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Kicking the Habit

David Powell

REDUCTION IN FORCE. Layoff. Redundancy. For months now, the media have been running articles about technology companies shedding workers.

In October, the headlines became personal: My manager eliminated my position. It was the first layoff in my 37-year career and an early 60th birthday surprise. My last day would be in mid-December. After another year of positive performance reviews and accompanying financial rewards, the news was a shocker.

After that fateful call with my boss, my thoughts immediately turned to our retirement plan. Landing an interesting role is harder at this age, so losing your job can mean starting retirement. I’d planned to work a few more years, but now I wasn’t certain I could or indeed wanted to work again. I’m grateful to have that choice, something my wife and I have worked hard to achieve over many years, with help from lady luck.

In that moment, I also felt grateful to HumbleDollar’s editor. Jonathan’s lifelong work has transformed the way we save, handle debt, and invest through the stock market’s ups and especially downs. I felt we had a solid retirement plan, though my RIF—reduction in force—meant we fell short of attaining a few lesser savings goals. It took about a week to rework my planning spreadsheet for our new reality. In the end, if I retired right away, the odds of dining on dog food seemed low.

While I wasn’t happy about leaving on my employer’s terms, at least those terms meant I’d go with a good severance package. To be sure, the severance pay took a big haircut from taxes, because its December arrival was on top of a full year of normal income. Still, the money pushed us past our retirement savings target and did so ahead of schedule.

What can you learn from what happened to me? Here are six tips:

1. Save for an early retirement. According to a study of expected vs. actual retirement ages, most retirees leave the workforce sooner than planned. Only 24% of workers expect to retire at age 61 or younger, and yet 42% of retirees had stopped fulltime work by then. Having saved as though I was going to retire early helped me avoid panic when I was hit with my RIF.

2. Manage your career for the long term. When young, there’s a strong temptation to switch jobs for better pay. Indeed, in that career phase, job hopping can sometimes quickly boost your salary. My advice: Don’t let switching become a habit. While it may help in your 20s, it could cause you to miss valuable benefits when you reach your 40s and 50s. For instance, my former employer lets employees age 55 or older with 15 years of service keep nearly all their stock grants when they leave. That sort of valuable benefit may elude those who job hop.

3. Think about how you’ll replace your paycheck. From your first fulltime job until your late 40s, it’s fine to focus on saving for retirement and on maximizing your retirement portfolio’s return. But when you hit age 50, pause to consider exactly how you’ll turn your growing retirement account balances into dependable income. I realized we hadn’t amassed enough in our 401(k) and IRA to yield the level of paycheck-like income we wanted. We started a taxable investment account—one earmarked for retirement—and shoveled still more money into that.

4. Shed debt to shrink retirement needs. We paid off our mortgage—our only remaining debt—early on. That freed up more cash for savings, lowered our retirement income needs and simplified our finances. Perhaps it wasn’t the most financially rational thing to do, but I was happy we’d done it when my job went away late last year.

5. Choose “enough” to unlock happiness and help you achieve your retirement goals. In The Psychology of Money, Morgan Housel notes, “Enough is not too little. ‘Enough’ is realizing that the opposite—an insatiable appetite for more—will push you to the point of regret.” During my peak earning years, we avoided many choices that would have raised our lifestyle bar to a level that would have been unsustainable in retirement and which would have damaged our savings rate. We’ve never been super-frugal, like some friends I admire, but we found a sense of enough that left us with lifestyle expectations that are more like the Smiths than the Vanderbilts.

6. Invest in the heart, too. A life change like retirement is fraught with emotion, especially when—like mine—it occurs “off time,” a term Nancy Schlossberg uses in her book Too Young to Be Old. Schlossberg’s discussion of transitions helped me think through my late-in-life RIF. While my entire career has involved embracing and supporting faster change, and I understood my employer’s reasons for shedding employees, I needed to reframe this sudden life change in a way which made sense for me. I also noticed my wife of 35 years was experiencing different emotions around retirement. Planning a happy retirement for two also involves understanding and accommodating your partner’s different perspective and needs.

Now that a few months have passed, is kicking the paycheck habit what I want? I love building software, and I miss the people and problem-solving. I might return to fulltime work for the right role—one that involves meaningful work, and which uses my time and talents effectively. Still, for now, it’s a wonderful feeling to know that my time is solely my own.

David Powell loves thinking about personal finance, spending time with family and friends, traveling, hiking, cycling, music, exploring new restaurants and sampling wines. His software engineering interests are focused on new technologies that improve security and trust in computing systems and software supply chains. Check out David’s earlier articles.

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