A Tale of Two Retirements: FIRE and Traditional

ByChris Mamula Hours Categories Retiring
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A few years ago, I left my career as a physical therapist at age 41. I decided to pursue a completely different financially independent, retired early (FIRE) lifestyle. Around the same time, my parents asked me to go over their finances with them. They were preparing for traditional retirement in their 60’s.

After years of working with a financial advisor, they realized that they were paying far more than necessary for financial advice that was questionable at best. They asked me to help manage their finances as they transitioned into retirement.

I initiated our transition into early retirement. Simultaneously I was intimately involved in navigating my parents’ transition into traditional retirement. The experience provided unique insights.

I’ll explore a few common themes I came across despite our vastly different situations. Lessons I learned will assist your retirement planning, wherever you are in your journey to financial independence and whatever type of retirement you desire.

Dealing with Uncertainty

The biggest challenge to retirement planning is dealing with uncertainty. Financial markets, interest rates, and inflation are all difficult to predict and completely out of our control. Health care costs are a massive unknown. We all have unique personal situations that will affect our tolerance for risk and need for security. And none of us know how long we’ll live.

This is all true for both traditional and early retirement. However, to me it feels more manageable with traditional retirement. 

Uncertainty in Early vs. Traditional Retirement

Anyone reliant on an investment portfolio to produce income deals with uncertainty in financial markets. This is manageable for those who’ve achieved a stable traditional retirement. Social security provides an income floor. You can annuitize a portion of assets if more of a floor is needed. You could also consider a reverse mortgage.

These options either don’t exist or are not practical for early retirees. Some continued work, or at least maintaining the ability to return to work, are essential levers for early retirees to be able to pull to manage financial risks.

My parents are both on Medicare. Despite some people’s misperceptions, Medicare is not free. Still it gives them a stable system with predictable and affordable costs. In contrast, we have constant uncertainty hanging over our heads. We reevaluate our health insurance options on a year to year basis as the health insurance market continuously evolves.

A clear advantage to retiring sooner is reclaiming younger, and presumably healthier, years of life to do the things you desire. But there is a tradeoff. From a planning perspective, retiring earlier creates more uncertainty.

Dealing with uncertainty is something all retirees must come to peace with. FIRE in our early forties and traditional retirement in my parents’ mid-sixties to early seventies represent opposite ends of the spectrum. It’s been interesting to see how we all are dealing with this in real time.

Early retirement amplifies the magnitude of uncertainty, requires greater flexibility and can create anxiety. I wouldn’t trade places with my parents. I do envy the level of security and certainty their traditional retirement provides. 

Importance of Tax Diversification

A consistent message from Darrow’s earliest writing on this blog is not to fret about taxes in retirement. I generally agree. I’ve shared a simple, but extremely effective tax planning framework that my wife and I have used while saving towards early retirement. 

Our philosophy was to max out all tax-deferred retirement savings available to us during our peak earning years before considering Roth or taxable accounts.

We can perform Roth IRA conversions in years when earnings are lower in early retirement. In traditional retirement years, we can withdraw the money directly from the tax deferred accounts. In either case, we anticipate taking the money from the tax deferred accounts at lower tax rates than we would have paid during peak earning years.

Tax Planning for Early Retirement

Our initial thinking was that we would have little to no earned income in early retirement. We could convert traditional IRAs to Roth up to the standard deduction each year without paying any federal income tax.

For example, we could theoretically convert nearly $25,000 in 2020 tax free. We could then convert tens of thousands of dollars more each year at the lowest marginal tax rates if desired.

Then we ran into two wrinkles. First, like many people, we were fearful to spend down retirement savings we worked so hard to build. My wife and I have each elected to continue doing some paid work into the foreseeable future.

Our earned income currently exceeds the standard deduction and 10% tax bracket. This makes performing Roth Conversions less beneficial than anticipated. 

Second, we have determined that health care sharing ministries are not a viable option for our family. We’ll most likely use ACA subsidies to reduce our insurance premiums once we can no longer qualify for employer sponsored coverage.

