In my post about reflecting on five years of early retirement, I mentioned that having my wife join me two years later was an import shift that made the early retirement lifestyle much easier. This may sound strange since being able to do nothing all day would seem easy enough. But the reality is, early retirement isn’t very meaningful if you have nobody to spend it with.
As an early retiree, it takes time to find your people. The vast majority of your friends will be at work all day, every day. Therefore, during the first six months you’re probably going to feel a little lost as I did. Only after about a year do you finally start feeling a little more comfortable with not working as you adjust to a new routine and make new friends out of necessity.
When my wife finally negotiated her severance package (she had the #1 coach by her side and got a juicy one!), I really started getting in a great groove. Now I always had someone to walk in the park with before grabbing some lunch. Instead of exploring Europe solo, I could now explore Asia with her for a month at a time. As an extrovert, life became much better when she was always around.
Early Retirement Strategy With A Spouse
Retiring before receiving Social Security, a pension, or having penalty-free access to a 401k or IRA is risky if your expense coverage ratio or passive income is insufficient. Risk is why I didn’t have my wife negotiate her severance the same year as I did in 2012. I wanted to first test the waters before suggesting to her it was OK to jump in. It’s the exact same reason why I recommend everybody work on their entrepreneurial side hustle while working before taking the leap of faith.
We’ve already discussed strategies on how to convince your spouse to work longer so you can retire earlier to live the good life. Some people found the article to be funny, while other hard-charging spouses found it to be offensive. Whichever one you believe, the fact of the matter is that having a working spouse to pay the bills is a great way for you not to work.
Now I’d like to share some strategies on how both of you can prudently retire early. The goal of these steps is to help minimize doubt, eradicate resentment, and maximize harmony with each other.
1. Set a target age to depart. Once you circle a date in the calendar, you will do everything you can to prepare beforehand. I left Corporate America at age 34.5 because I didn’t like what I did anymore. But my target date for early retirement when I was 32 was actually June 15, 2017 on my 40th birthday!
Setting a target age to do something is important because while we can never buy one more minute of life, we can do our best to achieve as much financial prosperity as possible by a certain age. Once we hit that age, it’s time to move forward.
Because my spouse is three years younger than I, we agreed that after she turned 34, she too, if she wanted, could also retire. Since we both believe in equality, there was no argument with this logic.
2. Set a income replication target. Not only did we agree on an age target, we also agreed on replicating my day job base salary with my online endeavors before she could join me, whichever came first. Given that I was often bored in early retirement, this financial target gave me the incentive to keep on hustling.
After two years and three months of grinding, I finally replicated my monthly day job salary. After six months of consistently achieving this target, she initiated severance negotiation proceedings in September 2014.
The other financial target we considered was achieving a $200,000 a year passive income stream before she could leave. In the end, we decided the target would take too long to achieve. Good thing we passed, because I only achieved the $200,000 target at the end of 2016, a full two years after she left.
Finally, instead of an income target, you guys can also consider a net worth target to achieve before both of you leave the workforce. My recommended net worth target is 20X gross household income. Get to 20X your average income at ANY age, and you are financially independent and can retire if you want.
3. Go on a financial fast It wasn’t enough for me to replicate my day job income through my entrepreneurial activities. She too had to reach some achievement goals as well. We decided she needed to raise her savings rate after maxing out her 401k from 25% to 40% in the second to last year (age 33), and then to 50% in the final year (age 34). The logic was to simulate a lifestyle in which we had way less than she/we were used to.
Everybody should practice going on a financial fast before making a big purchase or a big life change. For example, if you know it will cost $1,000 a month more if you buy a particular home, then it’s a good idea to try and live on $1,000 less for at least six months before you buy that home. If you do this first, you should feel zero burden on your lifestyle.
4. Identify specific things to do post retirement. It’s nice for both of you to have a ton of time together. But after a while, you may start getting annoyed with each other if you’re both not doing something meaningful. Therefore, it’s important to identify various things your spouse may like to do after retiring.
We didn’t initiate this step beforehand and suffered because of it. When my wife retired, she did what many normal people do and took it easy. Me, on the other hand, stepped it UP a notch because I now felt MORE pressure to save and earn even more since we were now both jobless! Instead of getting up by 6am every morning to write, I frequently got up between 4am – 5am to do more work. As a man, it almost seems like I have this embedded desire to provide.
After a couple months of me getting up before 5am, and she getting up after 9am, envy and resentment on my part welled to the surface. Damn, she was having such a nice life while I was slaving away! So unfair. Wah. After some frank discussion, instead of sleeping in with her, we decided to divide up the responsibilities of our business. She could take the “night shift” and I would take the “morning shift.” Now all is good.
Please have this frank discussion with your spouse about things to do after s/he retires early. Learn from my mistakes.
5. Create financial buffers for your financial buffers. Early retirement is relatively easy when you have a working spouse. Before the 1970s, we didn’t consider a non-working spouse retired because one spouse took care of the household while the other worked was the norm. Despite all the social progress, still few men want to be known as a stay at home spouse, hence the self-proclamation of being an early retiree.
Without a spouse’s reliable paycheck and subsidized healthcare plan, early retirement is scarier. We, for example, pay $1,400 a month for health insurance despite being in great health. It’s our responsibility to subsidize the poor and less healthy. Still, this expense is worrisome if healthcare costs are not contained.
Creating financial buffers for your financial buffers means always having an income backup plan. For example, if my online income were to ever disappear, we will rely on rental income, real estate crowdfunding income, stock dividend income, and bond income to survive. If all of those income streams die, then I will rely on tennis teaching income and personal finance consulting income. If those income streams disappear, I’ll take on financial technology consulting projects billing no more than 25 hours a week to save the retirement lifestyle. As a last resort I’d go back to work full time.
6. Conduct regular financial checkups. Knowing that your finances are strong is KEY to minimizing early retirement stress and elongating the early retirement lifestyle together. At least once a month, go over all income and expenses to make sure you’ve got positive cash flow. Then conduct a net worth audit to make sure your asset allocation is appropriate. Finally, push each other to keep on saving and investing.
The reason why so many people overestimate how much they need in retirement is because they forget that once they retire, they no longer need to save for retirement. However, I recommend continuing to save for the future once you’ve retired because it feels so damn good! You’ll feel like you’re playing with the house’s money every single day you aren’t drawing down principal.
My wife and I treat early retirement almost like a game. We’re trying to run up the score (net worth) as much as possible while making sure we’re having a good time.
Early Retirement Dreaming
Having a best friend to explore the world, raise a family, or work on a business is a dream come true. That said, it’s important to set stretch goals to ensure you both have no regrets.
My wife felt she needed to advance as far as she wanted to go in her career before retiring early. She accomplished this by getting one last promotion a year before she left. She then looked at the person’s job one level higher above her and decided it was not something she wanted to do. Rather, she preferred helping me grow our business.
Since 2012 we’ve done as much traveling as we wanted. I think we’re up to 85 countries. Now we’re focused on raising a family as two stay at home parents. Building a harmonious relationship takes work. But once you guys thoroughly understand each other’s objective, a two spouse early retirement household can be a reality.
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Updated for 2019 and beyond.