Pretirement Disrupts Retirement

The largely-outmoded On/Off Retirement Model world was about earning and saving so that, eventually, loooooong into the future, you could quit and not work anymore. As I look around at those I know who, like me, are in or around our 50s and 60s, hardly anyone seems to actually do that. We wonder if our lives would be more enjoyable if the paid work we did offered more of a creative challenge, while also allowing us more free time. We’ve achieved a certainly level of mastery in our professions and have crossed many of the goals off our list that used to motivate us. Are there many remaining rungs on the ladder before we reach the final one: Freedom from the ladder itself?

The largely-outmoded On/Off Retirement Model world was about earning and saving so that, eventually, loooooong into the future, you could quit and not work anymore.  As I look around at those I know who, like me, are in or around our 50s and 60s, hardly anyone seems to actually do that.  We wonder if our lives would be more enjoyable if the paid work we did offered more of a creative challenge, while also allowing us more free time.  We’ve achieved a certainly level of mastery in our professions and have crossed many of the goals off our list that used to motivate us.  Are there many remaining rungs on the ladder before we reach the final one:  Freedom from the ladder itself?

The traditional retirement model is not an ancient concept.  It was fully a product of the Industrial Revolution, with its production quotas, shift whistles, typing pools and lunch pails, whatever those were.  Like most outmoded systems, products and services, whether carburetors, taxi cabs, or making hotel reservations, traditional retirement is similarly ripe for disruption, technologically and socially.  I haven’t figured this new era all out for myself yet, much less for others, but I want to explore pretirement, sharing what I experience while learning from similarly-inclined people.

The traditional retirement model was full of carrots at the finish line, most prominently pensions (remember those?), mythical gold watches and, eventually, when you are nearly spent, the full corporate endorsement to go play shuffle board in Florida.  Those things have largely gone the way of leaded gas.  Unfortunately, our society hasn’t yet embraced a clear replacement model for how most of us actually live post-full-time work.  There is literally no established structure or language around dialing work down in our society, no gradual staircase from full-bore career to more self-determination that is understood and accepted as fully legitimate.

Few workers seem to understand those who “give up a really good career” in their 50s or even earlier.  That’s the time when we’re supposed to be in full Benjamin-stacking mode and demonstrating the mastery of our professions, grooming the next generation climbing the ladder.  We managers might have finally become one of the people everyone else is working for.  How could we just quit and do something else when we finally have all the brass rings in hand or nearly-so?

It helps to consider how insecure our position as even a senior professional really is.  We mostly work today for corporations and organizations that call themselves “At-Will Employers” (see your Employee Handbook.)  Employers have all of the power to hire and fire you, which they certainly do without any hesitation when they choose to.  An individual has no power in that arrangement, except to exercise the other half of it, which is to build some assets and skills while working full-time so that we could ultimately fire the employer “at-will.”  That language is also in your employee handbook, though few of your colleagues are prepared to exercise it as ruthlessly as your employer is.  What if we had an acceptable, honorable language for today’s vast ranks of people our age who have put themselves in a position to exercise their half of the At-Will-Employment equation?

Pretirement Power

If our employers, explicitly and in writing, feel no obligation to help us descend the escalator from full time work to something else, what can we do for ourselves?

What if we learned how to hack our financial assets in non-traditional ways before age 59.5 to support the pretirement lives we want to build for ourselves right now?

What if we didn’t fear the loss of employer-provided health insurance anymore, because we can now use Health Savings Accounts and health insurance exchanges and other methods to bridge us to age 65 and Medicare? Our country is finally, fitfully, joining the rest of the rich, advanced world toward more rational and high-quality health care delivery.  We can finally come out of the cave of dependency on At-Will employers for our very medical care, blink in the daylight and chart our own paths.

