Tuesday, April 25, 2017

Victory Lap Retirement

Mike Drak and Jonathan Chevreau argue that the traditional approach to retirement where you work full-time until some magic day where you fully stop working makes no sense. In their book Victory Lap Retirement, they say we should add another phase of life between full-time work and full-stop retirement where you work part-time doing something you find spiritually satisfying. Another strong theme of the book is trying to persuade readers to quit the job they’ve grown to hate.

Mixed in with the notion of a victory lap of part-time work is the idea of financial independence. It obviously takes some resources to be able to afford to quit full-time work. The authors suggest entering a victory lap after achieving financial independence, but their definition of this term differs from mine: “the point where your basic (non-discretionary) living expenses are covered by your passive (non-work) income.”

As a young adult, I lived very frugally. I know my wife and I could get by if we spent about half of what we spend now. That would be enough to cover our basic needs. But I don’t want to live that way. And I certainly didn’t consider myself financially independent when I had enough money to cover just basic needs for the rest of my life.

The working definition of financial independence that I use is having enough money to cover my current expenses (rising with inflation) until the end of a long life. This is quite different from only being able to cover basic expenses.

It seems far too easy for people who hate their jobs to use this definition of financial independence to justify quitting their jobs and entering their victory lap. Unfortunately, if they jump ship too early, this may be a victory lap spent scrambling to earn enough money to make life tolerable.

The authors encourage the reader to “Reduce your material needs and adopt a more frugal lifestyle.” This is great advice. However, don’t make the mistake of planning to be more frugal after you quit your job. The time to be frugal is during the entire time you’re working full-time. That way you’ll build more savings and make part-time work more realistic sooner. Failing that, at least live frugally for a few months before quitting your job to prove that you and your family can live on less.

In my opinion, the best part of the book is a short section called “The Trap.” It explains how you can start in an exciting job paying more than you need initially, and end up trapped in a job you grow to hate but can’t quit because you’ve become too dependent on a fat income. I’ve tried to explain this to young people to encourage them to save more money, but I’ve had little success. The authors do a much better job explaining this problem than I ever did.

The authors discuss many advantages of working longer including the claim that “Numerous studies have shown that mortality rates improve with an older retirement age.” However, every study of this type I’ve looked at has only shown correlation, not causation. It seems likely to me that sick people tend to retire younger or get laid off younger. That could be the entire explanation for why those who retire younger have poorer health outcomes. There may be no health advantage at all to working longer.

The authors offer seven “eternal truths” of financial independence. Six of these seven make a lot of sense. But “buy a home and pay it off as soon as possible” can end badly in Canadian real estate today. Prices in Vancouver and Toronto are sky-high and banks are willing to lend people more than 5 times their gross income. I’m not against home ownership, but the price has to be reasonable. Overstretching can leave you buried in debt for decades, and possibly lead to bankruptcy. If a home is too expensive, you are likely far better off renting a nice place and building long-term savings.

The authors write that once you own your home free and clear, “For the rest of your days, you’ll be able to live rent-free.” This is misleading. Homeowners pay for property taxes, upkeep, house insurance, and utilities. These can easily add up to nearly the cost of renting a house. Toss in the opportunity cost on the capital tied up in the house and renting can be a huge financial victory.

To be clear, I’m not against owning a home. I own a home. I do this because the extra cost is worth it to me, not because I’ve deluded myself that owning a home today is better financially than renting. There is no reason to believe that the huge real estate gains that baby boomers enjoyed over their lives will get replayed for millennials.

As further evidence that people should consider leaving the job they hate, the authors quote palliative care nurse Bronnie Ware, who explains that people on their deathbeds don’t wish they’d earned more money during their lives. However, I’ve had some relatives who have run out of money and wished they had more. It’s a terrible thing to outlive your money.

Before reading the book, I had assumed that both authors had reached financial independence (in the stronger sense of covering current spending levels indefinitely) before they left full-time work. However, Chevreau had “enough money in the bank to take an extended sabbatical ... and he was (and is) blessed by a wife who continued to work full-time. Mike’s situation was similar.”

I don’t want to be too critical here; this book contains a lot of useful information about how to have a happy retirement. But it also contains a strong element of “we did it and you can too.” It must be nice to be able to quit your job and follow your dreams while your spouse works. I’m not sure this qualifies the authors to encourage sole breadwinners to quit full-time work and trust that everything will turn out okay.

I think the notion of a victory lap has some merit, but make sure you’ll really be okay if your part-time income proves to be very modest. Not everyone does the type of work that lends itself to taking on a few clients part-time, and not everyone has a spouse continuing to work full-time. I think this book is worth a read, but be careful not to let your dream of a victory lap turn into a financial nightmare.


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    1. I attempted to read this book several weeks ago. Couldn't get through it...Your review is much too kind.

    2. @Garth: It seems like two different short books mashed together. There were definitely some good parts, but I agree that I only finished reading it because I feel that if I review a book, I should read the whole thing. It's too bad that so many other "reviewers" don't feel the same way.