How "work optional" can fit into your findependence plan

Photo by Clarisse Meyer from Unsplash

I first came across the phrase “work optional” when it was uttered by financial planner Doug Dahmer, founder of Burlington, Ont.-based Retirement Navigator. “Work optional” often came up when we were discussing my own plans for semi-retirement or articles on the subject, and it struck me as a very useful phrase.

So when a publicist for Hachette Books asked if I’d like to receive a review copy of a new book titled Work Optional, I naturally said yes and quickly read it upon its arrival. It bears the subtitle Retire Early the Non-Penny-Pinching Way. The author is an American woman, Tanja Hester, who “retired” early at age 38, along with her husband Mark, who was then 41.

I put the word “retired” in quotes because, as is usually the case with advocates for the so-called FIRE movement (Financial Independence, Retire Early), Hester didn’t actually retire to do nothing. Generally, I find that when FIRE proponents say they “retired” at 30 or 40, what they really mean is they quit working as a salaried employee for a corporation, to launch what amounts to an encore career built upon self-employment. Often, their new work consists of blogging, writing books and public speaking, with the content—as in Hester’s case—focussed on their own experience of how they were able to retire so early in life.

Dahmer was talking about “work optional” at least five years before the book’s publication in January 2019, and I wanted to circle back to ask him what the phrase means to him. I found his reply intriguing: “It’s working because you want to, not because you have to, which is where you are now. It relates to those who purposely choose to continue to work, despite already having achieved a financially feasible retirement.” A good, well-planned retirement is designed to ensure that the vast majority of our time and energy is focused on achieving outcomes that are most important to us—and not having to do the bidding of others.

“By definition, for work to be truly optional, it has to be done exclusively on your terms,” Dahmer says:
1. You do only the things you love;
2. You only do those things when you want to do them;
3. You only do it for the people you love doing it for;
4. At the end of the day, the money is not needed: it’s simply an added bonus.

In practice, then, achieving the status of “work optional” is almost exclusively limited to those who are self-employed. The self-employed are not accountable to the bidding of bosses or shareholders, can choose to limit their customers only to those with whom they love to work, and they can choose to either outsource or delegate to others the aspects of the job they don’t enjoy. They can pick and choose their own schedules.

I note the irony that I am doing the final edit for this column on Family Day, and that my wife Ruth is also working a few hours as she transitions from full-time employment to Semi-Retirement. Dahmer says our approach fully qualifies as Work Optional: “The incremental income associated with these work-related activities can be used to spoil yourselves whenever you want. If it continues over the long term it is as if you have added an incremental pension income to your cash flow.”

With this definition in mind, you now know why I incorporated the phrase “work because you want to, not because you have to” in my 2008 financial novel, Findependence Day.

To return to the new book, Work Optional is organized in three sections, with the biggest being the middle one about the financial mechanics of early retirement. The money part is no revelation. As Hester summarizes, it’s about spending less than you earn, investing the difference until it generates enough money to support your forever, then waving goodbye to mandatory work.

I often see FIRE enthusiasts espouse saving as much of their income as 50%, quite a bit more than the 10 to 20% we mere mortals can muster. Saving half your income requires intensive motivation, a willingness to practice super-frugality and a laser focus on the end goal of freedom in the future. But you still have to accumulate a big nest egg. How much? In one chart on page 140, Hester provides three Full Early Retirement scenarios with ballpark magic numbers ranging from US$1 million (to fund an annual spending goal of US$40,000), US$1.62 million (to fund US$50,000 a year), and US$2.7 million (to fund US75,000 a year).

Hester covers four basic approaches to accumulating such amounts: drawdown investing (i.e. stocks and bonds); dividend investing; rental real estate investing and passive business income generation.

One thing I liked is Hester talks about gradations of Retirement. There’s traditional and full early retirement, career intermission and Semi-retirement. Obviously, in semi-retirement, you can still work a bit for money, which is where Work Optional comes into it. But, Hester writes, “we are still planning to act fully retired one of these days and like knowing that any work we do now is entirely optional and our financial plan doesn’t rely on earning another penny.” I view that sentence as the gist of the whole book.

Full early retirement—“in which you never need to work again [for money]”—means if you are an investor that you will need to save between 25 and 35 times your annual expenses by the time you leave active employment. She includes a formula: The full early retirement magic number equals annual spending x 30 + 10% contingency. Then there is the safe annual withdrawal rate, which ranges between 3% and 4% per annum.

Hester includes a chart on recommended savings by age, attributed to Fidelity Investments. You save 1 times your salary at age 30, which rises to 2 times by 35, 3 at 40, 4 at 45, 6 at 50, 7 at 55, 8 at 60 and 10 times at age 67.

Apart from money, she spends a fair bit of space on what FIRE proponents are going to do with all that leisure time they covet. As they say, you can’t just retire from something, you have to retire to something. “I thought for years that the whole point of retiring early was to escape from work,” Hester writes, “but having lived it, I now realize that the real point is earning for yourself the all-encompassing sense of freedom that a work-optional life brings with it.”

Hester and her husband decided they would be retiring to a life of adventure, service and creativity. Your own goals may be different, but you can glean a few ideas from Edmonton-based author Ernie Zelinski, who penned a self-published international bestseller called How to Retire, Happy, Wild and Free. Zelinski semi-retired at 30 after being fired from an engineering job and has gone back to the retirement well with a new book called The Joy of Being Retired: 365 Reasons Why Retirement Rocks—and Work Sucks! (Visions International Publishing, 2019). Unfortunately, it’s quite repetitive, although padded with amusing cartoons. Zelinski’s book amounts to a recap of what drives the FIRE movement: freedom from bosses, meetings and commuting, with blessed time and freedom to do whatever you want.

Still, people like Hester, and presumably readers of this column, hardly need more reminders of the blessings of retirement or semi-retirement, or more motivation for it. Who doesn’t want freedom?

The vision of retirement propounded by the Hesters and Zelinskis of the world sounds wonderful but, unfortunately, not everyone is quite so well-prepared to withdraw from the working world. Another recently published American book called Downhill from Here describes the plight of many low-income people live paycheque to paycheque. Sadly for them, work is hardly optional, even after they have reached the traditional retirement age.

Even those who thought they would receive corporate pensions have been shocked to learn that many large corporate employers (like United Airlines, and even municipalities in places like Detroit) have reneged or partly defaulted on the pension promise. For those who spent their working lives in marginal jobs, the fate described by author Katherine Newman is one of continuing to work at marginal jobs well into their 60s and 70s, especially if they are divorced or widowed along the way. That’s why the book, published by Henry Holt & Co., in January, is subtitled Retirement Insecurity in the Age of Inequality.

I fear there is a similar two-tiered retirement system here in Canada. On the one hand are early retirees who can get off the treadmill by 55, courtesy of inflation-indexed Defined Benefit pension plans provided to government workers, politicians and a minority of private-sector employees, often backed by labor unions; on the other hand are the rest of us, who cannot. Struggle as we may against the vagaries of the stock market and low returns on fixed-income investments, we’re fortunate indeed if we enjoy our work and can keep doing it, if only part-time, into our late 60s and 70s. So much the better if the work we do undertake is optional.

Jonathan Chevreau is founder of the Financial Independence Hub, author of Findependence Day and co-author of Victory Lap Retirement. He can be reached at [email protected]

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About Jonathan Chevreau

As MoneySense’s Investing-Editor-at-Large, he is also author of Findependence Day and co-author of Victory Lap Retirement. Reach him at [email protected], where he is the founder of Financial Independence Hub.