What if we got out from under oppressive mortgages and expensive house upkeep and, instead, leveraged our accumulated home equity to generate income, pursue travel or engage in more creative, smaller-scale and perhaps international or even cooperative living arrangements?  Many, many people explore the infinite variety of housing arrangements that are better for them and provide significant financial relief from the expensive 3BR/2BA, two car garage model.  Their housing choices make their pretirement budgets work really well.

If we pursue for ourselves a creative and practical toolkit for pretirement, using words that are more nuanced and useful than On/Off “retirement,” then five or ten years from now, most people we meet will know instantly what a person means when they say “I’m pretiring.”  Pretirement could be a fully-respectable, accepted and understood phase of life.

Pretirement is already practiced by perhaps a majority of people.  Our commercial society just doesn’t fully understand and recognize the concept as legitimate yet.  To many, it still seems a little flaky or unfortunate to just abandon the earning and spending treadmill early.  “Oh, does she have a health problem?”  “Did he get fired?”  “Their kids are out of college and his wife comes from money so, sure, he can quit and travel.”  Quitting seems”crazy” and/or “irresponsible.”  It’s been said that every job, no matter how good, comes with it’s own bucket of manure.  Perhaps the people who make those comments and who can’t fathom your choices will be able to understand once their bucket finally overflows, too.

Those in the non-profit sector, like my wife and me, face an additional challenge, because we are supposed to be about improving a society that needs us.  We feel some inherent guilt pondering changes to careers dedicated to addressing the needs of the homeless/environment/sick people/children/other serious problems of society.  I am part of some professional organizations full of people my age and older who seem to remain genuinely fully-motivated to work-until-they-can’t on behalf of their organizations’ missions.  It’s awesome to see the ones who are still positive going strong for four or even five decades or more of full-time work for a better society.  I am in a good place at the moment, career-wise, though I know some others who are no longer happy in their work but who stay year after year.  I do not want to become one of those folks and I won’t ever let that happen.

Sometimes you hear that someone is “semi-retiring”, “going part time” or “retiring early.”  Those words, along with the less-common “pretirement”, are part of the lexicon of this phase of life and are descriptive for many people’s routes through it.  As I said, I might be eventually done altogether with my demanding profession and not be interested in going part-time or semi-retiring from it.  I don’t know yet so I am working to make sure my choices, including working longer, are totally optional.  If I do change the type and volume of my paid work, preretirement seems a better fit for me than those other descriptors.  It’s hair-splitting semantics, perhaps, but it’s more apt for my mindset and probably for a lot of others out there.  It’s important to have the right word for what we’re each doing.

I understand and respect that responsible people do what they have to do in the total context of their lives.  Many people just need to work to provide for others who depend on them.  I am sure that many other people still really like working at what they’ve been doing.  I read recently about a 107 year-old barber – who drives to work.  Fine, though also a bit terrifying as a fellow driver.  I’m not judging others’ choices and situations.  Some people still have a pension dangling out there, which seems to both entice and torture them.  There is no one-size-fits-all, only individual journeys that each person navigates as best they can.

I’m the type who takes action when I need to.  As I face up to my own situation and feelings using whatever assets I have to create flexibility to make changes easily if my wife or I choose, perhaps others like us will obtain some benefit if I write about it.  I want to use my blog as part of my personal toolkit to explore alternative work and a lifestyle for always keeping myself happy, challenged and engaged throughout my one life.

How are you thinking about pretirement?

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Pretirement Money Management: Why We Use Vanguard Personal Advisor Services

Vanguard owns a planning subsidiary, called Vanguard Advisors, Inc.  It exists solely  to help Vanguard clients, like my wife and me.  Vanguard’s Personal Advisor Services (PAS) program runs the gamut from simply consulting with clients to create investment plans that clients implement themselves to completely managing a person’s portfolio with an assigned Vanguard Personal Advisor.  This is the route we have taken in pretirement, and we are happy we did.  Here are some key reasons why:

The pretirement or FIRE community seems to be mostly a do-it-yourself culture, regarding personal finance.  I enjoy sharing notes and learning from the avid posters on Early-Retirement.org and the Bogleheads Forum.  Many of those folks are highly knowledgeable and skilled investors who know what they are doing.  These smart people know that, despite the Hollywood trope of the successful stock trader as a hyperactive workaholic, usually the best way to make money in the markets is to do…absolutely nothing.  Multiple studies show that investors do better when they create long-term plans, set an intelligent highly diversified asset allocation, then leave it all alone to compound.