Generating more taxable income by performing Roth conversions could decrease ACA subsides, effectively increasing insurance premiums. This may diminish the benefit of doing Roth IRA conversions.

It would be particularly harmful if income generated by performing Roth conversions caused us to exceed the ACA subsidy cliff. In this scenario, the increased premiums would substantially outweigh any benefit of doing a Roth conversion.

Tax Planning for Traditional Retirement

My parents ran into a similar issue in the early years of their retirement. My mom is a few years younger than my dad. They had to be careful to not generate more taxable income than necessary by performing Roth conversions while she was buying health insurance on the open marketplace. Once she reached Medicare eligibility, they had only a small window for creative tax planning before my dad had to start taking required minimum distributions (RMDs) and Social Security. 

Now my parents are both receiving Social Security benefits and my dad is receiving RMDs from his tax-deferred retirement accounts. Any further withdrawals or Roth conversions from tax deferred accounts are taxed at their highest marginal rates.

Taking larger withdrawals or performing Roth conversions at traditional retirement age can have additional adverse financial impacts. Increasing taxable income can affect how much of their Social Security income is taxed. If you are required to take larger distributions from tax deferred accounts, this income may also affect your Medicare premiums.

Tax Planning Implications

I stand behind the idea that the tax code is generally very favorable to early retirees. Most higher earners who are saving enough to retire early should utilize tax deferred investing options over Roth options. 

However, some nuance is required. We need to look at our overall picture, including the size of our tax deferred accounts, the period of time over which we can take money from them, and other tax implications we may create by taking money from the accounts in the future.

I assumed we’d be able to pay little if any tax on our tax deferred accounts as we gradually converted them to Roth accounts over time. As our early retirement has morphed into semi-retirement, that is looking unlikely.

The overlay of the ACA subsidies on the tax code until Medicare eligibility complicates tax planning during early retirement or semi-retirement years. Spreading tax deferred income over these years using Roth conversions may be challenging.

Taxation of social security benefits and potentially increasing Medicare costs for those with higher incomes complicates tax planning in traditional retirement.

This is particularly challenging for married couples with an age difference. They may have a small window, or no time at all, where they’re not impacted by at least one of these issues.

I now have a greater appreciation for tax rate diversification. I’ll continue looking for opportunities to get money into our heatlh savings acccounts, Roth IRAs and taxable accounts during this phase of our lives when earnings are lower. In doing so, we’ll give ourselves more flexibility in any given year going forward.

Finding Purpose 

Darrow recently wrote about finding your purpose after retirement or financial independence. My parents traditional retirement and our FIRE lifestyle are quite different, but this struggle is common.

I first started thinking about this issue when I was still working as a physical therapist. I recall a consultation with a recently retired physician who was coming to see me as a new patient. Our paths had crossed several times previously when he was practicing. He was a jovial guy.

I greeted him and eagerly asked him how he was enjoying retirement. I fully expected him to tell me how much he loved it and all that he was doing with his newfound freedom. Without hesitation, he replied that he hated it. 

He had lost his identity and had no idea what to do with his time. He started spending hours at the gym everyday to deal with his boredom and ended up tearing his rotator cuff. This shoulder injury, caused by his excessive exercise routine, is why he was there to see me. Now his one source of activity and joy was lost. He felt even more depressed.

At the time, I was moving full speed ahead towards early retirement. I was certain that freedom from a job was the ticket to a happier life. The conversation took me aback. 

I talked to my dad, who at the time was in the process of transitioning out of the small photography business he had spent nearly thirty years building, about my interaction with the doctor. My dad related to the doctor’s feelings.

Purpose in Traditional Retirement

My dad recognized the need to create a new identity and purpose for himself in retirement. He has dedicated a substantial portion of his time to service projects. His most consistent and involved endeavor has been serving as a Court Appointed Special Advocate (CASA) for children the court has removed from their parents’ home and placed in the care of a relative or in non-kinship foster care. He is also involved in his church’s assistance ministry and occasionally volunteers at a soup kitchen. 

