Early Retirement Update – The First Year & a Pandemic

Has it really already been a year since I quit my corporate accounting job?! The first year of early retirement was definitely not what I expected. How could I expect that a global pandemic would coincide with my retirement and immediately quash my new-found freedom?! Nonetheless, I feel blessed to spend this time at home with my family, without the stress of a full-time job. Plus, early retirement (even during a pandemic) is way better than working. I retired at 38, and here’s how my first year of early retirement went…  

I’m officially retired!

I’m not gonna lie. It feels weird to call myself “retired.”

Why? Well, for one thing, I’m only 39 years old. Additionally, my husband still works full-time, and we have a 4-year-old at home this year due to the pandemic. Some might say I’m a stay-at-home mom, and I guess in some ways I am. I didn’t intend to be though. I intentionally waited until our daughter was supposed to start school to pull the retirement trigger. But, in either case, I’m a stay-at-home mom who’s not going back to work after our daughter starts school this August (yay!) … or ever.

I get it if it’s hard for people outside the Financial Independence and FIRE communities to understand. After all, most people still believe that retirement is an age, rather than an investment number. I finally stopped telling people that I’m retired after I got too many strange looks when trying to explain why I hadn’t found a new job yet (I don’t want one).  

Related Post: HOW MUCH DO YOU REALLY NEED TO RETIRE EARLY?

I still get messages from recruiters weekly with job opportunities. For the first several months, I took their calls. Then I worried if I was giving up too much to stay at home. Now I just say, “no thanks” and move on. I’ve finally made peace with my decision.

Although I’m still searching for my purpose in life, I now believe the tradeoff wasn’t worth the money and prestige. We’re fortunate to have the financial freedom to make these decisions – living proof that there is freedom along the journey.

Related Post:   WE’RE ON A JOURNEY TO FINANCIAL INDEPENDENCE!

The rest of this update will focus on just two aspects: health and money.

I shared my expectations for early retirement vs. the reality, as well as other topics, in my early retirement update for the first 8 months. Not much has changed in some of those areas, so I didn’t want to repeat myself. Check that post out if you want a more in-depth look at my first year of early retirement.

Related Post: EARLY RETIREMENT UPDATE: HAS IT REALLY BEEN 8 MONTHS?!

HEALTH

If you follow this blog, you know that achieving optimal health and wellness was one of the main reasons I retired early.

Years of working long hours in stressful jobs left me overweight, stressed out, fatigued, and unhappy. My goal for the first year of retirement was healthy living and to reverse as much damage as possible.

The journey was a bit bumpier than I expected. I hadn’t expected a year-long (and counting) global pandemic and being cooped up at home with a young child. However, I was able to make some substantial progress during the year since the last retirement update that I posted.

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Stress

The immediate relief from quitting my job last spring was awesome!

Not only did my last job involve the crazy deadlines that make accounting jobs stressful, but it was a completely toxic work environment. I felt like a heart attack or complete mental break down was highly likely in my future if I stayed. It was not worth the money.

I could have looked elsewhere, but I didn’t love what I was doing. Any role at that level in my area of expertise would have also involved long hours and high stress deadlines (and likely a longer commute), even if I were able to find a better company culture.

That said, being chronically stressed out for the past fifteen years seems to have taken its toll on my sympathetic nervous system.

After the initial sense of relief, I found new stressors and anxiety in other areas of my life. Most notably arising from the global pandemic and long duration of isolation, which I think has increased anxiety for most people. But also, in other areas that shouldn’t be stressful, such as getting a blog post written on time or what to eat to meet my macronutrients for the day.

It got so bad around the holidays that a COVID scare set me into a total health tailspin that I’m still working through (and is the reason our medical bills have been so high the last 3 months).

I’ve been working to incorporate meditation, journaling, solo walks, bubble baths and dynamic stretching into my routine to try and improve my stress levels. However, this area is very much a work in progress and my main goal for early retirement year #2.

Related Post: WHY I REALLY QUIT MY HIGH-PAYING JOB

Diet & Fitness

My plans for the first year of early retirement included daily workouts and healthy eating with a goal to lose at least 30 lbs.

After a slow start, I’m proud to say the scale is down 33 pounds!

I was starting to fear that it would never happen, but I’ve now officially lost all my baby weight and am down 3 dress sizes. I’ve also noticed significant improvements over the past few months in my aerobic fitness capacity (VO2 levels) and blood glucose levels, which are important markers for health improvement.

I don’t want to lose a lot more weight number-wise (5-10 pounds); however, I would like to lose more body fat and increase my muscle mass this year.

I’ll work on this by adding in more strength & HIIT workouts, in addition to or replacement of some of my walks. I’ll continue to walk for stress relief and to help insulin sensitivity after higher carb meals or treats.

Additionally, while I have eaten somewhat healthier (and reduced the amount of junk food I stress-eat), I will continue working to optimize the diet I feed myself and my family next year.

Related Post: 19 WAYS TO EAT HEALTHIER & SAVE MONEY ON GROCERIES

MONEY

Although we were financially secure at the time, I was still worried about money going into early retirement… especially after realizing that I’d be retiring during a global pandemic.

The compensation package for the accounting job I left represented almost half of our family’s earned income. During the months I was working full-time in that role, we had an average savings rate of 71% (excluding bonuses). After leaving, I expected our average savings rate to fall dramatically to around 30%.

Additionally, since some of our income consists of 401k matches, dividends, and other earnings that we cannot (or don’t want to) use right now, I was worried about cash flow liquidity.

