My Downshifting Process

I’m alarmed to realize I’ve joined the FIRE movement. That’s “Financial Independence, Retired Early.” FIRE is an Internet community of people plotting how to escape the Rat Race while they’re still young. It had a real moment during the Pandemic, and my impression is there’s a lot of overlap with the CrossFit people.

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I’m not actually racing to retire; instead, I’m racing to get to the retirement job/Walmart greeter phase of my career faster. I don’t want to stay in my current job or industry until retirement. What’s necessary for me to securely accept a much lower paying gig that fits my passion?

Why?

I find myself financially stuck in my job. It’s not enough money to be “golden handcuffs,” but it’s that idea. I want an interesting career, which probably earns less than I do now. I want to work where I see impact, not where the market sees it. I want the financial security of consuming less than I’m able to earn. I’m insecure about whether these professional good times will last even if I want them to. And I want proximity to people who earn less.

I want to downshift my family’s lifestyle and what is required to sustain it. But I don’t want that to impact my children’s future potential. This entry is about my personal plan for how to downshift.

This is my plan and not necessarily relevant to others. So why write about it? One, to test out my own thought process. I’ve been planning with numbers for months; it’s time to summarize the qualitative conclusions in words. Two, because others may feel the same.

My dream is about building a community for affordable thriving of families. That vision requires a mix of people. It requires proximity between different types of people, with a range of earnings potentials. I envision a mix of young parents, do-gooders, burnouts, and retirees. People who are there to earn money and others who are there for the experience. To attract and empower those who might come for the experience, they will need help downshifting.

Why now?

We’re at a relatively easy place to plan. My wife and I are married, done making babies, and recently bought a house so housing costs are predetermined. That means my future financial obligations are mostly known, God willing: save for college costs, pay off the house, and save for retirement.

Also, I have it relatively easy to do a transition, partially by my design and partially by blessing (ie, God’s design). Right now, my wife and my joint income exceeds our spending, but I’ve been hanging onto a job I don’t love by my fingernails. Several times, I’ve begun job searching but have not found a job I like substantially more that pays even 75% of my current salary.

A clear exit plan has dramatically helped my motivation and contentment at work. It’s allowed my job to become “just a job” and enjoy it more.

What are my goals?

I decided that, before taking a riskier and lower paying career turn, my goals are to:

• Save 85% of a modest retirement starting at age 67.
• Save enough to fund most of in-state college tuition for our kids.

Retirement at any age involves plenty of risks and tradeoffs but ultimately boils down to one number. A stopping rule. How much money do I need before I quit? (Saving for kids’ college also involves a decision of how much to give them. But it’s lower stakes since the financial risks are the kids’, not mine.)

Once determined, savings goals for retirement, college, or anything else become fixed costs. In contrast, ordinary month-to-month expenses are variable. If we moved our family to Vietnam or a tiny-home park in Arkansas, our month-to-month expenses would fall, but our retirement cutoff would still be fixed. In a nutshell, my goal is to pay my expected lifetime fixed costs before shifting to the lifestyle I aspire to, which is likely lower cost and lower earnings.

How does it work?

Spend less than you earn. For long enough to build a nest egg.

If you’re saving now but hate your job, keep it for a while longer. If you’re not saving, either raise your income or drop your spending. Do all 3. Find a way to generate savings long enough to pay the “fixed” lifetime costs you anticipate.

After you’ve reached your savings goals, hedging strategies are helpful. The world is a wild, risky place, and so is the stock market. You don’t want to use up the money you saved before retirement.

• Plan to continue saving some after downshifting to give yourself a cushion for bad luck or miscalculation.
• Pick a secure downshifting career. Security can come from the type of work or from having multiple streams of income.
• Insure against more risks. Maximizing your earnings is a form of self-insurance that you have given up, so start now being more cautious…like a retiree might do.
• Uncertainty comes from both earnings and spending. What happens if a child gets sick, or you get divorced or widowed? Plan thoroughly.
• Try to maintain capacity to pop up to a higher earnings level if necessary. Careers have momentum, so returning to 100% of your past high pay may be impossible, but don’t give up that capacity entirely.

Retirement saving is about math.

It’s about how money grows over time. To have $1M in cash at age 65, on average you only need to invest about $175k by age 35.

That is, assuming average 6% interest over 30 years, an investment grows to 5.74 times its original size, which is the result of 1.06^30.