It’s been interesting and inspiring to watch him reinvent himself in his 60’s and into his 70’s. Still, I sense a void in his life, particularly since my family has moved across the country. 

My mom has probably struggled with the transition from career to retirement less. Less of her identity had been tied up in her work. Her primary identity has always been that of a caregiver.

She was a stay at home mom for a period. Later, she became the primary caregiver for both of her parents as well as a few of my dad’s aging relatives in their later years. She then stepped in and played a huge role in my daughter’s formative years.

Purpose With FIRE

Figuring out your purpose can be an even bigger struggle for high achievers who achieve financial independence early. My wife and I recognize and appreciate the privileged position we are in.

The beauty of achieving financial independence early in life is that you get to decide what your life looks like. The challenge of achieving financial independence early in life is that you have to choose what your life looks like. 

When considering leaving my career, I thought a lot about what I would do with my time. I didn’t think I’d ever get bored, and I was right. If anything, I feel busier than ever.

But having your time occupied and feeling fulfilled are not the same thing. I am able to be a much better father and spend far more time with my daughter. But she’s in school seven hours each day.

I am able to contribute to the world through my writing and volunteer work. But those activities encompass a couple hours each day at most.

We’re conditioned to structure our lives around work. I can’t help but struggle with the idea that I could, and possibly should, be doing something bigger with my life.

This struggle has likely been even greater for my wife. Like the doctor and my dad who associated their identity with their profession and business, she has built an identity around achievement and being successful in her career. 

I’ve written about her decision to continue working for the economic benefits and the ability to get health care for our family. But the biggest reason she continues to work is that she doesn’t know what she really wants to do next.

Making the Retirement Decision

Darrow and I have been spending a lot of time over the past few months examining what this blog has meant to each of us and where we want to take it as we move forward. We agree that our unique value is providing a rare perspective on achieving financial independence and retiring early from people who have actually done it. 

In an early post on the blog, Darrow wrote that there are “two distinct classes of retirement: early retirement and traditional retirement.” Reading Darrow’s experience of early retirement at 50 and following his journey toward traditional retirement age has been, and continues to be, influential on my own perspectives and planning.

My more extreme FIRE perspective and the perspective of my parent’s traditional retirement bookend his experience. Use this variety of experiences and viewpoints as you consider one of the biggest decisions of your life.

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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. After achieving financial independence, Chris began writing about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. Chris also does financial planning with individuals and couples at Abundo Wealth, a low-cost, advice-only financial planning firm with the mission of making quality financial advice available to populations for whom it was previously inaccessible. Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He has spoken at events including the Bogleheads and the American Institute of Certified Public Accountants annual conferences. Blog inquiries can be sent to chris@caniretireyet.com. Financial planning inquiries can be sent to chris@abundowealth.com]

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61 Comments

  1. Great post Chris, lots to chew on here. The “dealing with uncertainty’ to me is the biggest factor and specifically in regards to healthcare. You mentioned that you’ll likely go to the ACA once you no longer have a work-sponsored health plan. But will it even be around? Or will it be significantly different?

    That’s the uncertainty I hate. Medicare isn’t exactly in the constitution either but I see a far less likelihood that any significant changes would be made to Medicare than the ACA. The ACA is a recent thing as we know and a hated thing by half of our politicians. If anything I think there’s a chance that Medicare could be expanded by lowering the age to 60 or even 55, but it’s all prognostication. And uncertainty.

    1. Thanks Dave!

      Agree completely that the complete lack of certainty surrounding health care is maddening for someone who is a.) serious about planning and b.) fiscally conservative.

  2. I can absolutely identify with the difficulty transitioning into retirement from a personal satisfaction standpoint vs. a financial one. My husband retired 2 years ago at 62, after a 40+ year career as an attorney. When he retired, we move to Mexico and I continued to work for my former employer in a full time contractor role. We are close to being financially able to retire, but after seeing my husband continue to struggle with creating new structure and purpose in his life, I hesitate to stop working until I’ve created a new structure for myself. It’s interesting how we focus so much on financial goals as a gauge for when we can retire, often without thinking what we’ll do with our new found time once we’re no longer working a traditional job.

