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Pretirement: The Perfect Compromise?

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I play with electronics all day long, but I don’t believe in binary numbers. Nor black and white, for that matter. Rather, I believe the real-world is much more complex than that and filled with a million shades of gray.

Financial Independence vs. Retirement

The purpose of this blog has always been to track one’s journey to early financial independence. By intention, I’ve always made sure to refer to the final destination as financial independence and NOT retirement!

There is a big difference between the two… Retirement implies never working again (either in a particular field/career, or just PERIOD); financial independence, in contrast, just means never having to work again.

And all along my journey has been about meeting a very elementary criteria:

Passive Income > Living Expenses

Quite simply, by fulfilling that requirement, I would be financially independent.

Reality

So, you could argue that I’m already financially independent today. Even on a bad month, with a vacancy and repair items, my cash flow exceeds my monthly living expenses (less than $2,000).

Even though I’m still employed and working the 9-5, I get to bank my entire paycheck (net income) each and every month. But of course real-life is much more convoluted than the above equation… Otherwise, I would have already checked out of the office and hopped aboard a plane with a one-way ticket to a tropical island somewhere in SE Asia…

What it comes down to is risk management… In theory (and definition), if you earn $30,000/year in passive income and spend $29,999.99/year on living expenses, you are financially independent! But just as it is in my own case, I’m sure you wouldn’t feel very secure with that type of situation. And thus, you would feel the need to keep playing in the sandbox, for slightly longer, to try and lower your risks by accumulating more capital.

Which brings me to an interesting term that’s been floating around on the internet as of late… the concept of pretirement.

Pretirement

I didn’t coin the term, but from my understanding, pretirement is sort of a hybrid approach of both financial independence and retirement. As an example, you reach a stage in life where you aren’t yet ready to quit working completely, but you also have a sufficiently strong base of assets where you shouldn’t have to put in the full 40+ hours/week that a wage slave has to.

Pretirement is a way to compromise and bridge that gap to full financial independence. Sort of like tapering… It let’s you enjoy more free time today (and less stress), but you still put in some degree of work (e.g. part-time job) to generate income.

Logically, the whole concept of pretirement makes perfect sense to me! In my own situation, when I talk about pulling the plug on my own corporate career for good, sometime in 2015 or 2016, skeptics will point out as to why my plan won’t work and why I will be doomed to fail. In their minds, by calling it quits prematurely, I would be skating on thin ice and taking on too much risk. The advice given, then, is for me to keep grinding away at my not so pleasurable job for several more years, until a sufficient buffer is built…

And when I hear that, it’s like hearing fingernails raking across a chalkboard. Very dissonant and altogether too binary a way of thinking. It’s the all or nothing approach… which is not the way things ought to be.

The Compromise

Pretirement provides the perfect compromise. I was very hard-working and dutiful during my 20’s, which helped me amass a decent-sized nest egg today. As the assets compound and grow, my net worth/cash flow will only increase over time. In other words, the trees have already been planted… now I just need to wait patiently for the fruit to fully emerge.

But, if all the labor and hard-work was already put in… why should I have to subject myself to the same degree of torture as when I owned an empty plot of land? Why keep toiling away in the hot sun, working myself to the ground each and every day, when more trees are no longer necessary?

At this point, I just need routine maintenance. It makes more sense, then, to go with a tapering plan to wind down the work… Yes, some work is still necessary, but definitely not to the same extent as before!

And as we all know, real wealth is measured by a person’s abundance of time, not by the size of their bank account!

Yes, we all have our fears and doubts… As adults, probably even more so than necessary (but I’ll save that topic for another post). But like most things in life, there’s usually a happy medium somewhere in-between…

Let’s see… I can work 3 more years as a corporate drone, putting in 40+ hours each and every week…

Or,

I can work 1 more year as a corporate drone, and then attempt freelance writing (as an example) part-time for 10+ years as I wait for the fruit to become overwhelmingly abundant to feed my needs.

Life is all about balance! And at some point, I think we will all agree that:

Time >>>> Money

 

Let’s not also forget:

Health >>>>>>>>>>> Money

 

Money is becoming exceedingly less and less important to me with each passing day…

 

What do you think? What are your thoughts on pretirement?

{ 25 comments… add one }
  • Income SurferNo Gravatar December 18, 2014, 3:20 am

    I’m just a couple years behind you Fighter. I took a year off, last year infact, before our first kiddo was born. Believe me when I say…..you’ll love it…..and you’ll be shocked how little money you end up spending. Additionally, you mentioned freelance writing. Talk to Jason, because he certainly did better than I……but I was making $500 per month right out of the gate. Couple that with some nice passive income and you’re all set.

