Saturday, December 25, 2010

Retire at 40? Yes, it Can Be Done - By Almost Anybody. Few Do.

The mythology about " retiring at age 40"  runs deep in our culture.  We all like to think that someone who does this has a high-paying job or a large inheritance.  But the reality is, most middle-class and upper-middle-class people can do this, but they just choose not to.  I could have, but chose not to.

As this MSN site noted, it is possible for the average person to retire very early in life, if they are willing to make a lot of sacrifices and sock away money early on in life.  But to do so require socking away about 20% of your pre-tax income.

If you are willing to drive a battered used Toyota Corolla to work every day (or take the bus, or carpool) as opposed to driving a brand new Lexus, you can do this.  If you are willing to live in a modest house, as opposed to a mini-mansion, you can do this.  If you are willing to eliminate subscription services, such as cable TV, cell phones, and the like, you can do this.  If you are willing to make nearly all your meals at home (and bring lunch to work) you can do this.

From a global perspective, these are hardly great sacrifices.   In fact, such a lifestyle would be considered "rich" by 95% of the population of the planet.   You are well-fed, have a home, and a car - in many countries this is considered to be staggeringly wealthy. 

It is only in America that you would be laughed at as being "poor" for driving an old car and brown-bagging your lunch.  In most foreign countries, that is simply how you have to live - either because your income is much lower, or because there is no "easy credit" to allow you to buy toys - you have to start saving early to buy just about anything.

And this is one reason why recent immigrants often become wildly successful in America after only a few short years.  Trained in a culture that values money more highly than here, they save their money, and then invest it - in businesses and homes.  And they spend wisely.  That Korean family down the street may be driving a Mercedes, but chances are, they bought it secondhand, and paid cash for it.  Only natural-born Americans would think to pay new car prices and then finance or lease.

Natural-born Americans resent the success of these recent immigrants, as it highlights how poor their own spending and work habits are.  So many resort to racism or to nefarious conspiracy theories that the government is handing out money to immigrants.  In many countries, the rumor going around is that immigrants get access to a "special store" where they are given vouchers for free furniture, and then given houses, cars, and businesses to run.  And on top of this, they don't have to pay taxes for seven years.   The reality is, of course, that it is just hard work and thrifty living that explains the success of most immigrants in this country or in elsewhere.  (To be sure, some come here with lots of money, but that is a small minority).

To be sure, there are some shortcuts to early retirement.  For example, a friend of my parents, after the war, took a job with Aramco in Saudi Arabia as a Petroleum Engineer.  To attract Engineers to work there, under fairly harsh conditions (cultural isolation, no drinking) they paid handsomely - over twice the salary he could receive in the States.  And with no place to spend money (and while living in company housing) he was able to bank most of this money and retire at a very early age.

The other side of the coin, of course, was that once retired, he lived frugally.  He drove Volkswagen Beetles, for example, instead of large, poorly made and gas-hungry American cars.  Adopting a frugal lifestyle is the other half of being able to retire early.

Why would you want to retire early?  It sounds like a stupid question.  Yet since most folks never even think of this option, clearly most prefer not to. 

For me, personally, having to be dependent on other people is something I detest and try to do as little as possible.  Human beings are notoriously unreliable, and when they are not merely grossly incompetent, they are petty, vindictive, vicious, and and even violent.

That, and I just don't like getting up in the morning and going to "work".  It sucks, really.  Who in their right mind would sign up for three more years of "work" just so they could have leased cars?  And in effect, when you pad out your lifestyle by spending more, you are adding onto the number of years you have to work.  It is like voluntarily extending a prison sentence.
As I have noted before in this blog, if slavery were legalized in the USA and anyone could sell themselves into slavery for a pre-negotiated price, in 10 years or so, half the country would be enslaved, willingly selling themselves into bondage for a wall-screen TeeVee and a fancy car.  And if you look at how many people live in this country, it really has devolved into a de facto system of debt slavery.  People are so broke or in debt that they are forced to work at odious jobs they hate, just to pay interest on their debts.  And the debts were incurred for status items - shiny beads and trinkets, really.

The idea of working at a "job" for 30 years on the premise that they will promote you and you will make a lot of money is, to me, flawed.  Particularly in today's economy, more and more companies are becoming more and more crass - why bother giving you anything when they can hire some young kid to replace you for half the money?

And nowhere is this more true than in the law business.  The theory behind the law firm job track is that you will work there for many years, putting in long hours (60-80 hours a week) and finally, you will be rewarded with Partnership.  Is this agreement in writing?   Of course not, it is all a verbal promise - and a verbal promise that will be fulfilled based on your popularity and friendship with the Senior partners, the machinations of your fellow Associates, and the finances of the firm (and the greed of the Senior partners).

What I never understood about that deal is that we, as Lawyers, were expected to accept this vague verbal promise (which often was never even verbally made, but merely implied) while at the same time, we would deride our clients for even dreaming of accepting such an unenforceable contract.  Lawyers can be real idiots when it comes to their own finances and situation, it seems.

But in other fields, similar things are happening.  If you are in teaching, the "old school" days of working hard, hitting all the targets and then being granted "tenure" are long gone.  Schools are finding it easier and cheaper to hire adjunct professors, pay them little and have them teach only one or two courses a semester, and then let them go if they demand tenure or more money.  There are an endless supply of replacement professors these days.

And so on down the line.  As I noted in an earlier posting, it is very common these days to be let go at age 55 and never work again in your chosen field.

So the question is, not whether you want to retire early, but are you prepared to retire early if it is thrust upon you?  Few people are, and for the most part, it is because they squandered most of their money during their working years on consumerism.

I have younger friends who lease a new car every 2-3 years and pay hundreds of dollars a month in lease payments plus the highest car insurance payments possible.  They are tossing $500 to $1000 a month out the door for a ride to work, basically.  And if you ask them,, they have all sorts of rationale as to why it "makes sense":

1.  I don't have to worry about the car breaking down.
2.  I am buying only the part of the car I am using.
3.  I deserve this.
4.  Everyone does this - so it can't be a bad deal.
5.  It's advertised on television all the time, so it must be a good deal.
And that right there is the crux of the problem.  People use self-justification and poor normative cues to justify spending most of their income and saving little.  They spend hours a day being trained by the television that eating out at Chi-Chis is an inexpensive fun time, and good food, and hey, charge it all on your VISA card to get free airline miles?  Card over the limit?  Refinance your home, so those "Texas Nachos" are amortized over 30 years!

It sounds insane because it is.  But that is how a lot of Americans live these days - and I'm ashamed to say, I got sucked into it for a few years as well, at great cost to my personal finances and health.

So, retire at 40?  Yes it can be done, and moreover, it is probably a goal you should think about - or at least retiring at 50.  Why?  Because you may be booted out the door by then, anyway, and you will need to be in a situation where you don't have to work.

Of course, once you are in a situation where you don't have to work, work is not nearly as onerous.  For example, I could afford to retire now, but I still practice, part time to pay the bills, so I don't have to dip into my savings for daily living.  Since I have structured my life to be fairly inexpensive, on a day-to-day basis, I don't need to "hump" anymore to earn the big paycheck to pay off all my loan debts.

And I can tell you, it is a nice place to be.


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