    1. Loryn,

      Even if you do focus on the non-financial things, it is difficult. I’ve written a fair bit about this, but there is a substantial amount of research showing that we’re pretty awful at predicting what will make us happy in life. At some point we all just have to take the leap and figure things out.

      Best!
      Chris

  3. We’re paying about $2,380/month in healthcare premiums for a family of four. It feels like robbery, but what can I do? I don’t want to risk not having healthcare for my family.

    I admire you guys for being able to stay retired, pay for healthcare, and save enough for your child’s education. I don’t think I can stay retired any longer now that I have a second kid.

    But gotta say, the challenge is great and I’m happy our parents get to collect SS!

    Sam

    1. Hi Sam,

      Your site is fantastic and just recently joined your forum – thanks for all that you provide.

      We have five kids under the age of nine and are so thankful that we have Tricare as I’m still in the reserves.

      I look forward to your next post and reading about your journey back into the world of full time employment – best of luck.

      Semper FI,
      Luis

    2. Sam,

      To be clear, health care is a massive reason we’re not both retired. Agree that it feels like robbery when I see those premiums, particularly since there is no incentive to live a healthy lifestyle and there is no incentive to even try to make intelligent decisions (which are likely to be beneficial both financially and with regards to health) regarding engaging with the health care system.

      Best,
      Chris

        1. Ha! Good luck with that.

          In all seriousness though, I think that all of us who are rolling the dice to retire in our 30’s, 40’s and early 50’s need to either continue, or at least be willing and prepared to go back to, doing some paid work to control for longevity risk and all of the unknowns.

  4. Enjoyed your post and as a 55 year old one of my concerns is healthcare costs but continuing to work kind of solves that issue but keeps me also from pulling the retirement trigger early. Appreciate you diving deeper in to the two differences in the retirement game. Increasing savings rates and investing will and do combat some of the uncertainties.

  5. I retired early January 2019. While my identity was not bound up with my job, I’m still navigating restructuring my life after full time work. It’s kind of like deciding what you want to be when you grow up all over again. Do you set an alarm? When do you set if for? How much of your time do you want to allocate to travel, projects, just plain goofing off downtime? What feels right? What makes you happy? And internalizing new boundaries – you don’t have to wait for the weekend anymore! It’s really much more of a process than I was anticipating and it’s taking much longer. I guess considering I lived the full time work life for 36 years I should expect it to take a bit. Don’t get me wrong I am living my best life right now but there are some surprises.

    1. I agree Candace and appreciate your honesty. It is tough, particularly for someone like myself who made the decision to leave my career so early, to talk about these feelings b/c on the outside we have everything and should be happy. And the reality is, most of the time I am very happy and I wouldn’t do anything differently if I had the chance to do things over. But there are struggles which you’ve articulated well. Thanks for the thoughtful comment.

      Cheers!
      Chris

  6. Great comments about tax efficiency and how the timing of taxable withdrawals impact health insurance premiums, current taxes, taxes in later years, and social security taxation. I had asked a couple of financial planners how they balance all of this only to be told it is difficult to optimize taxes. It seems like there would be some software out there to optimize all of this. Please post if you know of any.

    1. Eric,

      This is a topic I plan to explore a lot in the coming months and years. Stay tuned!

      Chris

  7. Another superb post Chris – thanks!

    A few thoughts from an early retiree who’s now officially in the traditional retiree age range (I ER’d in 2002 and just turned 63).

    Ernie Zelinski’s books (“How to Retire Happy Wild and Free” and others) are exactly the kind of thing everyone should read BEFORE pulling the trigger and leaving the working world. I’ve learned the hard way that having multiple things one is passionate about doing – and already involved in to some extent – is essential before leaving the full-time working world. The sense of not just purpose but community involved in doing work one loves well is not to be underestimated – and must be replaced.

