Retirement is great for the most part, but there are some downsides that few people talk about. When you have all the time in the world, it can get a little lonely if you have nobody to spend it with. The best retirement situation is if both husband and wife can retire and experience absolute freedom together.
When my wife finally negotiated her severance package two and half years after I negotiated my own in 2012, 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 the world with her for a month at a time. As an extrovert, life became much better when she was always around.
How Two Spouses Can Retire Early Together
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. Besides, she was three years younger than me.
Here are some strategies for how a couple can eventually both be retired. The goal of these steps is to help minimize doubt, eradicate resentment, and maximize harmony with each other.
1. Circle a target retirement date. Once you circle a date in the calendar, you will do everything you can to prepare beforehand. I left Corporate America at age 34 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! Now that I’m 41, I’m so happy I didn’t wait an extra six years before retiring.
My wife circled a target retirement date of July 1, 2020. She beat her goal by five years because she had me coaching her on how to negotiate a severance. Once you set a date, you will get so motivated to save, invest, and hustle like crazy to ensure you beat your goal.
2. Shoot for an income or net worth target in retirement. 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 and a half years of writing online, I finally replicated my monthly day job salary of $250,000. After six months of consistently earning $21,000+ a month, my wife 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.
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 diet. 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 50% for the last two years of her career. The logic was to simulate a lifestyle in which we had way less than she/we were used to.
Once she retired, neither of us would feel the shock of her lost income because we had spent two years preparing.
4. Have objectives in retirement. If you don’t have a purpose in retirement, you may get depressed because you lose your work identity after so many years. We didn’t follow 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.
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. After some frank discussion, instead of sleeping in with her, we decided to divide up the responsibilities of our online business. She could take the “night shift” and I would take the “morning shift.” Now all is good.
We also had travel objectives which we ultimately hit. And the final objective was to start a family, which proved to be a success after several years of trying.
5. Create multiple financial buffers. Early retirement is relatively easy when you have a working spouse. Without a spouse’s reliable paycheck and subsidized healthcare plan, early retirement is scarier. We, for example, now pay $1,600 a month for health insurance for three despite being in great health.
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 do some corporate consulting with financial technology companies. As a last resort I’d go back to work full time.
6. Conduct regular financial checkups. 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 using a free financial tool like Personal Capital, 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.
7) Refinance your debt or take out debt beforehand. Once you lose your W2 income, banks no longer care about you. It will be impossible to refinance a mortgage or take on new debt with no steady day job income. It takes at least two years of 1099 income for banks to consider your income source. And since you’re retired, it’s highly likely that you won’t make much freelance income your first two years.
Besides refinancing your mortgage, taking out a Home Equity Line Of Credit (HELOC) just in case you have a liquidity crunch, is a good idea. You don’t have to use it.
Early Retirement Is Best Together
Having a best friend to explore the world, raise a family, or work on a business is a dream come true. That said, retiring as a couple takes work because you’re always around each other. You need your own space to do what you want. It’s important to actively build a social network outside of your household.
Since 2012 we’ve done as much traveling as we wanted. Now we’re focused on raising our boy as two stay at home parents until he goes to kindergarten in 2022. For intellectual stimulation, we’ll continue to write and build Financial Samurai into the best personal finance site possible.
So far, Financial Samurai receives over 1.5 million pageviews a month that generates online income for us to plow back into our investments for more passive income. It’s such a great virtuous cycle, I hope it never stops.
Below is our latest retirement income streams. I’m most excited about investing in real estate crowdfunding through Fundrise and CrowdStreet. They are the best real estate marketplaces that allow investors to invest passively in commercial real estate with higher net rental yields and lower valuations across the country. Both are free to sign up and explore.
Good luck on your retirement journey! It’s always best to have one spouse go first, test the waters, and then invite the other spouse in.
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