12 Jul 2013, 12:51pm
personal finance reflections simple living
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  • You really don’t need as much money post-retirement as you did while working

    Three years ago, almost to the dot, I wrote a post called Post Retirement Needs & Wants are Hard to Envision in Debt Slavery  I’ve come across this again a few times since then, and it seems that though I found it hard, it was a damn sight easier for me than many people. So I thought I’d revisit the theme, with about a years worth of hindsight.

    1307_think_outside_the_box1

    Artist: Rene Schute

    Most people, particularly those who have been working for a while and got set into a certain lifestyle spending, lose the ability to think outside the box. yeah, I know it’s a terrible piece of management-speak that I heard all too often at work, but it seems uniquely apposite here. I can’t believe the number of times I’ve heard variations on the theme.

    how on earth do you have a life on that little?

    A lot of successful people seem to gain their sense of self-worth from the number on their P60 corresponding to their salary, and there’s a knock-on effect that means their sense of self-worth ends up connecting to their spending. They feel that life isn’t being lived to the full if they aren’t spending a similar amount in retirement as they were spending at work.

    Now there’s nothing fundamentally wrong in identifying yourself with your spending, provided you can afford it, and most of these successful people can afford it. Many people become successful precisely because they identify themselves with their salary, I know I switched jobs a few times early on because I thought I was worth more than what I was getting, and stopped when I figured I had reached Enough. Identifying yourself with your spending, however, has a cost. It makes retirement in general, and early retirement in particular, scary.

    That’s because you lose a bit of your sense of self-worth if you retire, since in most cases the maths dictate your retirement income is lower than working income 1. Early retirement in particular, is all about reducing your spending. It isn’t about earning more, because earning more is generally associated with lifestyle inflation, if only to compensate for the extra stress that usually goes with it. If you get your self worth from some of your spending, then reducing that is going to make you feel like shit and generally give you the willies. There are three things you can do about this

    1. Accept this is the way you are, these are the values you choose to live by, enjoy the spending and retire later!
    2. Examine your priorities, and ask yourself if your spending is really that important to you or if working is costing you more in loss of quality of life than the increased spending is improving your quality of life.
    3. Refuse to look at the situation and conclude that people who reduce their spending are living a miserable life of slumdogs

    1 amd 2 are both valid and reasonable courses of action. While 3 may make you feel better, if you haven’t asked yourself the question and honestly considered the alternatives, well, you haven’t really got your head out of that box, have you? It’s not like you are committing yourself to course 1 or 2, but at least if you go for 1 then you know that you are living your values, that there are other options but on balance you know you prefer to work longer and spend more.

    One of the problems is the classic one associated with all change. It is easy to see what you will lose with a change, but not so easy to see, and impossible to live, what you will gain with the change. The vast majority of the benefits of retiring I found were not to do with money. They were to do with the extra time I have, the vastly increased sense of self-determination, and the elimination of stupid rules and hoops to jump through.

    Many people think they will dive into a frenzy of DIY which will save them a load of money, and good for them. I did repair a tractor starter motor and a few things. But I can’t be arsed with many DIY tasks – I still have a flat roof fund against the time when that will need redoing, I paid a chimney sweep rather than do this myself though it’s perfectly in my capability, and I still haven’t really convinced myself I want to paint the house. All of these are still choices and the balance may change in time. There are some things I will do if it’s too hard to find competent workmen or the labour cost would make it prohibitive but I haven’t run into too many of those yet.

    My spending dropped because far too much of it was compensating for the stress and ennui of not being a free-range human being. And here’s a secret I can share with you – all the money in the world can’t compensate you for the deep loss of personal freedom that working for a living imposes upon you. Each one of us has 24 hours allocated to us every day, and about 8 of those we have to sleep. Of the remaining 16 half of them are sold to work. It’s a necessary evil, but over the course of three decades it is easy to end up with the words of Tyler Durden being all too true

    Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need.

    Now there’s no getting away from the fact that the transition from working to retired is a change, and a challenge to boot.

    It made me nervous. More so in my case than most, I should imagine, I went from having a decent income to sweet FA, because I am not drawing my pension. Why not? Because I saved a shedload of money as cash, I had a year’s worth of salary under the tax-free threshold as cash and even after filling up 2012’s ISA I still had a load of cash left over.