If you are a person who knows a lot about investing in stocks and bonds in all of their flavors and yet can set your asset allocation and then not touch it for one or two decades, then hats off to you.  That is not me, however.  The more I learn about the markets, the more I am tempted to fiddle with my asset allocation in an attempt to optimize my portfolio based on the latest book I’ve read or piece of knowledge I think I’ve learned, which is exactly how mistakes are made and sub-par investing results earned.

I don’t want to make mistakes, which is one of the main reasons we’ve chosen to use a financial advisor to manage our assets.  However, we haven’t chosen just any advisor on the street, because the investing world is full of bad advice.  I’ll probably write multiple posts about my strong belief in The Vanguard Group, which is a coop  owned by its mutual fund shareholders, rather than owned by some rich family or a financial conglomerate that is primarily responsible to Wall Street.  No, Vanguard is responsible to my wife and me.  That makes it unique.  Thanks to its shareholder-focused model, it has also become the largest mutual fund company in the world.  I am in no way paid to say any of these favorable comments about Vanguard but, they are different. If you don’t already know about Vanguard, do yourself a favor and study them.

Vanguard owns a planning subsidiary, called Vanguard Advisors, Inc.  It exists solely  to help Vanguard clients, like my wife and me.  Vanguard’s Personal Advisor Services (PAS) program runs the gamut from simply consulting with clients to create investment plans that clients implement themselves to completely managing a person’s portfolio with an assigned Vanguard Personal Advisor.  This is the route we have taken in pretirement and we are happy we did.  Here are some key reasons why:

