What if I Retire at 65?

Hi RIP friends,

I just jumped out of the shower, whose definition on RIPipedia is:

The shower is the place where 99% of blog ideas show up but get lost after 10 seconds because you don’t have pen and paper and your memory is so degraded that Guy Pearce’s character (Leonard) in Memento feels bad for you.

TODO: delete “graphic artist” from the list of “possible future careers”

That’s becoming annoying and I keep soap-watering the floor.

Maybe time has come to either install a laptop holder in the bathroom or just accept that ideas come and go and stop trying to catch them all.

Ok, let’s get serious!

Today’s shower thought is: “what if I weren’t aiming to FI? What if I keep working until age 65?

As you may have guessed, I plan to retire early from my career. Don’t know yet how early though. It may be before or after I reach FI. Probably after, but I may play with how much is enough and cheat on my definition of “after”. I don’t know yet, I’m working on it.

Anyway, given how much socially unaccepted my idea is, I spent this shower time asking myself “What if I’m wrong? What if it’s a crazy idea? What if I just do like others do and work until official pension age, which is 65 in Switzerland?

So let’s walk through this thought experiment together and see where “the normal path” would lead me and if it makes sense. Let’s assume retiring early is a dumb idea and let’s make mommy and daddy happy by keep working until pension age.

Some assumptions:

  • Salary will go up roughly 2% per year (plus inflation). It’s a conservative assumption, assuming I’ll stay at Hooli forever. If I’m staying here I’d probably get a major promotion every 5 years at least. And promotions correspond to huge jumps in salary.
  • Expenses will more or less stay the same (plus inflation). Ok, it might be that during children caring years we’ll end up spending more, but at one point this is going to go in the opposite directions. Ok, let’s be pessimistic and say expenses in today CHF will permanently be 25% more than what we spend today. Today we spend ~60k CHF/Year, let’s set the spending bar to 75k CHF/Year. No, let’s get crazy and spend 90k per year, raising current level by 50%! And let expenses also increment by 1% per year (plus inflation) because old RIP wants to enjoy a luxurious lifestyle.
  • Investments grow by a conservative 3.5% per year (plus inflation), which is my SWR.

Ok, let’s spreadsheet it out!

It turns out, under these ultra conservative hypotheses (if I get promoted just once I’d more or less jump instantly to 2041 salary), that before retirement age (end of 2041) we’ll have some 7 millions Swiss Francs invested.

Assuming a 4% SWR (at age 65 I feel confident withdrawing 4% per year), we could withdraw ~23k CHF per month from our nest egg.

It’s not all my friends: let’s knock the Pension doors!

Pillar 1: working till retirement age will bring us additional 2323 CHF/Mo.

Not bad!

Pillar 2: this one is more complicated. From our pension provider at Hooli I get a letter with pension projections twice per year. Projections are based on current salary and assuming some growth of the deposited funds. They don’t assume a salary growth, that’s why each year their projection is greater than the previous year.

For example, here’s latest projection (2018):

While this one is from 3 years ago (2015):

I think it’s due to salary increase and extra Pillar 2 voluntary payments, which I’d keep doing to save some tax if I planned to work till 65. Note that the 2015 projection is 350k CHF lower than 2018 and it assumes higher returns on investments of 2.5% instead o 2%!

It’s also hard to estimate the fraction of mandatory and extra mandatory since they grow differently, and mandatory contribution percent grows with age.

I think it’s safe to assume something like 1.5M CHF Pillar 2 Capital, or 80k CHF/Year Pension (5.33% composite conversion rate). Which means another 6666 CHF/Mo.

This assumption implies Mrs RIP never works again and Pillar 2 investments will grow below 2%, which seems to be the case with our pension provider at Hooli.

Pillar 3: we would cash out a lump sum that’s already embedded into the net worth above, so no extra net value on annuity.

So, if I decided to follow everybody’s path and not retire early I’ll end up working till age 65 and then enjoying 32k CHF/Mo (gross) forever, in today CHF (nominal value in year 2042 will be much higher).

That’s the price tag on my desire to retire earlier than others.

But… time is money in both ways!

What the hell would we do with all this money at age 65? Spending it??

Yeah RIP, cmon! You should increase your spending, your ‘standardz of livingz’, indulge in luxury and enjoy life moooar!

