Under 50 OMY syndrome velocity of income growth

[Luck_Club]

A recent thread about high earnings causing people to stay OMY, with 30X and 70X income had me puzzled. After 20X your income or spending your investments throw off a return that essentially replaces what you need to live on, throw in SS or some pension money and why go on?

Does velocity of income growth weigh more heavily on the decision to stay, especially at younger ages? If I'm still realizing 10%+ income jumps year over year does that cause you to stay on the job longer, then if I've reached $500K or a million per year, but have 30X+ my spending or income stashed away?

There are many reasons to stay in the working world besides money. But when you want to leave and you are staying for the money with huge multiples, don't you hit a point of diminishing returns? In other words if my investments are throwing off 3X my net salary why am I wasting my time anymore?

So would you stay OMY if your income was still growing at a high rate, even if you had all that you need, when under 50?

 

[ChiliPepr]

Would I? Probably not.

But everyone has different levels of risk tolerance. Personally, I am very risk adverse and making a jump to retirement from a well paying job is very nerve racking. The issue for me is that I cannot easily get the job back if something goes wrong. I would rather be on my deathbed saying I could have retired earlier than years before living only on Social Security.

 

[Mdlerth]

Kicking the field goal when already up by 6 TDs

Above some threshold where additional money isn't buying more luxury or more insurance or more power, it still offers the ability to keep score.

 

[Onward]

People's situations are so different. For some people, their w*rk life, however stressful, is the most rewarding life they will ever have. This could be due to their satisfaction at w*rk, their love of making money, or simply to the impending emptiness of retirement.

Others can't get out of the w*rking world fast enough. That was me, after I hit my late 30's.

 

[someguy]

Above some threshold where additional money isn't buying more luxury or more insurance or more power, it still offers the ability to keep score.

Additional money always buys more luxury or more insurance or more power. It may be for luxuries or insurance or power that a given person doesn't know about or can't even imagine or simply doesn't care about. I bet there are people in the world for whom clean running water or a flushing toilet are literally unheard of. Everything is relative.

 

[growing_older]

Part of my decision to OMY, that has now stretched to several more years, is that making the choice to FIRE locks in a current lifestyle. With a good income and a high savings rate, I can either increase my safety factor in assuring I will never have to lower that lifestyle, or allow the future possibility of increasing that lifestyle, or both. Even if I cannot currently specify what additional spending I might want to have, I'm sure with a little time and imagination I will come up with ideas. As long as I'm enjoying my working (which I do most days) I'm fine with postponing ER, for a while anyway. Also, work can be a lot easier to take when I know that I could ER anyday I want. Petty stuff is a lot less bothersome.

I don't know where that level exists that added savings isn't increasing luxury or safety. It must be a LOT more than I have. I have no desire to keep score and generally try to understate or disguise my current score. People who want to keep score have a different mindset that I don't share.

 

[MooreBonds]

Would I? Probably not.

But everyone has different levels of risk tolerance. Personally, I am very risk adverse and making a jump to retirement from a well paying job is very nerve racking. The issue for me is that I cannot easily get the job back if something goes wrong. I would rather be on my deathbed saying I could have retired earlier than years before living only on Social Security.

From nothing more than an educated guess, I think many on this forum fit into the above. On average, most of us will live to about 80-85, based on statistics and longevity. We know that our portfolios will likely make it...but if faced a choice of

A) Still retiring early, yet working just another few years to really build a fortress portfolio (while still knowing how to enjoy life in the meantime) and having solid peace of mind for the rest of their lives.

B) Foregoing the 'insurance' of a larger portfolio and just hoping that things work out well with their portfolio, AND they don't have any whammy expenses, AND they don't live to 95+ and have to live off of a meager portfolio and SS.

Many will pick A. It's likely no coincidence that many will also perform an educated guess on various other insurances they have, such as homeowners, auto, etc. Boiling it down, it's merely an insurance decision (for many) - instead of paying someone money for this insurance, however, it's the opposite decision of choosing to earn more money for 'insurance', and attempt to mitigate the variables that they have absolute control over.

 

[kcowan]

We retired during our peak earnings years. But we had a plan for retirement and it was time. That was 14 years ago. So far so good!

 

[Sojourner]

Above some threshold where additional money isn't buying more luxury or more insurance or more power, it still offers the ability to keep score.

This is exactly the case for many people. I mentioned my ex-boss in a recent thread, and he fits this description perfectly. He is fabulously wealthy and makes millions every year. I'd guess he easily has 50X expenses, but for him this is completely irrelevant. His work, his wealth, his business accomplishments, and his annual earnings are what define his status and (I think) his self-worth. I doubt he has ever thought seriously of retiring for even two seconds.