    -Bryan

    • FI FighterNo Gravatar December 23, 2014, 10:56 am

      Bryan,

      A year off, that has so much appeal right now! I can’t say I haven’t thought about it… and your experience is making me want to attempt it even more!

      Wow, $500 right out of the gate, that’s impressive! If I could somehow get it to $1,000/month, I think I would be all set with early FI! I’ll need to reach out to both you guys soon!

      All the best!

  • Frugal BuckeyeNo Gravatar December 18, 2014, 3:48 am

    I think you’re spot on with this line of reasoning. Most of the people out therethat have successfully reached financial independence and are blogging about it seem to end up in a situation where they are continuing to earn money doing things they really enjoy after achieving FI.

    I’ve still got a ways to go yet but I’m thinking of the days where I can work a part time job on the ski slopes to make a little money to add to my nest egg, and get free skiing.

    • FI FighterNo Gravatar December 23, 2014, 10:58 am

      Frugal Buckeye,

      Yes, I agree, and early FI doesn’t have to be an all or nothing proposition. When you get closer and closer, it makes perfect sense to taper off from working hard and to try and pick up something more recreational (and fun).

      Working at a ski slope sounds lovely… Writing and blogging are things on my radar to start off with.

      Take care!

  • MarkNo Gravatar December 18, 2014, 7:01 am

    Fi Fighter,

    Thank you for this post and vis a vis the clarification for the readers of this site. Your logic is only as sound as the assumptions you make to support it (both good and bad). I would like to challenge and expound on some of them in healthy discourse:

    The idea that people can exit and enter the work force on whims. Again, my logic maybe faulty because I do not know your professional background and perhaps you are so highly degreed that you can walk into any office and command a job in which case you are one of only 1,000 people who can do so. I know for me if I left my 9-5 job and took a 3-5 year hiatus ANY employer I interview with will look at that black hole and say what happened? If you respond with “oh I felt like taking time off and sipping daquries on the beach” they will think, this guy doesn’t take his work seriously and whats to stop him from quitting and doing the same thing to our company and leaving because he wants more R&R? It is absolutely a mar on a resume that should not be taken lightly. For women it is different, you can say you had kids and they are much more forgiving. My good friend works in HR and I am not saying this out of ignorance.

    Now the part that I am still not certain on is how you plan to factor in triple your expense load for the future. By that I mean providing for your wife and future kids (if that is not in your game plan please be explicit about that).
    As your family gets larger (wife,kids) you will have to feed, clothe, and insure (VERY expensive at least in the USA, who knows how well the healthcare system is in SE asia and how expensive). Also are you going to send your kids to some public school in asia or are you going to give them the advantage of private schooling (costs $). For me personally I could not look at myself in the mirror if I told my wife, well honey I have enough money for me if you want to eat you need to go toil “in the hot sun” to earn your keep. Quite contrary my goal is not to provide “my passive income > my expenses, it is “my passive income > all family expenses”. That road is longer fought then a few years in corporate but the juice is worth the squeeze.

    lastly the comment you made:
    real wealth is measured by a person’s abundance of time, not by the size of their bank account!
    I see many homeless people and unemployed people that fit that description with all the time in the world, they do not see happy but I am only judging a book by its cover.

    Please do not take my comments as ridicule. I am just teasing out very real scenarios and seeing how you might cross those bridges when you reach them. Perhaps my fears are unfounded, I struggle with them daily. Only time will tell if I am the fool or the sage.

    Keep fighting!

    mark

    • FI FighterNo Gravatar December 18, 2014, 8:41 am

      Mark,

      Thanks for the reply and your thoughts; it makes for a good discussion!

      The entering/exiting of the workforce is important if you are still highly dependent on earning wages from an employer… For pretirement, the idea is more about earning supplemental side income to reduce risks… And for many people, as Frugal Buckyeye mentioned above, it’s almost tough to not earn money pursuing a hobby, or side gig you enjoy.

      For myself, I aspire to be a polymath, and do see myself earning more income after FI. In fact, I wrote a post about many different careers I would like to undertake:

      https://www.fifighter.com/financial-independence/thoughts/2013/11/you-only-live-once-yolo-every-7-years/

      But the beauty with pretirement and early FI is that a solid foundation is already in place, so the importance of the side income is greatly diminished. If one isn’t yet ready to walk away for good, then it may be more prudent to keep the day job going for a bit longer. I know that when I clock out of corporate, I want it to be for good! I won’t need a resume anymore…

      In regards to family and kids, that’s such a fluid concept for me that I’m not going to try and factor that into my gameplan for now. Yes, someday I want to be married and have kids… But there are just so many variables involved that I could drive myself crazy trying to account for everything.

      I believe that life is an adventure. You do your best, but sometimes it’s ok to leave things to chance… I do enjoy serendipity and spontaneity… When I vacationed to Japan in August, I went by myself with no agenda and had the time of my life. I’m not afraid of the uncertain.