    And you can’t turn a profit on cash these days. So the best I could do with this cash is to live off it and defer my pension. Because the trustees in charge of my pension expect me to die 20 years after I turn 60, each year I defer my pension it gets bigger by 5%, though since I am running into tax that actually only increases by 4%. It would be mad to take that income now because where the hell else am I going to turn a 4% in real terms return on investment on cash after tax? What am I going to do with it, there’s no point in drawing it and saving it, or even investing it, because I am not such a smart investor that I can say I have a good chance of doing better than 4% real.

    However, I have the ghost of Micawber on my shoulder, yelling out

    You are spending more than you earn Wrong Way, Stop, TURN BACK NOW

    He’s right in a narrow way and wrong in a big picture way. At the point of transition this gave me grief, I had just come out of three years of saving to get out, and wasn’t in the greatest place mentally.  I tried to maintain my net worth, becoming virtually catatonic for a short while after leaving. No, that isn’t living life to the full, but the time was productively used, it’s called convalescence, and that sort of thing takes just as much time as it’s gonna take 😉 Life is a dynamic balance – as so well summarised in Ecclesiastes on “a time for all things

    However, looking back I went on holiday three times in the last year. So why is it that I needed less money after retiring? Was it as simple as Jacob ERE highlighted in his direct way – that for most people, the idea of living life to the full consists of

    In general, if you ask the average consumer what enjoying life is all about, it distills to the following trifecta: buying tickets, going to restaurants, and shopping.

    That’s it. Those three things are all there is to enjoying life. The uninformed opinion is that if you don’t have these these three things in your life, your life sucks. I know, because that’s what I used to think. And it’s also what consumers keep bringing up

    Why is this so? Jacob linked to this post on Raptitude which makes an attempt to nail down why, where the author looked at what changed when he went back to work

    We buy stuff to cheer ourselves up, to keep up with the Joneses, to fulfill our childhood vision of what our adulthood would be like, to broadcast our status to the world, and for a lot of other psychological reasons that have very little to do with how useful the product really is. How much stuff is in your basement or garage that you haven’t used in the past year?

    The ultimate tool for corporations to sustain a culture of this sort is to develop the 40-hour workweek as the normal lifestyle. Under these working conditions people have to build a life in the evenings and on weekends. This arrangement makes us naturally more inclined to spend heavily on entertainment and conveniences because our free time is so scarce.

    I’ve only been back at work for a few days, but already I’m noticing that the more wholesome activities are quickly dropping out of my life: walking, exercising, reading, meditating, and extra writing.

    The one conspicuous similarity between these activities is that they cost little or no money, but they take time.

    Suddenly I have a lot more money and a lot less time

    I failed dismally to call this out in my post on post-retirement needs and wants, because I wrote it while still at work. I missed Raptitudes’ insight because I hadn’t lived it, but now I have lived it he’s spot on. He goes on to say

    Can you imagine what would happen if all of America stopped buying so much unnecessary fluff that doesn’t add a lot of lasting value to our lives?

    The economy would collapse and never recover.

    All of America’s well-publicized problems, including obesity, depression, pollution and corruption are what it costs to create and sustain a trillion-dollar economy. For the economy to be “healthy”, America has to remain unhealthy. Healthy, happy people don’t feel like they need much they don’t already have, and that means they don’t buy a lot of junk, don’t need to be entertained as much, and they don’t end up watching a lot of commercials.

    I recommend his post to those who say that reducing spending means not living life to the full. To wit –

    Big companies didn’t make their millions by earnestly promoting the virtues of their products, they made it by creating a culture of hundreds of millions of people that buy way more than they need and try to chase away dissatisfaction with money.

    Now if that’s really what you want to do with your three-score-years-and-ten then have at it, but do take the time out to ask yourself whether that really is what living life to the full means to you 😉

    Me, I’m going to post this and then wander out in the neighbourhood and look at the bees skimming the clover and the flowers growing and the birds singing. It’s part of my investment in health insurance after MMM punched me in the face with his 23 1/2 hours article.

    That’s why I need less money than I anticipated. It’s that I have more time. And no, it’s not as simplistic as time=money so I can do for myself what I’d pay others to do. That sounds smart but it’s bollocks. More time has an existential value in and of itself. It enables me to live better, so I don’t have to chase away dissatisfaction with money.

    Notes:

    1. a typical expected retirement is about as long as your working life, so unless you are saving nearly half your pretax salary you will retire on less than your working pay. Compound interest isn’t enough to do most of the heavy lifting here
     
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