One year into early retirement and I can officially say I’m no longer worried about money. Our finances are doing fine. In fact, surprisingly, they continue to be just as strong as when I was working!  

Savings Rate

Surprisingly, our average savings rate hasn’t fallen much since I retired, despite our income being significantly lower.

So, what was the hit we took?

Our income over the last 12 months was 43% lower than the 12 months before. Despite this decrease, our average savings rate only dropped 6%, from 76% to 70%. A third of that decrease was completely unrelated to my retirement. Mr. RFL’s bonus in Feb 2021 was significantly lower than the year before due to the pandemic & related recession. If I exclude his bonus from the calculations, our reduction in income was 36%, and the average savings rate would have fallen to 72% and 68% for those periods. So really, the nominal decrease in our average savings rate due to my early retirement was actually only 4%!  

It turns out that our family is saving a lot of money having me at home… almost enough to offset the lost income from a six-figure job!

How is that even possible?

• 36% of almost every dollar I made went to income taxes & payroll taxes
• We no longer need full-time childcare
• More time to cook = less take out & convenience food
• I no longer regularly shop for fancy new clothes, shoes, bags etc.
• No more stressful job = fewer professional massages and spa treatments
• No more stressful job = less wine needed to cope
• Less gas & car maintenance (minimal impact since I worked near home)
• More time to search for deals, plan meals, DIY and other things that save money
• More time to declutter & make money selling what we no longer use.  

Let’s put some numbers to the above and see how much we really lost financially when I quit my job last year.

How much did the early retirement decision “cost” last year?

I started my most recent job in August 2019, so the comparison period below has seven months of full-time income from that job, as well as a small, prorated bonus (no 401k). Prior to that, I had switched to a 50% part-time role with my previous employer, so the comparison period also accounts for five months of reduced salary from that job (no bonus).  

Using the above costs that we would have avoided or reduced by my being at home, as well as the couple expenses that would have increased (health insurance premiums, utilities from being home more, etc.), I put together the following analysis to estimate the true “loss” of net income.

Well $54,700 is a lot easier to swallow than $112,000. It also helps to explain why our savings rate wasn’t as impacted by the loss of my salary last year.

We also worked to curtail expenses across all categories last year which helped to further offset the loss of any income. Our total expenses (excluding taxes) were $20,000 lower last year than the year before, which is an additional decrease of $4,000 from the $16,000 shown above. The motivation to cut costs, was at least partially driven by and due to my decision to leave the workforce.

These results make me feel good about the decision, as the additional family time and reduction of stress in our lives is well worth the loss.

Net Worth

Additionally, as you would expect from the positive savings rate discussed above, we continued to see increases in our net worth after switching to one income. Our net worth increased by 28% during the twelve months from March 2020 to March 2021!

Though some of this increase comes from our net income earned last year, the majority of this increase results from a significant drop in the stock market during March 2020, which has since fully recovered.  

How much will my early retirement “cost” in future earnings potential?

The answer: MILLIONS $$$

The analysis of what we lost in the last 12 months is a little misleading. Although it represents the actual results, my income didn’t reflect what I could make in a year. Had I stayed in my previous role, I would have made in the low $200,000’s last year. I was also promised a promotion for the following year, which would have increased my annual compensation another 15 – 25%.

I’m not sharing this to brag, rather to help you understand my temptation.

Looking at the future earnings lost makes it harder to justify a decision to leave the workforce during my prime earning years.

I think it’s a struggle that anyone considering early retirement (or who has retired early) has to deal with. And it’s made all the more difficult by the fact that our culture values money, powerful titles, and consumerism as the hallmarks of success. I was so close to “proving” I could make it to the top.

In order to make the leap, you have to be able to disassociate with society’s definition of success and redefine it for yourself… based on what you want for your life, not what others expect from you or what you are capable of achieving. It’s really tough to do, and I’m still working on it.

But… really, how much will early retirement cost?

I prefer not to think about these numbers, rather, to focus on what we gain by having one parent at home while our child is young… as well as how this aligns with how we want to live our lives.

I’ve had my near-death experience. Life is unpredictable. When you decide that you have enough, you can more easily rationalize making the tradeoff of money for something else.

Just for fun (or torture) though, I ran some estimates of the future earnings I’d be walking away from.

The analysis takes into account my last salary, the promised promotion for the year after, and then 3% inflation increases each year after. Though I might have made more by switching jobs in the future, I decided to use these assumptions to be conservative. Then, I adjusted income for 36% estimated taxes (payroll & income) and an estimated annual investment gain on net earnings of 5%.

The results were as follows, depending on how many more years I decided to work:

Future Net Earnings Lost:

So, is early retirement worth losing an extra $15 million dollars?

The answer (for me): YES!

Why?

Because if Mr. RFL continues to work full-time for just a little longer, we’ll achieve Financial Independence.

My estimate as to when we’ll reach our FIRE target has actually moved up since I retired!

If he works a couple years past that date, even if it’s part time, we’ll amass even more cushion. Based on my calculations, that will be enough.

So even though an extra several million dollars sounds nice, and does provide for some additional cushion, it’s not worth trading my time and sanity for a career that’s stressful and which I don’t love. We’ll have enough.

Does that mean I’ll never earn another penny in my life? Not necessarily. I don’t know what the future holds. I love to learn, grow and live with purpose, so I may ultimately end up doing something that does make some income.

The beauty is that I don’t have to work … and pretty soon, Mr. RFL won’t have to either.

Whether you are ready to quit your job or not, I encourage you to create a financial plan that will give you the freedom to choose.

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