Impossible. I don’t think my anti-consumerist mindset would change. I’d consider that a weakness. I’m actually try to reduce it and get rid of things that don’t give me long lasting happiness but have a cost greater than zero. I find it rewarding on its own. I find myself happier when I reduce my footprint. Efficiency and sustainability are two values I feel strongly attached to. I won’t buy more shit with more money. I won’t even fly on private jet or boat if I could. I won’t waste resources if I could. I’d end up living a lifestyle similar to my current one and die with a 8 digits net worth.

don’t you wanna travel more? Everybody is into this travel-obsession on instagram or facebook all the time. You’re missing out on something big!!

Let me tell you this: in last 5 years I’ve been to Maldives, Mexico, Japan, New York (several times), California (I guess more than 10 times) and countless minor European trips, including multiday bike trips and hiking trips. You know what’s been the best trip so far? This month-and-half (so far) staying at home on paternity leave with my family.

Time is my luxury.

The only reasonable way to “spend” that large amount of money would be by becoming effective altruist or pledging to give most if not all of it. That’s why I consider giving while accumulating inefficient and that’s also why I consider those who quit to “go building a school in Africa” selfish and inefficient too. Wanna see an extra school in Africa? Earn, save, invest and build 100 schools in Africa after you die. Or maybe 10-20 while you work, I’m ok with a little bit of selfishness!

The point of this post is not bragging or showing off. I just want to show you (that might be in a situation similar to mine) that the hamster wheel is broken. It doesn’t make any sense to grind more than enough.

So I guess if my mind questions my instinctive decision of “let’s retire early!” I should immediately slap it in its face! Unconventional things seem strange at first, and let us question whether they make sense, whether we’re crazy or not. But truth is that you should always challenge the status quo and play with thought experiments before dismissing a potentially good idea. If you’re different from the crowd, crowd behavior is not for you.

In my case, aiming to FIRE is not a crazy idea, it’s just the natural byproduct of a frugal and efficient mindset.

Now back in the shower!


    1. Hi Jørgen, welcome to retireinprogress 🙂
      Well, I’ve mixed feelings with leaving huge amounts to kids. It’s so ingrained into European culture that not aiming to that would be perceived as a shame. But I’m not sure it’s a good thin for the kid(s). At least, I don’t want this to be given for granted.

      “Sweetie, maybe daddy will leave you a shitload of money but maybe not. Don’t count on it!”

      1. I hear you Mr. RIP. I’m doing my best to inspire my kids to get a healthy money mindset from a very early age. Inherited wealth must never be used as a basis for a lazy existence.

      2. I agree. I also doubt that giving your kids this guarantee of life prosperity is a good thing. It actually does not give your kid a sense of “trying to make it in this world” because your kids will think, no matter what happens, I will do OK just eating up my inheritance.

    2. I really don’t like the idea to pass on so much money for my kids do that they don’t have to work a single day. There’s a huge chance (if you ask me) that those kids would turn into real spoiled assholes.
      No. I’d like my kids to not even know about what I’m worth until they went through shitty jobs, work themselves up and achieved something themselves with my full moral support, love but little to no financial help.

      1. Completely agree!
        I think also Warren Buffett said something like “A very rich person should leave his kids enough to do anything, but not enough to do nothing”
        But maybe for him the enough to do anything is a billion dollar 😀

  1. Another great post Mr RIP. Thanks for that.
    It reminds me that my secret plan (with FIREhub.eu) and the european FIRE community makes sense: to build a network of people who:
    – have money
    – don’t care much about earning money once they FIRE
    – have time
    – understand what really makes one happy and satisfied: MAKING A CHANGE
    Some of these folks, could join forces, use their time , maybe money, network and make good stuff. Work on social projects, develop apps that make positive changes in people’s life with no/little financial interest or other things like that.
    So. If you retire soon, you’ll have the TIME to do amazing things for others (and at the same time for you)
    If you work more and chose to have little time for other projects in the next 10-30 years , you’ll and up with stupid amounts of MONEY that you can use to start a charity and do even more serious stuff that requires cash. Like, employing lawyers to sue the shit out of corrupt people and with that have a huge positive impact on communities.
    Or: finance good people to win elections.
    So it might all boil down to TIME vs MONEY once again.
    Also, if you’re smart (and, you didn’t make a very idiotic impression with me :)) you could retire soon, build up a passive income source very quickly and have TIME and play MONEY at the same time.

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