    And yeah, the uncertainties don’t go away over time, they just change. We spent the better part of 5 years living in Mexico mostly pre-ACA as health care and insurance refugees. Knowing we could do that again if need be, and that long-term care facilities in the $1200-1500 a month range with better care than grim U.S. facilities at 4-6 times the cost are available – gives us Plan B options most Americans don’t know about and/or would be too scared to seriously consider. Experiencing the world outside the U.S. while still young enough to do so has all kinds of benefits.

    As for the investing side, after about a hundred books on investing and countless hours of online research and consultation with advisors I have to say the Portfolio Charts site is the best thing to come along in at least a decade in terms of offering approaches to investing that really work for what most ER’s are looking for: reasonably high safe withdrawal rates with the highest possible likelihood of surviving market meltdowns.

    Thanks again to you and Darrow for being such beacons of sanity!

    1. Thanks for such kind words, great recommendations and being willing to share your experiences Kevin.

      I’ve had Zelinski’s book on my reading list for quite some time now. I just bumped it to the top of the list.

    2. Kevin, I love your phrase, “beacons of sanity.” I’ve long appreciated the way Darrow and Chris approach a topic. The time and effort they put into copious amounts of research, their ability to view any situation from many different perspectives and their willingness to share their personal experience all work to our benefit. Their posts provide a thorough and honest examination of the many facets of retirement. It’s a relief to have a safe haven in the storm of media hype.

      1. Thanks Mary. We’re fortunate to have you as a reader and always appreciate your insights here.

        Cheers!
        Chris

  8. Re: Tax Planning
    I too was not aware until late 2018 of all the interrelated decisions that make minimizing taxes so complicated. Between optimizing Roth conversions, minimizing taxable income (social security and other), minimizing ACA penalties and maximizing retirement savings credits (form 8880), there is a little more opportunity to keep my brain cells working hard to keep them healthy. 🙂

    To make matters worse, Roth conversions must be done by 12/31 (unlike other decisions which can be deferred until tax filing time). So I’ve spent a lot of time at the end of the last two years doing estimations and filling in tentative tax forms and figuring out the implications of various Roth conversion amounts, and making final estimates/calculations and doing the actual conversion the week before 12/31 after capital gains are posted in my taxable investment account. All this is probably more than most people have the skills or desire to handle without professional help.

    Fortunately for me, I have a very part-time job where I earn about $1500 per year so that, if I make a minor error in the amount of my Roth conversion, I can offset it with an IRA contribution (for the prior year) before I file my taxes in order to bring my taxable income down to where it needs to be.

    I tried this year to make formulas for all these calculations so I wouldn’t have to work so hard at the end of 2020. But only two of the four formulas I created ended up passing muster and I gave up trying to fix it after having spent hours on this.

    I agree that the ACA penalties are the most impactful and they have been the deciding factors for me each year so far in my Roth conversion amounts. I look forward to getting on Medicare in 2021 to allow me to eliminate this part of my calculations. Although the decisions after that should be more flexible and thus harder to make, they will also be less impactful so I won’t sweat as much if I goof up.

    Good luck to all who want to follow this path. I’m not saying it isn’t worth it (Roth conversions now should save me thousands of dollars later) but it is not easy.

    1. Thanks for sharing your insights and experiences Pete. Another challenge on top of all those you mentioned is that laws change all the time. The ACA subsidies have been around for less than ten years, the TCJA in the first few months of the Trump administration lowered tax rates and changed the calculus there and the most recent legislation in December impact RMDs and estate planning. I think this is another reason it is so important to stay informed and build flexibility into plans with tax diversification of retirement and non-retirement investment accounts.

    3. I’ve done pro forma tax returns at year end for years now. Conversions, ACA subsidy cliffs, HSA contributions, tax withholding, etc. all gets dealt with at one time. Every year I get closer to the actual return. Last year, I underpaid the federal tax by $2 – payment was made when I filed the return

  9. Chris,

    Thank you for this website and I greatly appreciate the dual perspective that you and Darrow provide. Back in 2014 I essentially attained FIRE and have been on glide path to retirement. You and Darrow essentially bracket my retirement situation so I look forward to the future posts that provide a rare perspectives is greatly welcomed.