      And who knows? My future wife may also be on board with the early FI plan and enjoy living modestly… Or, maybe she’s a workaholic and wants to join in me in building up a real estate empire someday in the future… Or she’s a reader of this blog who I haven’t had the pleasure of meeting yet? 😉 Who knows?

      You’ll find happy and unhappy people everywhere… both homeless and with billionaires. But time is our most precious resource… You can build wealth and accumulate money and there will never be an end to that… you’re chasing after something that you’ll never catch. but the clock is always ticking and our precious time on this world is finite… Let’s do what we can to win back as much of that as possible!

      All the best!

      • Rat Race QuitterNo Gravatar December 26, 2014, 12:03 pm

        Not to be “that guy”, but be careful of any one who expresses a romantic interest in you AND is a reader of this blog. She might just be looking for a free ride for a few weeks.

        Or I could be totally wrong. Just sayin, you never know.

  • AndrewNo Gravatar December 18, 2014, 7:01 am

    “real wealth is measured by a person’s abundance of time, not by the size of their bank account!” Man so true…so true! I feel very time poor right now and hoping to follow your journey. It is a little tougher with a little one but Income Surfer says he’s only a few years away. It’s also tougher being in a high cost area but that’s my choice. Just read one of your older articles about out-of-state investing and that the returns aren’t really there anymore. Darn it…just when I was really looking into it. We’ll see…

    • FI FighterNo Gravatar December 23, 2014, 11:02 am

      Andrew,

      I believe out of state investing can still work… When it comes to turnkeys, that’s a bit tougher since the mark up really diminishes the returns… When I first started looking, for instance, you could very easily locate 10%+ cash on cash… These days, I’m seeing more turnkeys advertising at 6% or so… which makes for a much tougher sell, since you could just as easily invest in AT&T stock and earn 5%+ on a completely passive investment.

      The deals are still out there, but it will take more work, for sure.

      All the best!

  • markNo Gravatar December 18, 2014, 10:58 am

    Your right FI fighter.

    I may have to accept that for you $3,000/month is plenty to get by on. For me I know I need a little more meat on the bone. You started your journey after the ’08 crisis and got in close to the bottom (perhaps by accident) and have enjoyed the ride up. I think this type of fast rise to the top has led you to feel invincible. You haven’t had assets lost during the down turn (stocks,real estate, tenants get laid off unable to pay rent). What ever you decide just make sure you have a sufficient cushion. You have alluded to it in the past and I know you are smart enough to have a back up plan.

    S = P x R x E

    Success = Plan x Resources x Execution

    mark

    • FI FighterNo Gravatar December 23, 2014, 11:07 am

      Mark,

      $3,000/month might be the starting point (probably closer to $2,000/month), but it’s not written in stone that my passive income won’t increase through the years…

      With the properties, I’m investing in strong areas that should see rapid appreciation over the years… There’s nothing that says I can’t sell them later and re-invest the funds elsewhere to boost the cash flow.

      Also, I do plan on earning income after quitting my corporate career, so I should be able to keep saving/investing.

      By no means do I feel invincible… Rather, I feel fortunate that I got in at the right time. That still doesn’t change the fact that I feel burned out from my job and want to pursue something else with my life. Time is all that we really have… That’s what I’m really after.

      In regards to a backup plan, it remains the same: hoard cash and park a hefty portion in liquid assets.

      Cheers!

  • Mrs. BugNo Gravatar December 18, 2014, 11:20 am

    I absolutely love this post. Pretirement sounds like a happy balance. Mr. Bug and I have planned something similar in a few years. Our goal is to leave traditional work and move to contract work about 6 months out of each year. You are much further ahead than us, we are just starting our journey. I can’t wait to hear about your journey into financial independence and pretirement!

    • FI FighterNo Gravatar December 23, 2014, 11:10 am

      Mrs. Bug,

      That sounds like a wonderful compromise! If my employer offered me that option, I would probably jump on it in a heartbeat.

      But most companies won’t make that type of offer, which is fine, and just forces me to have to be more creative.

      Keep on saving; it will pay off in the long run!

      Cheers!

  • JamesNo Gravatar December 18, 2014, 8:43 pm

    I really love the pretirement strategy you’ve outlined, moving into a different (and more enjoyable) role while still earning income. I’ll probably roll with this strategy to jump into a field I’d enjoy more but doesn’t pay as well.

    Of course, my ultimate choice would be to perpetually learn at university, but I don’t see that happening.

  • No Nonsense LandlordNo Gravatar December 19, 2014, 6:05 am

    Being FI is the name of the game. And being able to chose your destiny is part of FI.

