
Cover & Book Design SUSAN PUTNEY
Index SONGBIRD INDEXING SERVICES
Proofreading ROBERT WELLS
Printing DELTA PRINTING SOLUTIONS, INC.
Clyatt, Bob.
Work less, live more : the new way to retire early / by Bob Clyatt ; edited by Barbara
Kate Repa 1st ed.
p. cm.
ISBN 1-4133-0200-9 (alk. paper)
1. Finance, Personal. 2. Retirement income. 3. Retirees Finance, Personal . I. Repa,
Barbara Kate. II. Title.
HG179.C6518 2005
332.024'014 dc22
2005047250
Copyright © 2005 by Nolo. ALL RIGHTS RESERVED. PRINTED IN THE USA.
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Dedication
To our Teachers
Acknowledgments
My thanks to the many early retirees who shared their stories and their in-
sights so that others might follow a little more confidently. Particular thanks
to the gang at www.early-retirement.org who are always ready to help, 24/7.
Keith Marbach of Zunna.com generously ran study after study to help
refine, test, and update the Safe Withdrawal Method and programmed the
needed enhancements to model The 95% Rule in Chapter 4. Keith also wrote
the code for the WATS Simulator, which has been used for his own published
research as well as for academic researchers, foundations, and retirees.
Paul Fendler, my longtime accountant and friend, graciously provided in
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stant feedback on all manner of tax questions and strategies throughout the
writing of this book. Paul’s guidance, clarifications, and the many hypotheti
-
cal tax returns he produced for illustrations can be seen wherever tax matters
arise in the book, notably in Chapter 5.
Tom Orecchio, of Greenbaum & Orecchio in Old Tappan, New Jersey, an
advisor with Dimensional Fund Advisors (DFA), helped refine and test my
early ideas about the Rational Investing Portfolio and turn it into something
worth sharing. Tom graciously and regularly ran scenarios and portfolios
through his software getting me updated and historical statistics that provided
the meat of Chapter 3’s data.
We are all indebted to a small number of independent thinkers who pio
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neered the research, created the products, and stood up against the ridicule of
Wall Street to make the Rational Investing Method viable for the little guy.
First among them is John Bogle, the founder of Vanguard and developer of
the first low-cost index funds. William Bernstein’s research and pragmatic
explanations provided me and many others with the “Aha” moments. And
Eugene Fama and the folks at DFA have given all serious asset allocators the
building blocks we need to understand and implement Rational Investing.
My finance professors at MIT’s Sloan School lectured us on the fine points
of Modern Portfolio Theory, efficient markets, and asset allocation in the 1980s.
Twenty years later—my thick-headedness, not their teaching—I have finally begun
to understand and apply their powerful ideas, the foundation of Rational Investing.
My editor Barbara Kate Repa and the Nolo team instantly understood the
value of this book to help guide people toward safer, more rewarding early retire
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ments. I will always be grateful to Barbara Kate for her painstaking dedication to
this book and for providing much needed structure to my ideas.
And last, to my family, who understood and supported me—and left me alone
to write.
I N T R O D U C T I O N
H O W TO U S E T H I S BOOK
C H A P T E R 1
C H A P T E R 2
C H A P T E R 3
C H A P T E R 4
C H A P T E R 5
C H A P T E R 6
C H A P T E R 7
C H A P T E R 8
A P P E N D I X 1
A P P E N D I X 2
I N D E X
Introduction
here are a number of reasons why you might want to stop working full-
time well before you reach traditional retirement age. You may be rea
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sonably happy at work, saving money, but wondering how long you can hold
out against the gnawing sense that you’re trading your life away. Or you may
be a little further along, with ample savings,
agonizing about whether you need to keep
pounding away at a full-time career that no
longer fires you up the way it once did. You
may have tired of the long hours, the bills, the
pressure, and the feeling there is never enough
time to do the things that are important. Or you may just be ready to move
on from what has come to feel like a constant diet of compromises, working
for the man. You ask yourself: Do I really have to do this until I’m 65? Can I
turn all this hard work into a ticket outta here?
By husbanding your financial resources, managing your expenses, and
making a commitment to graduate from the traditional workplace, you can
safely cut back your time on the job by years, even decades. Lots of people are
doing this now, leaving full-time work in their 40s and 50s, even some preco
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cious ones in their 30s. They have plenty of time to relax and focus on living
a life of clarity and purpose. And you can, too.