    Again, thanks for both of your efforts and look forward to future posts.

    Semper FI,
    Luis

  10. For those with a larger sum of investment assets who are trying to avoid the ACA cliff, you need to consider the variance in quarterly/annual distributions from mutual funds/ETFs/etc. Some of these assets do not have consistent distribution payouts and you might fall over the cliff at the very end of the year when many of these asset payout their distributions. As for me, I’m only dealing with not enough withholding due to my higher distributions this year (double vs last year but investments grew around 20%). I would have gotten burned if I was FIRE.

    1. Good point, though a lot of that can be managed by wise asset location, holding only very tax efficient ETF and index mutual funds in taxable accounts and placing less tax efficient investments in tax sheltered retirement accounts.

  11. Great post Chris – I’m going to share it with our audience. It’s great that you and Darrow bring both of your perspectives to CIRY (FIRE – you and now traditional – Darrow). Also – taxes is a big issue and their are a lot of nuances – which we’re busy adding to NewRetirement.

    re: solving for something larger in your life – you know my proposed solution – let’s collaborate on the world’s best retirement planning platform. 🙂

  12. Chris- Nice article – food for thought for sure. As a recent retiree ( Age 56) – I feel more fortunate than most as I have a nice pension that includes healthcare for myself and spouse… with that said – regarding the recent SECURE act .. thoughts on Roth Conversions ? Are there any good books on the subject ? We are holding a large amounts in our 401-k accounts and are concerned about the RMD’s that are mandated by them as well as the fact that now any remaining amounts that will be left to heirs will be forced out over a 10 year period.

    1. I plan to write a good bit more on Roth conversions. I don’t know of any books specifically on that topic. I have some articles with insights into the SECURE act lined up for our round up post at the end of this month.

  13. You mentioned your wife is not sure what she’d do after retiring. I don’t think most people are very sure. I’m not certain that you can completely prepare yourself for the non-financial components of retirement before actually retiring. You can think about it, but thinking is different than the reality of being retired. I think a person has to get used to having more time, a more flexible schedule and being self-directed. And that takes time and the experience of actually going through it. Something I read compared retirement to the process of starting your first real job, maybe marrying and starting a family. You just have to do it and have confidence that you’ll figure it out.

    1. Susan B,

      I agree with this comment 110%. I’m still figuring out my routines and desires two plus years after leaving my job. One of the best things about this lifestyle is that I’ve escaped the drudgery and repetitiveness of going to a job day after day. But this is also a challenge as my routines change with projects (moving, writing book, now working on redesigning the blog), my daughter’s schedule, seasons of the year, etc. I haven’t found a consistent groove for exercising, being productive, etc.

  14. I appreciate these articles focused on retirement and post-retirement. So many FI blogs and podcast episodes are about the journey to FI. Few seem to cover the realities of being there or very nearly there. When to stop working, what comes after, health care, etc. Thanks Chris and Darrow for raising topics for the rest of us.

    1. Thanks Anne. The truth is that blogging is a lot of work for little money. The biggest benefit I’ve gotten from it is accountability. Writing forces me to do the work researching topics that I’d probably be too lazy to do on my own.

      Once people reach their financial goals, I understand why most don’t keep it up. That’s why we think we’re providing unique value by being one of only a few voices who continues to blog from the other side of financial independence.

      Thanks for reading!

  15. Interesting comparison! I’ve learned how important leaving lower earnings spouse SS to maximize at age 70. The most common advice it maximize high earner and I do like that, but it looks to me the lower earner if upon single status may be more important.

    The FIRE acronym might be better as just FI. This is what is being discussed and most desired. To retire at young age is not very attractive for me. Most enjoyable would be the job freedom, more vacation time, and lowering of income needs. So, the threshold for this accomplishment may be lower than retirees needs. Most important to lower your personal cost of living such as loans and mortgages. Choice of interesting part time work. Seasonal and foreign vacations, tours, sports, and hobbies. We need to understand ourselves and rethink happiness. It’s likely to be low expense activities.

