Should You Work One More Year?

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I’m “retired,” but I took this past summer off anyway. I wrote less on the blog. I postponed some personal projects. And, I worked on my bucket list — doing the things I couldn’t do while working full time, while raising a son, while living back east. This was the first summer since my 20’s that I could spend entirely in the big mountains of the west. If I was to have any regrets when this year was over, it wouldn’t be because I hadn’t been outdoors hiking, biking, and climbing enough….

The season began on a frosty night in May, camped beside an alpine lake in the Sangre de Cristo mountains. And it ended in early October, gliding through neon gold aspens in Crested Butte. In between, I spent a dozen nights out on the trail, summited several 12,000 ft. peaks, led a bunch of rock climbs, and logged miles of epic riding on my mountain bike.

None of this means much, by worldly standards. But it meant a lot to me. Doing these things enriched my life, and left me with fewer regrets, should it all end tomorrow. And it wouldn’t have been possible, if I were still stuck at a desk in my corporate job….

How many more seasons like this will I get? In between the fun, there were persistent reminders that I’m getting older. I expect to stay this active for another five years. Maybe I’ll get ten. Beyond that could be wishful thinking….

In Retirement Range?

And, how about you? How much longer do you have to follow your dreams? Should you work another year, or should you pull the plug on a full-time career and take another path, before it’s too late?

I’m grateful to be able to chase my remaining dreams here in middle age. I could have worked longer, accumulating more money and more security. But I was in range to retire, and I chose a different path.

This is a difficult, very personal decision. Perhaps you are one of the “lucky” ones, where the financial realities make the choice clear: Much of the retirement research shows that if you can live on less than about 3% annually of your life’s savings, your financial independence is assured. On the other hand, if you need more than about 5% of your savings annually, then you should probably keep working, or else risk running out of money in retirement.

But that leaves a lot of people within the right range, but without a definite answer. If you can live on 3-5% of your savings, you probably have enough to retire, if things go reasonably well. But nothing is guaranteed.

So, what should you do? Keep trading your life’s energy for more security — work another year, or make the leap to something else?

Simple Calculation

Here is one straightforward approach for clarifying the decision. Admittedly, it ignores some variables, so, like most attempts at predicting the future, it’s a gross simplification. But it just might give you some insight.

Start by calculating your net worth — the sum of all your assets. If you need a refresher on how to go about that, check out my recent article in Money.

Next, determine your annual living expenses in retirement. For what it’s worth, the median value for expenses in my Reader Survey is about $5,000/month or $60,000 annually. For ideas on adjusting that number to your lifestyle, check out my post on the cost of living in retirement.

Now, do a quick calculation: divide your net worth by your annual expenses. This tells you how many years your money will last, not taking into account investment earnings. So this is probably a very conservative estimate, though nobody can be certain.

(Allan Roth calls this reframing your wealth as time not money. And note that spending less has the greatest impact on the equation. That’s because earning more only lasts while you’re working, and is diminished by taxes, but spending less lasts the rest of your life!)

Finally, take a stab at predicting your life expectancy. I did this recently, and it was an eye opener. You can use either or both of these web sites: Living to 100 or Blue Zones. Each will take about 10 minutes of your time, with questions about your lifestyle, family, and medical history. They’ll then try to predict your longevity based on the latest research.

So, is your calculation, the number of years your money will last, greater or less than your life expectancy? Do you have more years in savings than you have life to live? If so, then you are no longer working strictly for financial reasons. In which case, why are you still working?

Opportunity Cost

The calculation we just did gives you some idea of the odds of having enough money to care for yourself for the rest of your life. Presumably, if you like the odds, you can “retire” now. But we know that reality is more subtle than that.

There are trade-offs we all must navigate: To succeed in a profession takes focus and dedication. As a result, you may miss out on some of the other things that life has to offer. But, eventually, that profession can produce significant income, which could possibly buy you a different set of opportunities.

In microeconomics, opportunity cost is the value of the best alternative you must forgo in order to exercise a choice. In theory, you will only make a choice if you think that the value you gain by doing so, exceeds the opportunity cost — the value you would get by doing something else with your time and money.

Should you work another year? Thinking about opportunity cost gets you evaluating your alternatives as each year passes, instead of trying to predict cash flows into an uncertain future.

The real question, for anybody who thinks about this deeply, is “To be happiest, should I keep doing what I’m doing, or make a change?”

At some point in their careers, most people are facing these choices/equations:

Keep Working: Get X1 dollars + Y1 free time ==> Z1 happiness


Retire/Do Something Else: Get X2 dollars + Y2 free time ==> Z2 happiness

Presumably, the more you work, the more money (X1 > X2) and less time (Y1 < Y2) you have. And presumably more money and more time would both increase happiness, though not at the same rate. The goal is to optimize happiness (Z2 > Z1).

The trick in solving these equations would seem to be in converting between dollars and time. But, life being what it is, they don’t convert at a constant rate. In classic microeconomics theory, most goods are considered to have decreasing marginal utility — each additional unit you consume brings you less additional happiness than the previous unit.

So these are “marginal” dollars you’re earning. If you’ve got more money than time, as many do late in their careers, how much do you care about another dollar? Assuming you know what to do with it, the time is much more valuable. The question is, how much more valuable?

I’m not sure there is an easy mathematical answer, but there was definitely one in my heart when the time came for me to make the retirement decision over three years ago….

Looking in the Mirror

There is a school of thought that people are rational robots who should choose the activity that maximizes their income — that they shouldn’t work for less than they’re “worth.” But that ignores quality of life factors.

Most of us have changing formulas for happiness over time. I loved my work in the early years, was fascinated by computers and programming, and immersed myself in the field, day and night. But, eventually, I reached the peak of what I could accomplish, and the passion faded. Other interests came to the foreground.

Twice I made major career decisions that involved turning down a management/executive track, and probable ensuing promotions and raises. These weren’t the financially optimal decisions, but there is no doubt that they improved my happiness and my quality of life. And things turned out OK on the financial front, anyway!

The necessary reality that most of us live in approaching retirement is that we are closer to the end of life than the beginning. None of us knows for certain just how much longer we have left. I try to ask myself the question frequently: “If it all ends soon, am I going to be satisfied with how I’ve been spending my time?”

And, beyond some simple financial calculations, I think that is the best way to know whether you should work one more year….

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