Early Retirement: Why We Aren’t Waiting Until 65 to Retire
Retirement at 65 seems to be a concept accepted by most Americans. In fact, few question that they have alternatives. Early retirement to many means 60 or 55. Rarely do we hear about Americans with middle incomes choosing to save up and leave the corporate life at a younger age.
In the United States today, the middle class has accepted its lot in life:
-Go to college or technical school
-Obtain a stable job and work 40+ hours per week (you might luck out and be able to work from home).
-Work your way up the ladder as far as possible. Success is measured in wealth accumulation, affluency, and the stuff one owns.
-Keep working until you qualify for social security, and/or can withdraw from 401k without being penalized by the IRS. Around 65 or 70, if you make it that far. Hopefully make enough to pay for your child’s college.
According to the 2009 Obama era task force on the Middle Class, “Middle-class families are defined by their aspirations more than their income. The Commerce report assumes that middle-class families aspire to home ownership, a car, college education for their children, health and retirement security and occasional family vacations.” Annual Report of the White House Task Force on the Middle Class, February 2010, https://obamawhitehouse.archives.gov/sites/default/files/microsites/100226-annual-report-middle-class.pdf
This post addresses how the system came about, why its accepted by society, why its not what we want for our personal life plan, and how we intend to buck the system.
How Retirement at 65 Became the Norm
When the social security system was established back in the 1930’s, the government’s actuarial studies suggested that starting pensions at age 65 would allow for a system that could easily be sustained with moderate payroll taxes. The American system was based off of Germany’s, which was set up by Chancellor Otto Von Bismarck and also based on actuarial tables – he set the retirement age close to the average life expectancy. The quicker you die after retirement age, the less the government has to pay out.
Today, people are living longer, and so the social security administration raised the retirement age to 70 to adjust for changes in the actuarial tables.
Why the Middle Class Accepts the Status Quo
There are a few reasons why the current system’s retirement age is accepted by most Americans:
Most Americans won’t be able to afford early retirement. In fact, the system is designed to make sure they can’t.
- Part of your retirement will be funded through social security, which isn’t available until 65 or 70.
- The rest of your retirement, if you are participating in 401k, can’t be withdrawn without penalty until retirement age.
The financial industry educates us to put as much money into our 401k as we can, so that we can “afford to retire”.
Tax benefits and scare tactics convince us that this is our only option for building wealth. The system, via IRS regulation, forces us to give up control over our own retirement age.
Many of us aren’t disciplined enough to save money without having it deducted from our paycheck by our employers.
In fact, half of Americans are spending their entire paycheck or more.Our culture is so focused on consumerism, that its hard to break the cycle and start living on less, while saving more. Reasons for consumerism include access to credit cards, marketing tactics by corporations, impulse addiction. I’m guilty of this myself. Amazon has turned me into a shopper – I order a product and it arrives at my door in a day or two. Its crazy! I have to keep a close eye on my spending habits to adhere to the strict budget we have – and always stay focused on the end goal – financial independence.
We have no imagination.
“If I don’t work, what else will I do with my time?” I’ve had more than one co-worker express this sentiment, which for many, often continues into retirement. My father retired at 55 and soon discovered that without something productive to do, he was totally bored. He went back to work and died at 62 of colon cancer, never enjoying any post-retirement adventures, except maybe an occasional round of golf.
Why Early Retirement is a Priority for Us
Here are a five important reasons why we aren’t waiting until 65 to retire:
We don’t want our kids growing up knowing only American culture.
There are many aspects of our current culture that we think are unhealthy. The reliance of the younger generation on communication through social media is one aspect. The unhealthy focus on name brands, status symbols, and consumer trends is another. Beyond that, its important to understand how people live in other parts of the world. This helps us appreciate the conveniences we have.
We want to spend quality time with our kids while they are young.