What interest rate should I count on? Stocks have historically returned 7% above inflation (real returns). It’s smart to count on slightly less than that. So I’m mostly using 6%.

People at the age of retirement should generally make very conservative, risk-averse assumptions, but I am 30 years away and have chosen a retirement savings goal with some wiggle room. If the first 10 years of investment returns are poor, I can go focus on raising income again.

Next, how much is a modest retirement? For ourselves, I settled on the number $1.5 million in 2023 dollars. I came to that number through four methods:

• Deciding a monthly retirement budget and calculating the net present value of that as a 30-year annuity. God help me if I live past 97, for reasons larger than just money.
• Following a rule-of-thumb from Reddit that savings should be 12x one’s annual budget.
• Reading a series of article from WSJ profiling the lifestyles of retirees with different quantities saved when they retired.
• Talking to a financial advisor.

Retirement saving is also like catching a train that is already leaving the station. If you wait until 40, you’d need $233k under the same assumptions. By 45, you’d need $312k. That retirement savings goal is a path, not a single point. You have to intersect with the path, so you can hop on the train, and it carries you to your destination.

“Catching the Train”

A few factoids for me from this thought process, using $1M as a modest retirement:

• Most fundamentally, one should front-load their retirement saving. Steady saving throughout one’s career might be easier, but it’s more expensive.
• Making trust fund babies is surprisingly affordable (though maybe not desirable). $20,000 grows to about $1M after 67 years.
• Kids can save almost as fast as working adults! A teenager could save a quarter of their retirement by investing all their earnings from an after-school job. Saving $4000 when you’re 16 (a feasible stretch goal) is equivalent to saving $13,000 when you’re 36 – also not easy.
• Save $100/week for 145 weeks of high school.
• 49 years for the money to grow (i.e., 67 minus 18)
• $14,500 * 1.06^49 = $252,000
• State university tuition is roughly the same as a fully funded retirement.
• Unemployment, especially in earlier career, can be disastrous for retirement savings.
• If you can, one’s 50s and 60s are opportune for doing lower-paying values-driven work that barely for your lifestyle. Money saved at 55 will only double by retirement, compared to the larger multiples seen in earlier decades.

None of this talk about saving early should obscure that early life experiences (e.g., school) also raise our income potential. College is normally a good deal, financially. And early adventures can influence us positively for many years to come. But count the cost of unhelpful behaviors, especially when young.

What would Jesus do?

I see saving for retirement as responsibly preparing for a difficult time that is likely to come as we get old. It’s not a plan to maximize fun for our final years. See the contrast in these two Bible verses about saving, as responsibility and as foolishness.

“Go to the ant, you sluggard; consider its ways and be wise! […] It stores its provisions in summer and gathers its food at harvest.” Proverbs 6:6-8

“Do not store up for yourselves treasures on earth […]. But store up for yourselves treasures in heaven, where moths and vermin do not destroy, and where thieves do not break in and steal. For where your treasure is, there your heart will be also.” Matthew 6:19-21

I worry that this plan of mine is the opposite of what Jesus instructed.

“Do not worry about your life, what you will eat or drink; or about your body, what you will wear. Is not life more than food, and the body more than clothes? Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they? Can any one of you by worrying add a single hour to your life?”

It’s true that I see this plan as an antidote to worry. I want to trust Jesus by doing work to which I feel called, but it feels irresponsible. I have a wife and children. I’ve tested those limits and found myself unable to give up my job without the security of savings. Perhaps I’m attempting a half-measure, which God generally scorns?

That said, it’s important to recognize that this is a plan to decrease, not increase, my financial security. We’re attempting to give up a relatively small amount of security in return for a large improvement in freedom to act.

Where’s the economics?

I frame my approach to this problem in a two-period utility maximization model from economics.

Imagine you live for two periods, your career and retirement. In the first period (“career”), you can earn money which you either spend or save. In the second period (“retirement”), there are no choices: you simply spend your savings plus interest.

Only two decisions are made, both during your career:

• what work to do and
• how to split spending between career and retirement.

You want to be as happy as possible in both periods. That’s it. That’s the whole model.

In the present, during my career, happiness is a complex outcome with lots of factors that can be manipulated. It will still be that way in the future during retirement, but I don’t know what those factors are yet. For now, my estimate of happiness in retirement is simply how much money we have saved. So really the goal is to find the best combination of (a) retirement savings and (b) happiness today. Nothing revolutionary.