How do you bridge to pivot projects, let your nest egg grow, and de-stress your life all at the same time? Go part time and get a head start on all your pivot projects even earlier.
The accumulation phase
During your accumulation phase years, you are working full time and saving your pennies for the future. There are at least four things happening during that time.
- You are saving and investing part of your money
- You are allowing your nest egg to grow
- You are learning to control your spending by living on less than you earn.
- You are aging
Adjustments that increase your savings rate will both increase your investment rate and also decrease your expenses. This is the primary lever employed by the F.I.R.E. community and it is very powerful. Time is less your ally and more your enemy in the extreme F.I.R.E. community as early retirement both decreases your accumulation phase and increases your retirement phase. Aging is a two edged sword. It allows for more compounding and growth, but also shortens your retirement life.
Part Time Interlude
If you are saving at a 40% or 50% rate then you are financially prepared for part time work. As long as you are able to find part time work at your current pay rate you should be able to live on roughly half your current pay. Theoretically if you are half way to F.I. then a seven to ten year part time interlude should get you to financial independence without adding to your nest egg. This comes from a quick rule of thumb called the rule of 72. 72 divided by your investment growth rate should give you the number of years it takes to double your investment. As long as you are getting market returns you can expect that nest egg to double in that time frame. The main goal of part time work is to not draw from your retirement accounts and let them grow.
An even more courageous plan might be to go part time at 1/3rd F.I. and let your investments grow to half F.I. or more over 4 or 5 years while you work part time and build your pivot project income. Then you can decide whether to take the plunge completely or continue part time, or even go back to full time work again depending on how things work out. Part time work in your field should keep your resume current enough that returning to full time employment is relatively easy.
Part Time work gives you many of the benefits of the accumulation phase
- You are allowing your nest egg to grow.
- You are continuing to tune your financially disciplined life.
- You are getting time back to work on pivot projects and build a post wage life.
- You are softening the work to pivot transition.
- You are shortening the draw down phase.
- You are figuring out if you actually enjoy your planned pivot projects.
Draw Down Phase
Once you are done working part time and ready to go fully P.E.E. you can progress to the draw down phase. In the draw down phase conventional wisdom wants you to be fully F.I. so that there is only a small chance that you will actually have a decreasing balance in your investment accounts. F.I.(ish) P.E.E. theory would say that you can go ahead a bit earlier and plan for declining balances from draw down till the pension years. Just shoot for a balance that will be sufficient once you hit your SSA/Pension timeframe. For instance, if SSA, pension and pivot project money take care of two thirds of your expenses then you want a balance remaining in your retirement accounts that will fund the other third. So if you hit 50% or 75% of your full F.I. number by the end of your part time interlude then you can draw 6 to 8% of your retirement money for a short time as long as your balance lands on 33% F.I. when you hit SSA/Pension age.
“Full Retirement”
Depending on what you have decided your lifestyle will be, your full retirement age probably comes with a decent drop in your need for accumulated wealth. Most early retirement strategists ignore social security entirely. This means you are stuck with either a withdrawal rate that is too low to be optimal, or an accumulation phase that is too long. If you are in the 30 to 60K per year range for expenses, and have accumulated a decent work history, then social security will likely cover around a third to half your expenses. Savers that waited to attain full 4% rule F.I. before taking the plunge into early retirement most likely find themselves with increasing account balances through the entire draw down phase and will end up with a large surplus of wealth as they reach full retirement age. This may be one of your goals. You may want to leave a legacy. If not then having a retirement account that funds 200% of your expenses when you turn 70 and only need to supplement SSI with 50% of expenses is a bit of an overshoot.