A. Something Wrong in Paradise
Working life was never supposed to be as stressful as it has become. A vibrant
modern economy full of opportunity and well-paying jobs was supposed to
mean we would all be happily challenged, with enough money to buy the
things we needed. Then we would enjoy this bounty during the leisure time
freed up by our sparkling efficiency.
At least that was the theory.
But something happened to derail that vision. Instead of enjoying more lei
-
sure as our earning power went up, we decided we’d have to work even more to
pay for all the goodies we couldn’t live without. In fact, we really needed two in
-
comes just to afford a place in a decent neighborhood. Now, rather than feeling
There must be some kinda
way outta here…
4 •
energized and challenged by work, we feel stressed and trapped. The problem
has less to do with the nature of the work and more with the amount of time
we spend there: The hours that American workers put in today should really
be called Overwork. Most career-track professional employment requires 55 or
more hours a week of sustained in-the-workplace effort, along with more labor
at home or on the road checking email and catching up on relevant business
news. The average American worker logs nearly 48 hours a week on the job.
Some people can put in fewer hours, but the pace in their workplaces of
-
ten makes it feel like more. And for many, leaving work early is like pasting a
big target on their backs marked Fire Me First. With a mortgage, credit card
debt, and an endless parade of bills, missing a few paychecks could even spell
ruin. Life for many full-time workers has become an adrenaline rush of long
hours, big spending, unrelenting stress, and poor health.
• 5
B. The Solution: Early Semi-Retirement
Early semi-retirement—reclaiming a proper balance between life and work
by leaving a full-time job—offers a way out of this madness. By reducing
spending and switching to a pared back but more satisfying lifestyle, less
money goes out the door. Tapping into accumulated savings in a sensible way
provides a steady annual income. Any shortfall can be filled with a modest
amount of work, done in an entirely new state of mind: With less need to
work for the largest paycheck possible, you can find low-stress work that you
truly enjoy, on a schedule that gives you time to breathe.
Doing some amount of engaging work offers a comfortable transition
between full work mode and full retirement mode, making early semi-retire-
ment a good fit for middle-aged people and their families. With a modest
income from part-time work, early semi-retirees may not have to face the
dramatic downshifting in spending and lifestyle that so often confronts those
who simply retire early, with a plan to never work another day in their lives.
Early semi-retirees learn that a bit of work, even unpaid work, keeps them
energized, contributing, and sharp. (See Chapter 6 for specific ideas on types
of activities you might seek.) For those who are mentally ready and who align
their spending and financial means, early semi-retirement can be the ideal
course for navigating a long, healthy, and happy life.
If the entire early semi-retirement movement were simply about working
less and relaxing more, critics might feel that it was somehow depleting the
dynamism of our economy or creating a new parasitic aristocracy. But per
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sonal experience and the passionate convictions of many other early retirees
have shown otherwise.
Early semi-retirees are reclaiming their health and zest for life, re-energiz
-
ing their communities with talented volunteer work, staying fit, becoming
more accessible parents, and mentoring young people who increasingly grow
up without much meaningful interaction with adults. By being calm and
composed during the time they do spend working, early semi-retirees can
bring co-workers perspective and balance too often in short supply in the
workplace. By being hands-on investors, they provide angel investment funds
6 •
and expertise to growing firms, invest in franchises, or improve neighbor-
hoods through rehabbing homes and rental properties. With time to tinker,
think, and develop ideas about which they are passionate, early semi-retirees
are inventing new products and technologies, writing articles—and contrib-
uting in other ways that may show no immediate profit but have a longer-
term benefit to the economy or society.
Sources: TNS Affluent Market Research Program; UBS Paine Webber/AB Financial,
Spectrem Group, Chicago, www.early-retirement.org surveys
C. Escaping the World of Work: One Story
Early on in my work life, I discovered a book about early retirement and set
about making plans to get there. Seeing my own life slipping away in stress
and overwork sent me searching for a sane alternative that would bring work,
family, and personal time into balance—a way to slow down, have time to
breathe, think, and just live.
• 7
No Pollyanna, I knew I’d need to provide for longer term financial needs.
I thought in terms of becoming my own rich uncle, giving myself a sort of
lifetime endowed professor’s chair or trust fund, an annual lottery payout,
and buying back my freedom. In preparation, I built the family savings to the
point that they provided a safe annual income for life so I would never have
to work again.