  1. My investor psychology is simply different during this new Spending Phase.  When my wife and I were just working and saving, investing was pretty easy.  We each contributed automatically at our work places in funds that had really high allocations to stocks and then we basically did nothing but watch the balances grow.  My wife and I are now tiptoeing into the Spending Phase and it feels completely different to actually need to consume some of the milk our herd of mutual fund cows produces.  Earlier in this phase, I found myself checking balances constantly instead of annually, worrying more about daily swings in the market and, worst of all, making some modest changes in our portfolio due to my emotional reactions to global events, like elections or my perception of where the economy lies in the business cycle.  That’s certifiably dumb.  Even though I made no huge mistakes, I know I shouldn’t fiddle. I found that I was becoming an active investor, convincing myself that I was smart enough to time the markets here and there.  Turning over our assets to an objective manager, who is in regular consultation with us, made the fiddling stop, which is to say my potential for making mistakes was removed.  Our portfolio is a globally diversified, low cost stew of about 55% stock index funds and 45% bond index funds.
  2. Vanguard is smarter than me.  Vanguard spends millions and millions of dollars to provide its clients the optimal investing experience with regard to asset allocation, tax-efficiency, fees, projecting how much we can spend sustainably from our portfolio, and a myriad of other factors.  I could spend all of my free time becoming expert in those and many other disciplines, as many people on the above-mentioned forums seem to enjoy doing, yet I still wouldn’t be nearly as smart about any aspect of investing as Vanguard’s people and software.  I’m at least smart and humble enough to know that.
  3. Rebalancing is assured.  Rebalancing is not difficult to do.  I could, and did, rebalance our asset allocation before we hired our Vanguard advisor to do it for us.  We have all recently been living through one of the longest bull markets in history, when investing mistakes have actually been difficult to make.  But here’s the thing I have significant self-doubt about:  When our stock funds inevitably tank again when the business cycle changes, and when the economic news is terrible, with people losing their jobs, businesses imploding and our portfolio shrinking, will I be able to do the annual rebalance?  Meanwhile, as stocks are in retreat, our bond funds will likely remain content as a patch of flowers finally enjoying their day in the sun, maybe falling a little at first as panicked investors sell everything and move to cash, but then perhaps growing as the Fed cuts interest rates to stimulate lending to spur the ailing economy.  In that emotional environment, will I have the guts to do what I need to do, which is sell my bonds to buy more stocks?  Maybe.  I’ve invested right through sharp bear markets before and didn’t flinch that much.  However, we now have a lot invested and, as I said, we’re depending on it more.  I know myself well enough to question whether I would do what needs to be done when the tide next turns.  My Vanguard advisor, however, won’t hesitate to aim right for the jugular of those big fat happy bonds and trade them for scary, depressed stocks, right on schedule.  That certainty is worth paying him for.
  4. My wife is more included than ever before.  “I trust you to manage our money” was the blessing and curse of my days taking the lead financially while we built our nest egg.  She has saved up about a third of what we have, so it never felt quite right to me to make our financial decisions all on my own.  Now we have a friendly, patient and neutral third party in our discussions, whom she and I both respond well to, married couple that we are in all of the usual complications. It feels really good to be on the same page with her, finally.
  5. Help if something bad happens.  I also really like knowing that, if I am somehow incapacitated, Vanguard PAS will be calling her at least quarterly, as usual, to make sure the money she depends on is there for her.  Vice versa, too.
  6. We will know, with high confidence, exactly how much we can spend safely.  Vanguard Advisors has spent a lot of money to create its Dynamic Spending Model.  It is very powerful and very cool.  Using Monte Carlo analysis of all of the known investing history of every asset class that we own, our advisor will be able to tell us with some 95% confidence how much we can spend, sustainably, through age 100.  If things happen, as they do in life, we will adjust the plan, aiming to stay above the 85% confidence threshold. Our plan includes every input we want to add, such as how long we think we want to work full and part-time, how much we think we’ll earn, when we think we’ll buy cars next, some home renovations we want to do, when our mortgage gets paid off and when we think we’ll start taking Social Security.  Annually, our advisor will tell us how much we can safely spend for the coming year.  That amount will be indexed to inflation but won’t go up more than 5% or down more than 2.5% in any single year, which is totally manageable.  Doing what Vanguard’s Dynamic Spending Model tells us to do beats the heck out of arguing on the online DIY forums over whether the vaunted  “4% Rule” or some other % is sustainable or not, as seems to be the constant discussion online.  I don’t worry about that stuff anymore, which feels great.  Bonus News:  We get to spend significantly more than 4% with 95% confidence.  We will be able to live well in pretirement while sleeping well at night .
  7. The costs are pretty reasonable.  We pay .30% of the assets Vanguard manages for us, plus the normal super-low expense ratio of the underlying Vanguard mutual funds we own, for a total of approximately .4%.  Those numbers sound tiny but they have real impact over many years.  On the bright side, such management and advice service at most any other firm is going to cost 1 to 2% per year.  If planning wisdom says that an investor should aim to spend no more than 4 or 5% of their portfolio each year to sustain it, 1 – 2% is a huge, stupid bite out of one’s pretirement lifestyle to fork over to an advisor.  Vanguard’s PAS fees aren’t nothing but, in an investing world that is designed to separate you from your money through fees you don’t understand, Vanguard is on the side of the angels.  I’m happy to pay Vanguard’s relatively small fees for all of the service we get.
  8. I have stopped all fretting and fiddling with my portfolio, providing a lot of new time and mental space for other pursuits, like blogging!

Pretirement Freedom

As apt and evocative as the FIRE acronym is, the “Early Retirement” half of it is not our mindset.  Like lots of people, we find ourselves somewhere on the middle of the continuum of paid work-to-unpaid activity.  The best alternative word to “retirement” that I’ve encountered that more accurately describes what we’re about is “pretirement”*.  I look forward to learning and sharing in this blog our own and others’ unique journeys of pretirement.  I think the next enjoyable phase of life will feature dialing economic pursuits up, dialing them down and dialing them all around as we choose how we work.

