I'm in my late 50's and I am thinking of early retirement. The big fundamental economic question of retirement is where your income will come from when you stop generating it by work. And the answer to that has two parts: Financial income from savings, and monthly income from whatever pension you have. If you look at the extremes, there is the FIRE movement (Financial Independence Retiring Early): Imagine you get a very good job relatively early in life, earning $100,000 per year. You live a frugal life and only spend $30,000 per year, saving $70,000 per year. 15 years later you have a million dollars in the bank and retire early. If you get about 3% financial income from that million dollars, you can still spend $30,000 per year, but without having to work anymore.

Obviously such a plan is not very realistic for most people. Not many people get such a high income early in life, and if you have a family with children then saving most of your income often isn't possible. The other extreme, which in many countries in Europe is much closer to reality, is that you work until the official retirement age in your country, which is going up slowly from around 65 previously to now 67 or even more. By paying into the state pension system over all these years of work, you acquire rights to a monthly pension after reaching that age.

Personally, I could never have retired in my 30's like the FIRE movement suggests. In order to get a good income, I had to go to university and get a Ph.D. degree, so in my early 30's I was just starting my career. And, which probably has to do with the culture of the baby boomer generation, I wasn't actually interested in retiring in my 30's. I *wanted* to work, and use the skills my long years at university taught me, and hopefully make a difference.

But what I realized is that the two extremes, FIRE or official retirement age, are just that, extremes on a large range of possibilities. The state pension plan is what our American friends would call "socialist". It protects the weaker members of society who never earned a lot and never saved much from too much poverty. But if you have a salary which is considerably higher than the net average monthly salary in your country, you are losing out on the state pension scheme: You pay in more than the average guy, but you don't get out more, because there are caps. I don't want to work for another decade. The idealism of my younger years has faded, even if my work today is making more of a difference than it did then.

The good news is that I don't have to. Most state pension schemes have early retirement options, where you leave before the official retirement age in exchange for a lower pension. Also companies offer early retirement schemes, basically paying older employees for stopping to work earlier. I don't know in how far that exists in America, where it is easier to fire an older employee; in Europe it can be cheaper for a company to pay an employee to stay home than it would be to fire him after working for quarter of a century in the same company, due to various worker protection laws.

Curiously enough, the pandemic helped with the psychological fear of retirement. When going to work in an office or factory every day, the idea of suddenly staying at home every day is somewhat daunting: How would life at home day for day be like? A year of home office answered that question. Replace work zoom meetings with something more fun, like a Roll20 D&D session, and you can easily make the mental switch from home office to retirement. I still have to work out some details, but it is totally possible that I'll stop working in the near future, in a year or so.

- posted by Tobold @ 11:18 AM Permanent Link