    My corp experience led me to believe these busisnesses love it when employees are buying new cars and spending foolishly. The business looks impressive to community. They hate employees who drive older cars to the lot. Within Engineering the best serving employee is up to eyebrow in debt and work 60 hrs per week. No side business. They hate rental property income or 2rd jobs. Low debt and high savings will allow maximum flexibility within employment choice.

    I read info on Fat FIRE women. She does have good basic info that seems parallel to my understanding. Explains why Vanguard is good as compared. The simple choices of funds for each stage of life. Info we have learned, but nice to get more insight. She does list the moderate growth fund as a good one and the automatic payout fund. She a big fan of the W’s funds for retirement and the S&P and total market. She explains why not to invest in foreign. She also mentioned the cradle to grave fund that would meet 80% is these two low cost funds. Also, the reference to Collins (sp?) recommendation of two years cash and total market portfolio. The JP Morgan ’20 report did have a 2 yr rolling average of expected return on S&P. It was deleted when going back to reference. Two years of cash really preforms to quell losses. One could responsively do this if having the stomach (I don’t).

  16. Chris, another great post. You touch on so many variables that need to be considered in the pursuit of FI. One of your lines particularly resonated with me: “I now have a greater appreciation for tax rate diversification.” I’ve written about how upon reflection, I was too focused while in the savings mode on tax deferred accounts. The tax savings was too seductive! Looking back I should have spread out more of my savings in taxable and Roth accounts. It would have lessened the desire now to go through the conversion process with the headaches associated with all of the nuances.

    1. Thanks Mr. P2F.

      To clarify, I don’t regret maxing out tax deferred savings SPECIFIC TO MY SITUATION. I’m very confident we’ll eventually get the money out one way or the other at a rate lower than the 25% we would have paid if not deferring.

      But we did this for a relatively short time and have many years of semi-retirement, early retirement and traditional retirement to get the money out, and we’ll still have to be intentional to pay attention to it on a year by year basis. If you’re in a lower marginal tax rate or have a very large tax deferred account, you may be less confident that deferral is right and paying up front and using a Roth account is simpler and gives more options on the backside.

  17. Very thoughtfully written. I enjoyed reading about your family the transition into retirement. Thank you.

  18. Great article! I just came across your website from listening to your interview on The Long View Podcast. During the interview you mentioned a British author who wrote about starting entrepreneurial pursuits without going into debt. Can you share the name of the book? I look forward to reading more of your journey Post-FIRE.

    1. Thanks for listening and following over to the site.

      His name is Alan Donegan. I write about him in the Choose FI book(click on the large blue book cover in the side bar to learn more about it.) He operates the Pop Up Business school and puts on free live seminars primarily in the UK, but also occasionally in the states and occasionally with webcasts. Here is a link to his website. https://www.popupbusinessschool.co.uk/

  19. I always find the mindset of “I’m retired and I have no purpose” fascinating because it’s so hard for me to relate to! I definitely understand that it’s a common phenomenon, but it’s hard for me to wrap my head around, especially when the person who’s expressing that opinion is coming from a toxic work environment.

    To me, work is the thing keeping me from training for a marathon, traveling more, volunteering more, researching my family history, and going back to school for fun. I have a lot of things driving me towards my early retirement goal. For people who plan to retire at any point, it’s important to maintain a variety of personal hobbies and interests outside of work.

    1. Liz,

      I would have said the same thing a few years ago. And to be clear, I would say overall I’m a pretty happy and content person. I definitely am never bored.

      I think the thing that surprised me is that I really don’t feel much different on a day to day basis now than I did when working in my job, so maybe it feels like a little bit of a let down. I think I thought I’d be even more happy and content, and less busy. It doesn’t seem to have panned out that way, for whatever reason. YMMV.

      Best,
      Chris

      1. Chris, I escaped from the workforce almost four years ago, and there are times when I (jokingly) say that I can’t wait until I retire. My days are jam packed, but the difference is that it’s by my choice, not my employer’s. Retirement may mean slowing down for some, but others may transition to an even busier lifestyle. The blessing is that the freedom to choose how to fill your days is now yours.