    While $2K might be enough to live on, it leaves you few choices. When you think about it, no one in the USA has to work, ever. Everyone is FI at age 18, there are plenty of social programs that you can take advantage of and never work a day in your life.

    The problem is, it is hard to exchange your Section 8 voucher to a month long vacation in Japan. Or hard to use your EBT card to buy a new car.

    Saving 100% of your salary is a great thing. My goal for 2015 is saving 200% of my GROSS pay from my salary. Not only all my job income, but living a decent life, and saving a ton. Then I know I am ready to leave the corporate world and have plenty of choices.

  • Dividend MantraNo Gravatar December 20, 2014, 8:27 am

    FI Fighter,

    ” Otherwise, I would have already checked out of the office and hopped aboard a plane with a one-way ticket to a tropical island somewhere in SE Asia…”

    It seems to me that you can already easily do that, if you really want to. But maybe you just don’t want to. And that’s okay. I think you’re letting the math get away from you, or take control of you. There are a ton of people, from what I can see, living a fantastic quality of life in SE Asia on much less income than you make passively RIGHT NOW.

    What’s stopping you, bud? Honestly?

    Best regards!

  • FI FighterNo Gravatar December 20, 2014, 5:09 pm

    DM,

    Thanks for stopping by!

    If my passive income was derived purely from dividend stocks, then yup, I would agree with you, and I think it would be totally doable…

    Since I’m relying heavily on leverage, it’s just not that simple, unfortunately. Vacancies, maintenance, etc. are unpredictable and you really just never know what’s going to happen to the economy… With rentals, you absolutely must have a large buffer in place, prior to checking out for good. I have debt, and lots of it…

    I’m just trying to do my best… And honestly, it’s not that easy to know when you are ready to start early FI. I know I’m getting close, but one minute I’ll talk to someone and they’ll say, you’re nowhere near. You need at least $1MM, and probably a few hundred thousand in the bank if you want to even consider attempting it… But then again, a lot of these people don’t subscribe to the whole early retirement extreme philosophies as well.

    I’m just trying to build up a buffer and reduce risks… Once I check out of high tech I can’t imagine ever going back. I would like to be pretty certain I won’t have to either.

    Cheers!

  • ArseneNo Gravatar December 21, 2014, 7:48 am

    Hi fifighter
    I was wondering if you own your own home or rent a place?
    Thanks for the awesome post.

  • NunoNo Gravatar December 22, 2014, 6:09 am

    Your posts are allways very nice to read.
    I believe you are now wondering if you have enough passive income, but maybe you should invets in DG stocks to balance your months in which the vacancies and maintenance occour.

    Anyway, it seems you have a good salary so you have plenty of choices right now.

    Just keep writing, I love to read your website.

  • A Frugal Family's JourneyNo Gravatar December 22, 2014, 9:32 pm

    Great article FI Fighter…pre-retirement seems like a great compromise to me. In fact, although I am at least 7 years behind you, I’ve already begun toying with the idea of pre-retirement as a compromise. Right now, the plan is to retire in 13 years but if I went the pre-retirement route, I may be about to retire in say 8-9 years and work part-time for the remain 4-5 years. At that point, my pension will kick in and its off to some tropical island for me (hopefully my wife wants to come along). 🙂

  • JasonNo Gravatar December 23, 2014, 12:14 pm

    I think this is a great post. I am a long way from pretirement because I have to finish paying off this mortgage first and then move forward. I am not sure about your educational background but a great way to make some extra income is teaching. In most places if you have a bachelor’s degree you can become a substitute teacher. You can make upwards of $100 a day for that stuff and you don’t need the teaching degree. If you have a master’s degree you could look into possibly adjuncting at your local college or university. I know that is what my extra income will be when I reach FI. Of course I am already doing that full-time, but I eventually want to move to part-time and i can make anywhere from 20-30,000 a year from teaching two to three classes a semester. Combine that with your passive income and you are golden AND teaching invigorates me! it is possible i will never truly retire because I love what i do!

    • FI FighterNo Gravatar December 23, 2014, 12:18 pm

      Jason,

      Love it! Teaching is definitely something I see in my future, and doing it part time at a community college is something I really hope I get a chance to do.

      I believe teachers can make a big difference in this world. I know for myself, a major crossroads was reached when I was in college, and I persevered through to a master’s degree, in part due to inspiration I received from a few outstanding professors.

      Looks like you already found the perfect job!

      All the best!

  • Rat Race QuitterNo Gravatar December 26, 2014, 11:55 am

    This was a good article. Health and time are infinitely more valuable than seeing those zeroes in my checking account.

    My brother owns rental real estate which he manages directly. To which I’d say “no thank you”! I’d so much rather pay a management company and shave off 10% of my rent and keep 100% of my time!

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