Have you noticed how the word “retirement” isn’t very useful?

There’s nothing wrong with being retired, spending one’s days however one wishes.  My grandparents had an idyllic retirement in many ways.  They lived in the Georgia countryside, had a giant garden, drove huge American cars, went fishing whenever they wanted, and cooked fresh food nearly every day.  Their retired friends visited them, often unannounced and bearing gifts of produce, leading to spontaneous pea shelling or corn shucking sessions under the car port, where the most entertaining homespun story-telling imaginable occurred.  Best of all, they lavished time and attention on my brother and me as kids, taking us on summer road trips for weeks at a time.  When we were with them, the only time our grandparents weren’t spoiling us with their love and attention was when their soap operas came on, at which time we were hustled outside to play.

The paradox is, they were “retired” but they were also busy.  Today, too, when people finally unchain themselves from paid work many of them soon say, “Wow, I thought I retired but I’ve never been so busy!”  They are volunteering, running errands, traveling, doing house projects, and visiting friends.

Sounds pretty good, right?  So, what’s my problem with the word “retirement”?  In our work-oriented culture, it implies that one’s paid career is over and now the retiree is dedicated to full time leisure.  It’s binary:  You work until you don’t have to any more.  Earning is either happening full time or it’s never happening again.  On/Off.

The problem is, On/Off is not what I observe in very many post-career people.  To be sure, some former workers are dedicated to unpaid leisure.  Bully for them, if they can afford it and if it’s what they choose.  Other people encounter health challenges or care-taking situations that require their focus.  Still, I observe a lot of post-career people doing a variety of activities, which is a mixture of leisure, service and paid.  A lucky few can’t tell the difference.

People no longer working full time might still be at their traditional employer but on reduced hours, or consulting a bit, or driving for Lyft, or running an Airbnb.  I am secretly envious of the clerks down at the hardware store working a few hours per week and seeming to enjoy cheerfully welcoming customers and helping them find what they need.  When I visit REI I seek out the staff my age and ask if it’s fun to work there (yes, apparently, though it’s tempting to buy too many gadgets and clothes).

Even my retired grandparents were economically active their whole lives, considering that they owned some commercial property in town and regularly sold timber from their land to the local paper mill.  My own parents are in their late 70s and are still engaged with part time work.  My dad experimented with full blown retirement at age 75 but soon discovered he liked being an engineer too much, so his former company gladly rehired him to continue designing machines 3 days per week.

“Retirement” also doesn’t seem to fit the new generation of “FIRE” enthusiasts.  If you haven’t yet encountered the burgeoning FIRE community online, it consists of thousands of avid savers and investors aiming to decouple themselves from job-dependence just as soon as possible by becoming Financially-Independent/Early-Retired.

People pursuing FIRE are committed to their goals and to living their lives intentionally to a degree that really impresses me.  The simple idea of FIRE is to leverage one’s job to create permanent financial security.  They limit debt and moderate consumption, using the resulting large marginal income to build an investment portfolio as quickly as possible that is sufficient to support their required spending forever.  Portfolios usually consist of simple, low-cost and entirely passive stock and bond index funds, though a few are building up rental real estate holdings or other businesses.

Someone who can achieve financial independence in their 30s, 40s or 50s thanks to visionary goal setting and uncommon financial discipline is probably not the type of person who will gladly pivot easily to the hammock of full-time traditionally-conceived “retirement,” umbrella drink in hand.  No, these people are so productive that they probably can’t help but continue attracting earned money, only now these “FIREd” folks work creatively on their terms.  That’s what I want to do.

I have been consuming the abundant and inspiring FIRE-related blogs, podcasts, books and other media for years now, so I count myself a fan and avid participant in this friendly, positive and supportive community.