        1. Agree and there is a lot of nuance in there that doesn’t fit into neat little boxes. I’m not unhappy, but not fully satisfied. I have much more time for things that are important to me, but often times still feel too busy. It’s a process to work through these things, and I don’t know if any of us really figure it out completely.

          1. I’m not sure a “fully-satisfied” state is possible for most people on an ongoing basis, and I think the pursuit of it can lead to some serious unhappiness for many. But I recognize the journey is different for everyone; I certainly don’t claim to have The Answer! Fortunately, I maintained enough varied interests throughout my working life that I didn’t find the transition to retirement to be difficult.

            Thanks for a useful, interesting read, Chris.

          2. Pat R,

            I agree and think there is something to the idea that the least happy people are those who are pursuing happiness. If I gave a different impression or the idea that I’m not happy since leaving my job, I need to do better as a writer b/c that’s definitely not the case. However, I will say that on a daily basis, I don’t know that I’m a whole lot happier than I was when going to work. We tend to adapt to whatever circumstances we’re in and then return to our baseline. I do want to convey that aspect to readers, b/c I think many people tend to over-romanticize retirement.

            Hope that clarifies and thanks for the kind words.
            Chris

  20. 11 weeks till I retire with FIRE. I recently realized that I wouldn’t be able to conduct worthwhile Roth conversions because of the ACA subsidy cliff. You mentioned that Healthcare ministries wasn’t for you. May I ask why? None my business if it’s a matter of your belief system. I’m just curios if its an issue with the math.

    1. Not opposed to HSM at all Fred. I actually am a fan of the simplicity they offer as opposed to manipulating income to keep insurance affordable with subsidies. I also like the idea of incentivizing good health practices, at least in theory.

      We assumed this would be the best option for our young, relatively healthy and health conscious family until we dug into details. Because of pre-existing conditions and some of our lifestyle choices being deemed “high risk” behaviors, it wouldn’t work for us. I wrote about HSM in detail here: https://www.caniretireyet.com/health-care-sharing-ministries-early-retirement/

  23. Great post, Chris! I’m glad you shared how it’s more difficult to actually carry out the Roth conversions. I feel like it’s become too accepted as the “only” option for early retirees and even for traditional retirees. But it makes so much sense that that’s going to be a struggle as people will always need at least around the standard deduction amount of money to live off each year. So I hope this encourages more people to consider when Roth vs. Traditional is best for them and not to blindly just go all-in on tax-deferred plans. I’m glad someone that’s actually gone/going through this is sharing!

    1. Thanks for the feedback Dan. This is something I plan to dive into much more as we consider these decisions with our own money as well as reasoning through them with my parents.

  24. Thanks for this post. I appreciate the pitfalls you’ve identified. I retired 2 years ago at 55, so I can withdraw from my 401k without the 10% penalty. I’ve used this to convert to Roth up to the limit of the lower tax brackets, and thus far I pay living expenses from taxable accounts (with a 0% capital gains rate). My effective tax rate is between 1.5% and 1.7%. The ACA is a real problem for several friends of mine, but I am fortunate to have VA medical care with no premiums and only copays. At first, I was wary of using the VA system, but it turns out (at least where I live) the quality of care is excellent. Out of pocket is less than $400 per year, even with several unexpected medical events. This is the only reason I was able to retire early.

    1. Thanks for the kind words and sharing your experience Marc.

      Yes, the tax code is extremely friendly to early retirees. But for those that need to buy insurance through the ACA it gets more tricky.

      In our situation, the uncertainty around the ACA adds even another layer of complexity. If we knew the system today would be the system in 20 years, or even 5 years for that matter we’d be very confident that we could afford subsidized insurance. But with no semblance of certainty around such a large potential expense, developing a reliable plan is all but impossible. So we elect to keep earning some income, which then would reduce our subsidy and make insurance much more expensive if we had to buy it through the ACA. It’s a frustrating system, but the one we have to work with.

      Curious, are you eligible for TRICARE. If so, is there a reason you opted to use the VA system?

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