 

[exnavynuke]

I think the bigger question for me in such a scenario would be "how much more spending for the rest of my life would working another year grant me that I wouldn't otherwise have?"

That answer would have to be a significant amount for me to change my current plans. If I went from making, say, $100k/year to $500k/year, I could add probably an extra ~$200k (after taxes) to the portfolio. An extra $200k gets me... $8k/year? That's 2 decent vacations or 1 nice vacation every year for the rest of my life. So, is that worth another year of working? Eh, maybe. Going from 2 vacations per year to 4 would be a significant change in retirement lifestyle to me, but to others it may not be. Would that be worth another year of working though? Not sure I'd say yes. That said, the following year, instead of doubling the number of vacations it only increases by 50%, then 33% the year after that, etc. At what point it would stop being "worth it" (assuming it ever was) would really depend on a number of factors but, most prominently, how much each person values their free time vs how much they'd like to increase their retirement lifestyle.

 

[dunkelblau]

The way I see it, my annual W2 income-minus-taxes is less than 3% of net investment portfolio. And no my W2 income isn't growing quickly-- it fluctuates and over the past decade the trend has been pretty much flat. So I'm not doing OMY (x4 so far) for the money.

I think my reason for delaying ER boils down to both lack of push and lack of pull. My job has interesting moments, and I'm still enjoying the changes I negotiated a few years back. Off-time doesn't thrill me, like I don't enjoy weekends any more than workdays. I have two siblings who are ER so I have an idea how they're spending their days.

I like knowing that once I find something better to do with my time it's all my decision, but I no longer have the impression that ER would significantly improve my life.

 

[Luck_Club]

The way I see it, my annual W2 income-minus-taxes is less than 3% of net investment portfolio. And no my W2 income isn't growing quickly-- it fluctuates and over the past decade the trend has been pretty much flat. So I'm not doing OMY (x4 so far) for the money.

I think my reason for delaying ER boils down to both lack of push and lack of pull. My job has interesting moments, and I'm still enjoying the changes I negotiated a few years back. Off-time doesn't thrill me, like I don't enjoy weekends any more than workdays. I have two siblings who are ER so I have an idea how they're spending their days.

I like knowing that once I find something better to do with my time it's all my decision, but I no longer have the impression that ER would significantly improve my life.

You are the target audience to provide insight. Your investments should return conservatively 1.5 times your gross income, I assume your income is flat, yet you continue to work. Your reasoning is you enjoy it, and don't have interests that are hampered by work commitments. ie travel, wintering in Florida, etc.

It sounds like if you found something better to do with your time, you will stop working.

 

[Luck_Club]

Above some threshold where additional money isn't buying more luxury or more insurance or more power, it still offers the ability to keep score.

This also could be the driving factor. Just don't see why score keepers wouldn't want to brag by saying "I'm retired yet still earn X more than when I was working" and call it game set match.

Score keeping might make more sense during upward earnings growth is still in play.

Being self employed most of my career, I've never really seen large upward "job growth". Over the past couple of years I've struggled with doing 1 more big score so to speak. Branching out and taking my job function to a higher level National or International business development. After hitting lots of resistance, and seeing that the pay would be the same or lower to what I was earning, I gave up on the dream and resolved myself to fully embrace and ER life instead.

 

[rodi]

Luck_club - I'm curious about some of your math. You stated that you only need 20x spend/income... that's a 5% WR. I think many of us would feel pretty nervous with a WR that high. Lots of literature of late about 3-3.5% WR being a sustainable rate (including inflation.) That's 28-33x, not 20x.

FWIW - I pulled the plug with a planned 3.5% WR (28x)... but have actually drawn less. I don't understand needing the relatively large portfolios (70x spending)... But I do understand staying at work if you still enjoy it. In my case - I stopped enjoying it and retired.

 

[Toocold]

There is another reason why people continue to work - they simply enjoy the work and like the challenge. For me, my work is not stressful, I get compensated well, and I feel like I'm contributing to society. If I choose not to work, I'm pretty certain that my wife would ask that I share some of her responsibilities, including making breakfast, driving the kids to school, and preparing dinner. My preference is to work. This is true whether we've accumulated 25x or 100x annual spend.

 

[Bigdawg]

There is another reason why people continue to work - they simply enjoy the work and like the challenge. For me, my work is not stressful, I get compensated well, and I feel like I'm contributing to society. If I choose not to work, I'm pretty certain that my wife would ask that I share some of her responsibilities, including making breakfast, driving the kids to work, and preparing dinner. My preference is to work. This is true whether we've accumulated 25x or 100x annual spend.

