Tuesday, September 09, 2014

Retire Retirement, Build a Buffer

I found 'On the Road' by Jack Kerouac a tough read. While there were beautiful passages, it was tormenting. Sal, the main character, was living hand to mouth. Constantly searching for and then finding brief interludes of ... well, whatever happened. His best friend is a whirlwind. He seems close and gives the impression of caring but his presence is uncertain and his impact intoxicating.

It made me think of the value of a 'margin of safety'. I spoke yesterday of my concern with a focus on starting early to build a nest egg that will allow you to retire. The concept of retirement is for me an Industrial Revolution one. We had to roll our sleeves up and build a world that was safe and had enough food. At some point your back starts to hurt and you pass the shovel to the young guns. As we move to more creative, cerebral activities, you still have a lot left to do and give as you get wiser. Ideally you never 'retire', you just slowly do more of the stuff that makes you Flow. What you do need is a buffer. You can't spend your life living hand to mouth. As Jeffrey Cufaude (@jcufaude) put it in a reply to 'Wrinkles and Grey Hair Rock', ' Living beneath my means and always saving something...'.

The goal changes a little if you 'retire retirement'. If you can consistently earn 5% real annual return on your investments and plan on living forever, you need 20X your salary to retire, do nothing that earns you money, and still get 'paid'. Most people don't live forever, so the figure comes down to a suggested 12-14X. The figure gets lower the more you pretend you will earn a lot more than others and the more risk you are willing to take of outliving your money. Getting to 12-14X is a long way away. But if you aren't aiming for this magical 'Nest Egg', but are instead aiming for a 'Margin of Safety' or a Buffer, the figure is lower. Maybe you only need 5X salary to give it a go. To take a chance and try shift from the job that you are doing to something that allows you to have Flow and work without dreaming of retirement. Maybe you love your job, but just want to add some firepower - Buffer. Maybe you just want a year off every 7 years as Stefan Sagmeister suggests - Buffer. Nothing but rich generous parents, the lottery, or some luck removes the need for the hard work to build the buffer, but it is a much more realistic and achievable goal.

And if you want to hit the road like Sal - a buffer will let you do that too.

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