Many recent retirees (and soon-to-be retirees) are wondering if maybe this isn't the best time to retire after all. Call me crazy, but I think retiring in a bad economy is actually easier than retiring during boom times.
Imagine your New Year's resolution is to shed a few pounds. You decide you're going to carefully watch what you eat and incorporate extreme exercise into your daily routine.
Now, imagine that all your friends are too skinny. Their doctors have told them to gain weight, so they have to eat as much as possible. They refuse your invitations to go for a hike or a bike ride, and instead ask if you would like to join them for ice cream sundaes. Are you really going to want to go out to dinner with these people? Wouldn't it be better of ALL your friends were on a diet, too?
About a year ago, when I had just been retired for a few weeks, my husband and I attended a charity dinner. I was telling my dining companions about a friend we have who recently sold his company for millions of dollars. I was explaining how much I admired his attitude about money.
Although he had come into significant wealth, he didn't embark on a life of conspicuous consumption. When he took up biking, he bought a used bike. In stark contrast to the BMW's and Mercedes dominating the parking lot at this event, he drove a Prius. Rather than spend money on the accumulation of possessions, he preferred using his money for shared experiences with friends and family.
"Sounds like white guilt to me," one of our dining companions said.
Another followed that sentiment, "I like driving a BMW and spending excessive quantities of money on stuff." Everybody laughed.
I was dining with people that were not on the same diet I was on.
Fast forward to January 2009. Everyone I know talks about saving money, spending less, and the deal they just got on whatever it was that convinced them to part with their hard-earned cash. It's hip to be frugal now; everyone is doing it.
Some of my friends have lost their jobs, others fear losing them. One found a new job, but for significantly less pay. A retired friend is considering re-entering the workforce, and another whose job is very secure is contemplating some budgetary cuts due to the hit he's taken on his investments. Everyone I know is feeling the pinch. It's not just my friends, it's the national conversation right now.
Say we had retired in the dot-com heyday. It would have been much harder to keep control of our pocketbook. A booming economy and stock market would have lulled us into thinking we also had money to burn. If we were joining our friends at lavish restaurants and drinking expensive wines, we would have busted our retirement budget at the seams.
The reality is, in order to retire, most of us have to be on a strict fiscal diet. It's just much easier to cut calories when everyone around you is on a diet too.
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What a fun outlook on the right time to retire. So many "about to retirees" are no doubt bemoaning the collapse of their assets - I hope they get to read this and take a little different look at their situation. I've always known that it is much easier to be poor when your friends and neighbors are poor - when everyone is practicing thrift and frugality, it's far easier to live within your means. Yes, we are now all on the same "diet" (except Bernie Madoff).
Thanks for a very entertaining post.
Posted by: Laurie Brown | January 08, 2009 at 08:22 AM
Indeed. Peer pressure to spend should not be underestimated. Still, a recession often results in one's savings and investments getting truncated.
Posted by: P | January 08, 2009 at 04:30 PM
@Laurie: I suspect Bernie Madoff will be on the prison diet pretty soon!
@P: Hopefully the market will right itself in the next few years before I have to turn those truncated-on-paper losses to REAL losses!
Posted by: Retired Syd | January 08, 2009 at 06:22 PM
I remember the dotcom heydey, and frankly, in many ways, I prefer a recession, or at least calmer times. The traffic is better, it's easier to find tables at restaurants or cheap plane tickets at the last minute. But more importantly, the conversation has shifted away from real estate speculation and hypothetical stock option portfolios. I hope frugal stays the new black for a few years.
Posted by: ElizabethG | January 08, 2009 at 08:28 PM
@ElizabethG: I know what you mean about the traffic--I used to be able to accurately judge the state of the economy simply based on my commute time, and much preferred recessionary traffic.
Love that" frugal is the new black" comment!
Posted by: Retired Syd | January 08, 2009 at 08:49 PM
Yep, frugal is definitely the new black. Dealing with a recession is always easier if you have a rainy day fund already in place and no debt. I agree with your wealthy friend's attitude about money and asset allocation vis a vie things that depreciate like cars.
Posted by: LTF | January 19, 2009 at 02:47 PM
Have to agree with the second hand bike buying prius driver. Possessions come and go (and usually decrease in value), but experiences with your family and friends make lasting memories and stronger relationships.
Posted by: Self Managed Super Fund | February 09, 2009 at 06:04 PM
I had a plan when I was younger: live in a smaller house so I could afford a house cleaner... but these days, I think cleaning the house on my own is a great way to save money and burn calories. Although, of course, it isn't my most favourite way to spend time.
About the Prius, I finally tried one out during a recent trip to San Diego -- totally cool drive, plus only 1 gallon of gas was used during the whole trip of 3 days filled with driving : ). Gotta love it!
Great post as always!
Posted by: Jules @ Lovely Las Vegas | March 12, 2009 at 09:13 PM
I was very surprised by the Prius. The interior is much bigger than it looks like it would be from the outside and the car is so QUIET. You almost can't tell it's on. I always thought they were funny looking cars, but even the look is growing on me.
Posted by: Retired Syd | March 15, 2009 at 12:08 PM