And so in 2001, after 20 years of sustained high-pressure work, the last
seven spent battling in the Internet wars, my wife Wonda and I chucked it in,
mothballed our suits, rented a small summer house in Italy, and began our
new lives as early retirees. The biggest change that first year, and my biggest
luxury, was time: time to plan, time to think, time to take care of all of life’s
niggling chores, time to be with the family, work on the boat, exercise, read,
and relax. We loved every minute of it. I assured myself that I never wanted
to work another day in my life, and never would.
Friends began confiding their anxiety and curiosity: Have you really man
-
aged to slip out of the rat race? How does it work financially? What do you do
all day? Can you tell me how to do it, too? To better answer their questions, I
continued to dig deeper into investing research and retirement finance theory
and got hit with a shock: It appeared that by the most conservative measures,
we came up a bit short—especially given the abysmal financial market per
-
formance of the day. My days turned into long stressful sessions doing Inter
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net-based stock research and plugging new assumptions into the retirement
savings calculators. I began to fret about our daily investment performance and
struggled with uncertainty about the future. At the same time, I was getting
restless and uncomfortable having no work or income whatsoever, and began to
wonder whether retiring early was such a good idea after all.
The solution that arose from this experience, and what our family has been
living for the past several years, is early semi-retirement. It captures the best
of both worlds: plenty of free time and the opportunity for good healthy liv
-
ing that early retirement offers, combined with the psychological benefits and
long-term financial security of a modest amount of part-time work—a hybrid
that works for large numbers of people.
8 •
D. How This Book Can Help
This book can help you, too, find that different road outside the fast lane.
Some who contemplate early retirement long to spend their days teaching
disabled people how to program computers, organizing art classes at the
neighborhood senior care center, or leading environmental trips at a nearby
estuary. Others want to do a lot of fishing, motorcycle maintenance, and golf.
Your idea of a perfect life after early retiring will be uniquely yours.
In these pages you’ll find lots of encouragement and ideas of what other
early retirees are doing. And this book will help you understand that early
retirement may be possible for you, that it opens a doorway to a new place
where you leave the madness behind and have the time and energy to do the
things you are inspired to do.
You’ll not only get a roadmap for the psychological and emotional sides of
living in early retirement, but also for the crucial hard-nosed financial plan
-
ning needed to shape the investing and tapping of your savings to support
you through the years ahead. If you’ve been fortunate enough to have saved
diligently or to have vested in a solid pension, this book will show you how to
manage those savings and live from them throughout the rest of your life. If
you are still getting started, the ideas in these chapters will arm you with the
vision and tactics to reach your goals.
As you free yourself from the pressures of a traditional fast-lane career, you
can start to experience the life you’ve always wanted: a life that can change the
world for the better, that makes you excited to get up every morning, that has
a chance to be an inspiration to young people and friends. You will find your
way to the type of work, paid or unpaid, that you can feel passionate about,
that uses your unique gifts, and makes a difference in others’ lives—work in
just the right doses that leaves you energized, not spent. You’ll have the time
to get healthy and stay that way. Your relationships will deepen and strength
-
en. You’ll be living life the way it was meant to be.
• 9
WARNING
A WORK IN PROGRESS.
E. A Look at Some Typical Early Retirees
It may help you to know that certain models of early semi-retirement have
emerged that work for different types of people. They are described here not
to limit your thinking, but to give you an idea of the diversity of people and
paths available.
1. MBA Moms Pulling Back
Vast numbers of women have been practicing early semi-retirement for years,
dialing up and down their involvement in the workplace to accommodate
career development, kids, a need for extra income, eldercare obligations, or
more time for personal growth. Those with more family income have, as a
group, opted for less work.
EXAMPLE: An Artist Freed From the Law
10 •
2. Geeks on Permanent Vacation
Early semi-retirees fitting this profile tend to be highly intelligent and inde-
pendent engineering or scientist types who love nothing more than working
absorbedly in their shops or labs. These innovators long ago decided that
most bosses cramped their styles and so they used their skills to earn enough
money to leave more traditional workplaces.
With plenty of free time to follow their passions, they continue to invent
or innovate, do consulting or project work for money, and keep their skills
fresh while crafting lives with plenty of time for families and hobbies along
-
side their work.