The thought of only seeing my kids in the evening and on weekends for the next 20 years of my life makes me sad and depressed. In the current urban American rat race, that’s the norm. Many kids grow up in daycares and come home to an empty house after school. We don’t want this for our kids, and don’t think its the best environment to foster healthy development and high emotional IQ. I could quit my job and we could survive off a single income living in suburbia, but that seems confining as well. So we thought up a bigger plan – one that involves financial freedom, adventure, and daily challenges.
We want to travel, enjoy amazing sights, and introduce our kids to learning in a very hands-on way.
I grew up in Alaska an avid reader. There wasn’t much else to do in the long, winter months. I had an active imagination, and devoured stories involving adventure. I read about far off places, animals and their habits, foreign cultures, and other exciting topics. But you can only know so much reading about it. When you experience it firsthand, the understanding and comprehension is on a whole new level. I can teach my daughter what dolphins are like from a picture book, or I can show her in real life, in their natural habitat.
We want to engage in problem solving as a family.
Crossing oceans, entering new ports, learning the customs of foreign countries – these are all challenges that liveaboard families fact on a daily basis. By living on a sailboat and facing the challenges the lifestyle has to offer, we will be learning and solving problems together as a family in a way we never would in typical suburban life. A family on a sailboat is a crew that must work together in order to survive. It must learn to live without the structures of the modern American life.
The cruising lifestyle allows you to live on a very slim budget.
Most people think that cruising families are rich. I don’t think that’s true at all – I’ve followed the blogs of many cruising families and have come to realize that they can afford their lifestyle because its much cheaper than the average American household budget.
Why? The boat is their home, their car, and many of them live debt-free. Cruising families don’t buy a lot of stuff because primarily, there’s no where to store it. They spend their extra dollars on new experiences, rather than on buying stuff. They can pick and choose when to pay “rent” by anchoring out, or renting a slip in a marina with amenities.
How We Intend to Retire Early
Stop buying stuff. I ask myself before every purchase: will this fit on the boat? Even 3 years out, its a valid question to ask. We must prepare for life in a very small space. Therefore, we don’t need stuff. Only necessities.
Pay off debt. Bad debt is the biggest enemy of financial freedom. Bad loans have a higher interest rate than what you can make on your investments. Pay those off as soon as possible.
Save every spare penny. We went from saving $500 a paycheck to $1,000, to $1,500, and eventually will target $2,000. I track our investments daily because it helps me stay focused on not spending money. Our net worth is tracked bi-weekly on pay day using Personal Capital. I track our spending daily using Excel, where I keep our detailed budget vs. actual.
Increase take-home income as much as possible – this is a continuing effort over the past few years. I’ve been fortunate enough to be a position to receive bonuses, promotions, and new jobs when necessary. These have helped us out immensely.
Invest. Our projected earnings over the next 3 years include gains from stocks, options, mutual funds, and some cryptocurrency. I use tastyworks for equity stock options (the guys who run this program are amazing), TD Ameritrade for stocks, and a multi-currency wallet for our crypto investments. Checking the market every morning keeps me focused on saving and actively monitoring our positions.
We also check our net worth using this totally free and awesome app, Personal Capital.
When the sailing fund is big enough (and the babies are a bit older), we will sell the house, buy the boat, and set off on our adventure. It might be for a year, it might be for five. We aren’t constraining ourselves to any particular plan. We can be flexible enough to switch gears if we need to. There’s always another job out there if we decide sailing isn’t for us.
Retirement Doesn’t Have to Be Forever
An important concept that I learned is that retirement doesn’t have to be forever – not at our age. Maybe it turns out to be forever, maybe it doesn’t. Either way, the experience will change us in unknowable ways, and is worth the risk.
Visit our Saving & Cruising Budget page to see detail explaining our sailing fund progress, cruising kitty spending overview, and cruising budget.
Share Your Thoughts
Are you satisfied with working until 65 or planning to retire early? Are you concerned you won’t have enough saved when the time comes? Please share thoughts and ideas about your retirement plans.