At age 52, I’m also getting very focused on acting on what I’ve learned.  Long before the FIRE acronym was coined and its online community emerged, my wife and I lived beneath our means, saving and investing 30-50% or more of our income starting in our 20s, even as we worked in the non-profit sector our whole careers.  We’ve never felt that we have sacrificed anything important to us.

I lead us on this path, though my wife certainly does her part.  I was compelled to take advantage of the tax reductions and employer matches in our 403b plans (the 401k equivalent of the non-profit sector), which together amounted to a half-price sale on dollars.  There was nothing we really wanted to consume that made us want to dial back savings and turn away from the opportunity to save with the helpful tailwind from the government and our employers.  Rather, we always found little ways to increase our savings rate every year, little by little, until we maxed out all of our tax-advantaged savings vehicles, so we then started saving and investing after tax dollars.

We simply directed our savings and employer matches automatically into stock index funds until our late 40s, when we started gradually adding a total bond index fund into the mix for some ballast to the stocks’ inherent volatility.

We also bought and renovated a few old houses, one at a time as we lived in them, making some profit along the way.  We aren’t aggressive “fixers and flippers” but we discovered that we enjoy learning new skills to beautify our living space as a satisfying creative outlet.  In hindsight, renting places to live would have probably been the better choice from a purely-financial perspective but, then, we obviously do not live our lives in order to obtain maximum money.  After all, we’ve had non-profit careers and, as Jerry Seinfeld once said, “‘Non-profit’.  That does not sound like a good business model!”

I enjoy my full-time job raising money for a wonderful organization that a lot of people rely on.  I still feel a strong sense of mission about my work in philanthropy. Still, like most everyone I know at my age, my wife and I are sort of looking to do something different.  The marginal returns of habitually expanding our careers feel to us to be diminishing a bit.  We’ve accomplished a lot of our career goals.  We’re not as willing to prioritize work over the rest of our lives.

Some people I know, however, have identified things they want to do and are not waiting to do them.  One work friend, a model for our field and at the peak of his earning potential, now that his kids are out of college is dialing down his career in his late 50s to become a clown.  Literally.  He’s reduced his work hours and will attend clown school with a plan to entertain people in nursing homes.  He’ll be the best clown ever, too.

I am not driven to be a clown but I celebrate his intention and want to model it.  Fortunately, I am inspired by the possibilities of freedom in the state of FIRE and its many avid practitioners.  I am making plans to leverage the reasonably strong financial position we’ve built over several decades, using the portfolio as a kind of 3rd salary to support some exploration and discovery that might be different than what I’ve been doing for years now.  I’ll look forward to chronicling the journey in future posts.  I want to learn how other people, like my clown friend, are making the leap, too, and to feature their unique experimentation here.

My wife is taking a needed break this year from her career, which gets me back to the title of this blog:  Through our own longstanding FIRE habits, we realize we can work and live, pretty much as we choose to.  We can dial it up or we can dial it down.  Right now, I’m dialing work up and she’s dialing it down for a while, because we choose to.  If we choose something different later, we’re in a position to act.  For example, we plan to both dial it down in a few years for a gap year or so to travel internationally.  That goal is another adventure I want to chronicle here so we can learn about others’ rich experiences while traveling.

As apt and evocative as the FIRE acronym is, the “Early Retirement” half of it is not our mindset.  Like lots of people, we find ourselves somewhere on the middle of the continuum of paid work-to-unpaid activity.  The best alternative word to “retirement” that I’ve encountered that more accurately describes what we’re about is “pretirement”*.  I look forward to learning and sharing in this blog our own and others’ unique journeys of pretirement.  I think the next enjoyable phase of life will feature dialing economic pursuits up, dialing them down and dialing them all around as we choose how we work.

*The Wikipedia page for Pretirement describes “the emergence of a new working state, positioned between the traditional states of employment and retirement.”