It’s better to have a plan
Here is my story and the lessons I have learned. I am sharing them on the assumption that it’s never too late for you or me to do it better. At age 52, I quit my day job and headed into the unknown. At that time I certainly did not call it “retirement”. It was more “seeking new opportunities”, “time for a change of career plans” and other appropriate clichés.
How did I get to that point? Well, I was just another engineer/MBA with a career in corporate positions and management consulting followed by twelve years in my own business. My business in computer products distribution grew fast and did very well during the booming PC revolution of the ‘80’s. Then in the ‘90’s the PC market rapidly changed and smaller players were squeezed out by the few surviving big manufacturers, distributors, and retailers. So the business become less fun and less rewarding as I went through the challenges of a merger, wind-up, re-start and finally an exit. My decision to leave was simply based on the lack of personal satisfaction. The stimulating challenges and my motivation had evaporated. It was time to move on.
During most of the 25 years after my MBA, I had earned good compensation and was apparently smart enough to manage a sound savings and investment plan (encouraged by the wise and practical advice of Jonathan Chevreau, the Wealthy Barber and many others.) The biggest bump in compensation and savings happened, of course, during the good years in my own business when sales and profits were booming. But when I quit working and starting searching for new opportunities there were two things missing: I did not know what I really wanted and I didn’t have a plan
Financially, I was able to carry on without income and live off my investments. My savings and investment plans, starting in my early 30’s, were based on reasonable risk and return assumptions in a well diversified portfolio. I started with a brokerage account and a commission-based broker. But after some bad advice and a couple of big losses, I switched to another broker for a few years and then finally decided to go 100% self-directed. I had learned that my choices were as good as those of the big brokerage research advisors and I now had the luxury of boasting about the winners and keeping quiet about my mistakes. I remained cautious on 85% of the portfolio, although it was 95% in equities, as I could never justify the low returns of fixed income and was willing to be patient through the downturns. I often explain (usually to aggressive wealth management sales people) that my decision to continue to manage my own investments is not for the better returns, but for the education and entertainment value. Admittedly, sometimes an expensive education and sometimes more horror story than action-adventure.
Over the years, however, I had achieved acceptable average returns and at age 52 I could quit working and earning income. I could “retire”.
My Rule of 15
How did I know that? Well, being an engineer and MBA, I did have spreadsheets to run through various scenarios that showed I could live well and still leave an inheritance behind whenever I checked out. I even developed a simple “Rule of 15” that saves you all the trouble of preparing those spreadsheets. If you have fifteen times your annual spending invested, then you are good to retire. That’s it: if you need $50,000 a year to live on, you can retire on $750,000. That amount will take thirty years to decline to zero if you can earn at least 5% a year return on it. The experts of course, will tell you it’s more complicated than that and you need to consider inflation and volatility of returns, housing, health and family issues, but they are not predictable anyway and you have some room for error and the ability to manage within the 5% return and the thirty-year time frame assumptions. Don’t make it complicated and suffer paralysis by analysis. The Rule of 15 is a simple reality check on your retirement plans
But financial independence, findependence as Jonathan Chevreau calls it, is not enough. You may know how you are going to spend your money during your retirement, but how are you going to spend your time? That turns out to be even more important to your long-term health and well being.
In my own case, I meandered aimlessly into my unplanned retirement and tried to keep it interesting by dabbling in everything from Internet start-ups to building a consulting business; from running marathons to running for MP, playing golf to playing guitar. I dealt with some family issues, separated and divorced and did some voluntourism by helping entrepreneurs in developing economies and aboriginal communities.
After fifteen years of wandering between consulting, semi-retirement and self-unemployment, I recognized that this approach was not giving me much satisfaction. I needed more passion and purpose in my life.
Since my own process was clearly not working, I started soliciting input and advice from professional resources to help figure out what I really needed for personal fulfillment. It began with a personal assessment of who I was and what I wanted. Better knowledge of myself helped me focus on what I should be spending my time on to achieve the goals of personal fulfillment. Clarity helps.
Here are the most important lessons that I learned in my unplanned retirement:
- Do not make decisions by neglecting them until events decide for you.
- Have a plan that recognizes your personal needs, goals, resources, limitations and timetable.
Assess who you are and where you are now; decide where you want to be and when; and then start acting according to your plan. Hope for a little luck along the way, but don’t count on it.
Have a happy retirement