Work Less, Live More: The Way to Semi-Retirement PDF
Preview Work Less, Live More: The Way to Semi-Retirement
2nd edition Work Less, Live More The Way to Semi-Retirement by Bob Clyatt second edition september 2007 editor barbara Kate repa cover & book design sUsan pUtneY proofreading joe sadUsKY index claire splan printing consolidated printers, inc. clyatt, bob. Work less, live more : the way to semi-retirement / by bob clyatt -- 2nd ed. p. cm. includes bibliographical references and index. isbn-13 978-1-4133-0705-4 (pbk.) isbn-10 1-4133-0705-1 (pbk.) 1. Finance, personal. 2. retirement income. 3. retirees--Finance, personal . i. title. HG179.c6518 2007 332.024'014--dc22 2007013011 copyright © 2005 and 2007 by nolo. all riGHts reserVed. printed in tHe Usa. no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission. reproduction prohibitions do not apply to the forms c ontained in this product when reproduced for personal use. 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Dedication to our teachers Acknowledgments my thanks to the many semi-retirees who have shared their stories and insights to help others on the semi-retirement journey. particular thanks to the folks at www.early-retirement.org/forums, who are always ready to help, 24/7. additional thanks to: professors elroy dimson, paul marsh, and mike staunton of the london business school, for generously sharing their international equity returns data for the studies in chapter 4. tom orecchio, a dFa-approved adviser, who enthusiastically has helped refne and test my early ideas about the rational investing portfolio and turn them into something worth sharing. paul Fendler, chris dupee, and eric cohen, professionals who reviewed the book’s tax and insurance information and provided sounding boards for new strategies to help semi-retirees. any mistakes and omissions i have managed to slip past them are mine alone. my fnance professors at mit’s sloan school, who introduced me to the rational investing concepts and got me started modeling historical portfolio returns long before i knew why i might one day need them myself. my editor, barbara Kate repa, and the nolo team. my yoga teachers, who keep me clear to write and sculpt. my family, trusted companions in the semi-retirement journey. Table of Contents Introduction Something Wrong in Paradise ..........................................................................................................................2 Te Solution: Semi-Retirement ........................................................................................................................3 Escaping the World of Work: One Story ....................................................................................................6 How Tis Book Can Help ....................................................................................................................................8 A Look at Some Typical Semi-Retirees .......................................................................................................9 How to Use Tis Book Stages of Semi-Retirement .............................................................................................................................. 26 A Quick Look at the Chapters ....................................................................................................................... 34 Figure Out Why You Want to Do Tis 1 Why Work Seems Stale ..................................................................................................................................... 40 Work in Other Times and Cultures ............................................................................................................ 46 Planning to Make the Leap ............................................................................................................................. 51 Moving From Work to Semi-Retirement ................................................................................................. 53 Live Below Your Means 2 What It Means to Live Below Your Means .............................................................................................. 78 Creating Your Spending Plan ......................................................................................................................... 81 Determining Your Annual Spending ........................................................................................................ 83 Determining Your Means ................................................................................................................................. 94 A Diferent Approach for Well-Paid Part-Timers ..............................................................................107 Planning for Changes ........................................................................................................................................108 Shifting Your Tinking to Reduce Spending ........................................................................................124 Children and Semi-Retirement ...................................................................................................................141 Retiring Outside the U.S. ................................................................................................................................147 Deciding Whether It’s Possible to Semi-Retire ...................................................................................152 Put Your Investing on Autopilot 3 Help for the Beleaguered Investor .............................................................................................................162 Where Wall Street Goes Wrong .................................................................................................................165 Myths About Investing ....................................................................................................................................169 Prize-Winning Portfolio Teory ..................................................................................................................176 Rational Investing ...............................................................................................................................................179 Examples of Rational Investing Portfolios ...........................................................................................188 Rebalancing Your Portfolio ...........................................................................................................................203 Take 4% Forever 4 Te Safe Withdrawal Rate .............................................................................................................................210 Te Safe Withdrawal Method .....................................................................................................................214 Data and Results .................................................................................................................................................220 Using the Safe Withdrawal Method.........................................................................................................235 Stop Worrying About Taxes 5 Tax Benefts for Semi-Retirees .....................................................................................................................241 Strategies for Lowering Taxes .......................................................................................................................242 Comparing Taxes: Salary Earners and Semi-Retirees.......................................................................254 Do Anything You Want, But Do Something 6 Why Work? .............................................................................................................................................................261 How Work Evolves in Semi-Retirement .................................................................................................262 Making the Shift ..................................................................................................................................................267 Common Work Options for Semi-Retirees ..........................................................................................272 Unpaid Work Alternatives .............................................................................................................................292 Finding New Activities .....................................................................................................................................298 Don’t Blow It 7 Challenges of Semi-Retirement ..................................................................................................................307 Special Advice for Couples ............................................................................................................................318 Make Your Life Matter 8 Simple Steps for a Life Well-Lived ..............................................................................................................324 Taking Your Pulse ...............................................................................................................................................326 Appendix 1: Te Asset Classes in the Rational Investing Portfolio Stocks ........................................................................................................................................................................330 Bonds.........................................................................................................................................................................332 Other .........................................................................................................................................................................335 Appendix 2: Resources Early and Semi-Retirement ............................................................................................................................342 Personal Finance .................................................................................................................................................344 Rational Investing ...............................................................................................................................................345 Safe Withdrawal Rates .....................................................................................................................................349 Work/Life Issues ..................................................................................................................................................354 Index Introduction Something Wrong in Paradise .......................................................................................... 2 Te Solution: Semi-Retirement ........................................................................................ 3 Escaping the World of Work: One Story ..................................................................... 6 How Tis Book Can Help..................................................................................................... 8 A Look at Some Typical Semi-Retirees ......................................................................... 9 MBA Moms Pulling Back ............................................................................................... 9 Geeks on Permanent Vacation .................................................................................11 Perpetual Travelers ..........................................................................................................12 Te Millionaires Down the Road.............................................................................14 Te Half-Millionaires in the Next Apartment ..................................................15 Bankers With Of Switches .........................................................................................16 Exotic Transplants ...........................................................................................................18 Government Employees ..............................................................................................20 Still Figuring It Out ..........................................................................................................22 2 | WORk LESS, LIVE MORE here are a number of reasons why you might want to stop working full time well before you reach traditional retirement Tage. You may be reasonably happy at work, saving money, but wondering how long you can hold out against the gnawing sense that There must be some kinda you’re trading your life away. or way outta here… you may be a little further along, with ample savings, agonizing about —FROM “ALL ALONG THE WATCHTOWER,” BOB DYLAN whether you need to keep pounding away at a full-time career that no longer fres you up the way it once did. You may have tired of the long hours, the bills, the pressure, and the feeling there is never enough time to do the things that are important. or you may just be ready to move on from what has come to feel like a constant diet of compromises, working for the man. You ask yourself: do i really have to do this until i’m 65? can i turn all this hard work into a ticket outta here? by husbanding your fnancial resources, managing your expenses, and making a commitment to graduate from the traditional workplace, you can safely cut back your time on the job by years, even decades. lots of people are doing this now, leaving full-time work in their 40s and 50s, even some precocious ones in their 30s. Tey have plenty of time to relax and focus on living a life of clarity and purpose. and you can, too. Something Wrong in Paradise Working life was never supposed to be as stressful as it has become. a vibrant modern economy full of opportunity and well-paying jobs was supposed to mean we would all be happily challenged, with enough money to buy the things we needed. Ten we would enjoy this bounty during the leisure time freed up by our sparkling efciency. at least that was the theory.
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