Sometimes in life it doesn't matter how much they pay - you just would rather do something else Picture: Pexels
in this article, I’m going to tell you about a gentleman who, until very recently was the vice president of a pharmaceutical giant.
He earned a big six-figure salary, was awarded thousands and thousands worth of company shares each year and travelled first class everywhere.
He gave it all up, and now drives a bus three days a week.
And he’s never been happier.
What he did after his VP role is nearly a by the way. He could have chosen to work in a drive thru, wash cars or do nothing.
He decided to drive a school bus for kids who had disabilities. And perhaps he won’t do this forever but nevertheless, it’s what he ended up doing.
His decision to give it all up began last year over a coffee with a friend of his, who had exited the corporate world a couple of years earlier. He confided to him how he’d like to reduce the pace he worked at. But he obviously wanted to know from a financial perspective if it was possible?
He was only 59 and walking away from 6 more years of income and shares and bonuses would be a huge amount, and would, turning his back on all of that, be mad?
He didn’t know, but his friend suggested we speak, so he made contact and we began that process of looking at what life would be like from a financial perspective, if he stayed the course with his current employer for another six years, or, if he got off the treadmill mill now.
Our starting point was figuring out how much he needed to spend each month to maintain the lifestyle he and his family wanted. He wasn’t quite sure, but we carried out a very simple exercise which identified his monthly number.
So, knowing what he was up against, we could easily see if the resources he had at his disposal were enough or not.
And the first resource, was his defined benefit pension.
He was lucky because his employers scheme allowed for him to take benefits early. The problem was, if he did, the annual payment would be discounted by a factor of 20%. And that was a big number to leave behind.
The difference between what he’d get now and what he’d receive if he left at 65 was about €22,000 a year.
And there was also a difference in a tax-free lump sum he could get from his pension, and that number was about €104,000.
So, activating his pension was an option, and even with that discount, the amount paid would have been enough for him, but it was an option we didn’t want to activate, unless we absolutely had to.
Next, we’d looked at his savings, which included everything he had including the amount he held in company shares.
We knew he needed €4,000 per month to live off, and if he didn’t activate his pension until 65 and he never worked again, he’d need a fund of €288,000.
If he had this amount, three things would happen
1) He could retire and never work again if he didn’t want to,
2) He wasn’t interfering with his Defined Benefit pension and could preserve the higher amount with no discounts applying, and take it when he was 65, and,
3) The savings he was using now would be replaced somewhat from the tax-free cash he was receiving from his pension, and we know it would be €104,000 higher if he left his pension untouched until age 65.
And the good news was that he had the amount available.
He was delighted with this news and it gave him huge comfort knowing that exiting his current role was an option.
And it was an option he exercised last year.
He started driving a bus four months after his exit from the pharma company, not because he had to or because he was bored, he had plenty to occupy his day. It was just something he did for a few hours every day. It didn’t get in the way of anything else he wanted to do, and he enjoyed driving kids with disabilities to school anyway.
Since making that change, he hasn’t suffered any identity crisis, that might happen to some after giving up their work title. Whilst, Senior Vice President sounded great, it didn’t define him, and when he meets people and they ask him what he does for a living, he’s very proud to say, that at the moment he’s a bus driver.
And he told me, not a day goes by, that he and his wife are not thankful and grateful that he retired early. He said, there’s always money to be made, but there’s only so much you can or should spend, but there’s never a another second to have experiences and enjoy life.
I’m sure there are a lot of people who would love to be as confident and fearless as my bus driver friend, and long for that lifestyle of, what will I do with my time today, free of financial worries.
But I think they are fearful of making that move for a few reasons.
- They don’t have a handle on their finances, whether they are good or bad. They don’t have a clear understanding of how much they need to spend each month, whether the resources they have are enough, and how long they will last for.
- Because of this unknown, the fear of losing regular income creates a paralysis to do nothing, because they think if they do nothing, they can’t make a mistake.
- Their partner isn’t on board. They are equally worried about the loss of income and possibly the loss to a lifestyle they enjoy.
- They are worried that even if they have enough money, it could be reduced significantly if there was a market downturn.
-They might be at that age where they are at the peak of their earning power, and why leave that behind. Over five or six or seven years, the amount they could earn in that time period could run into the hundreds of thousands and even if they don’t need it, it’s money they could give or pass on to their kids.
They could have many other concerns which prevent them from moving forward, but all of these issues are valid and valid to them, but rather than doing nothing, they should at least explore their options and get answers to all of those questions they may have.
My bus driver friend was lucky, lucky that over the years the money he was setting aside unbeknown to him, was going to be enough to cover him if he chose to retire at 59.
If you want to take luck out of the equation you need to crunch the numbers and you need to factor in all of those other non-financial factors into your decision-making process as well.
And the key to retiring early I think, is the gap between your ego and your income.
The less income you need and not minding where that income comes from, combined with savings that have built up over the years is key to reducing the pace you work at. And the next time you see a bus driver, you could be looking at a person who hasn’t always driven a bus. Perhaps they had a very senior role in a past life working in a different sector but now they’re driving a bus not because they have to, but because they choose to.
Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at email@example.com or www.harmonics.ie
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