+1 mostly. Kids are gone. DW will work at least 5 more years. I get paid too much. The boss is awesome. Work is basically fun. Something to do during the day before I head out to umpire another baseball game. Have had time off (8 months trial ER 2 years ago) and was sort of bored. This year went to VT snowmobiling for 4 days, NH to watch DD play volleyball-ditto to Kansas City and went to Australia for 10 days to help DD set up her appartment (internship). Off to San Diego in three weeks for a 5 day vaca with DS and some of my friends. All while maxing 401K (24K) back door ROTH (6.5K) and dumping another 10K in taxable. Really can't find a reason to quit. Last hurdle will be Jan of 2020 (yr I turn 55). I will probably umpire (10+k/yr) until I drop. I work with a few guys in there 70's. Definately keeps you young. Not LL. Mostly HS, legion and some junior college.

 

[lwp2017]

I faced the OMY and compromised - due to income velocity. Basically when I declared to execs I was retiring I was offered some generous retention bonuses offered at 6 month increments and just had base salary increased another 4%.

So I decided to delay early retirement at 55 by 6 months. The extension into Jan 2018 is worth about $200K after tax in additional retirement discretionary spending.

Considering I started at the very bottom, that is a whole lot of money to us. Will invest half, put 1/4 in grandkids college funds, and take a nice retirement celebration trip

I'm walking away after 6 month extension barring a personal financial catastrophe. Only 62 more working days.

Investment income is at 35x spend plus a good pension, more money isn't making my wife or I happier due to very high work stress.

Good luck!

 

[DawgMan]

As many have said, insurance, ego, identity, don't hate/enjoy work, risk of replacing income if quit, all play into the personal decision as to when too RE. I would add that once you find your "retiring too" passion, the scale will start to tilt and help make the decision. For some, getting out of something they don't enjoy is enough of a motivator. For others (like me), regardless of the math, they need a strong enough "retiring too" to move the needle.

 

[Luck_Club]

Luck_club - I'm curious about some of your math. You stated that you only need 20x spend/income... that's a 5% WR. I think many of us would feel pretty nervous with a WR that high. Lots of literature of late about 3-3.5% WR being a sustainable rate (including inflation.) That's 28-33x, not 20x.

That is the return I used. Lately a 5% yield is very difficult to find, but not impossible. Yes 33X = 3%, but even still there are OMY, at 72X. The original question and a few have addressed it, the value of OMY diminishes as the marginal utility of pay raises goes down.

 

[pjigar]

OMY is personal and relative. I am far from OMY but my job is very flexible, work from home and requires "smart work". So when I truly get to FI and if I can cut down the working hours then OMY for few years will not bother me too much. If I can make significant money without loosing too much time then why not? Heck I can work part-time forever on my terms.

 

[Sojourner]

I think the bigger question for me in such a scenario would be "how much more spending for the rest of my life would working another year grant me that I wouldn't otherwise have?"

That answer would have to be a significant amount for me to change my current plans. If I went from making, say, $100k/year to $500k/year, I could add probably an extra ~$200k (after taxes) to the portfolio. An extra $200k gets me... $8k/year? That's 2 decent vacations or 1 nice vacation every year for the rest of my life. So, is that worth another year of working?

This is a really interesting way of thinking about it. In my situation, I could probably go back to a full-time position making $100k fairly easily, but what would I be earmarking that extra money for? I love to travel, so maybe I could use the money to upgrade to business-class tickets for all my international flights for the next 10-15 years. But would being able to fly in comfort like that be worth trudging into an office 5 days/week and dealing with all the stress and annoyances and lack of freedom for an entire year? I'd be giving up a known good thing (a year of ER) in return for a somewhat unknown, uncertain thing. I mean, who knows if I'd end up traveling enough to make the sacrifice worthwhile, and even if I did, would my frugal nature intervene and guilt me into not paying for business-class seats? I could easily see this happening. After all, I'm already at over 50x expenses, so I could pretty easily afford certain luxuries like that, yet I very rarely partake in them. This is a major reason why I was able to achieve FIRE at a relatively young age (mid 40s). So, realistically, having that extra $100k would most likely result in just some extra "padding" in my brokerage accounts and probably not very much in the way of any tangible lifestyle upgrades.

 

[Spanky]

There is another reason why people continue to work - they simply enjoy the work and like the challenge. For me, my work is not stressful, I get compensated well, and I feel like I'm contributing to society. If I choose not to work, I'm pretty certain that my wife would ask that I share some of her responsibilities, including making breakfast, driving the kids to school, and preparing dinner. My preference is to work. This is true whether we've accumulated 25x or 100x annual spend.

Are you in the right forum?

 

[Toocold]

Are you in the right forum?

When I first joined this forum, I was interested in "FI" rather than "RE". I suspect that I'll eventually get around to RE, currently targeting before I turn 50. I still like what I do though