Here’s the intriguing question raised by “Work Optional” (Hachette, $17.99): Can you retire really early? Say by age 40, or extremely soon if you are older than that?
Tanja Hester, a communications consultant who quit working at age 38, says you can. Ms. Hester had a big head start, but her logic is sound, even if she makes it seem simpler than it is for most of us.
Retiring early and successfully requires two things, she argues: knowing what you will do with your life without a paying job, and a lot of money to live on.
Ms. Hester is terrific in explaining the first part; so-so on the second.
She says your extended retirement will be far more enjoyable if you have a specific plan, one that flows from a sense of purpose.
“Purpose just means you know why you are getting out of bed each morning or what you want your life to add up to ultimately,” she says.
But how are you going to be able to fund that purpose? That brings us to the flaws in the book.
My biggest objection is Ms. Hester makes the ability to retire early sound too easy, and one of the reasons it does is she repeatedly draws from her experience with the implicit message: “If I can do it, anyone can.”
But her situation is not representative.
She doesn’t provide specific numbers from her life — which feels like a cheat — but we learn a few important facts. She and her husband had each been earning more than $100,000 annually for several years when they retired; had bought a home in Lake Tahoe, Calif., at the bottom of the real estate market, giving them a substantial equity cushion; and had acquired a rental property as well. In addition, they have no children — kids are expensive (duh) and hinder your ability to save for an early retirement. And, oh, yes, while they were working, their investments were growing during the longest bull market in history, so last year’s decline probably didn’t hurt too much.
Not everyone thinking of retiring early will have those advantages.
Then there is her limited financial advice. Ms. Hester devotes only about a third of her 260 pages to the financing of an early retirement. And while she provides ideas — such as overachieve at work to save whatever raises you get before you quit — she doesn’t go into any great depth.
Two quick examples show the problem.
A novice, she says, might be “uncomfortable” investing heavily in stocks, so that person should consider an initial mix of 33 percent cash, 33 percent bonds and 34 percent stocks.
But that’s not an allocation conducive to retiring early. Based on historical rates of return, it has yielded less than 4 percent annually after inflation. That is not something Ms. Hester points out.
There are other omissions. Take the matter of how much money you can withdraw from your investments. Ms. Hester cites the well-known research that contends you should be able to take out 3 to 4 percent of your savings annually and probably not outlive your money.
But the key word there is probably.
The following example, which I’ve constructed, shows the gap between probably and definitely.
Say a 42-year-old woman wants to quit tomorrow. Her life expectancy, according to the Social Security Administration, is 40 years. If she has $1 million invested in a portfolio split evenly between stocks on the one hand and bonds and money market funds on the other, and plans to withdraw 4 percent annually — $40,000 — she has just an 83 percent chance her money will last long enough, according to Vanguard’s “retirement nest egg calculator,” which ran 100,000 possible projections of what markets might do, what’s known as a Monte Carlo simulation. That’s close to a one in five chance of running out of money.
To be fair, in talking about withdrawals, Ms. Hester does write: “At a minimum enter your numbers into an online Monte Carlo simulator” to see what the odds are of “you having enough saved.” But she does not play out any examples. Nor does she spend a lot of time on situations more complicated than the one I created.
Ms. Hester seemingly anticipated my carping when she wrote: “I wanted the conversation about early retirement to be about life, not just about money.”
Still, I wish she had focused more on the money.
What you have to do
Experienced investors know there are only two ways you can end up with more money.
■ Earn more — by doing things like increasing your work income, getting higher yields on your investments or finding additional revenue from things like rental properties or royalties.
■ Spend less.
While I wish Ms. Hester had given much more specific financial advice, simply getting you to think about how you might retire early forces you to ponder how you could cut current spending and increase your income, savings and the rates they earn. That’s good.
But when you do, you may find you have a long way to go before you can chuck it all.