Author Topic: Gradual Work Reduction???  (Read 11834 times)

tanzee

  • Stubble
  • **
  • Posts: 128
  • Location: Asheville, NC
Gradual Work Reduction???
« on: August 21, 2015, 08:36:49 AM »
I have a theoretical question for those forum members who are more knowledgeable on early retirement math than I.  It seems like the common practice among forum members and and early retirees in general is to set an FI goal and work full time until they reach it.  Then quit their jobs and live the FIRE life.  The question I have is whether or not it is advisable to pursue a gradual reduction in work while approaching FI.   I'll include some rough math just to illustrate the example.

Imagine I have a stash of $200 000 and a yearly budget of $15 000.  At that point, could I reduce my work load to the point where I would earn a net $20 000 for the year and still be able to stash away the profit from my invested stash and the surplus earnings every year.  And then, some years later, reduce work further as my stash approaches say $300 000. 

I realize that the obvious downside is extending the time to being completely financially independent, but I'm wondering if there are other downsides that my novice financial brain isn't aware of.  Thanks for the input, folks. 

humbleMouse

  • Bristles
  • ***
  • Posts: 297
  • Location: Minneapolis
Re: Gradual Work Reduction???
« Reply #1 on: August 21, 2015, 08:48:22 AM »
It all depends on what you are comfortable with.  Many people on here seem to be upper middle class family having types who are very conservative with risk.

Personally, I am a hippy artist type working a programmer job.  Once I hit 100k in the bank, I am going to stick it all in index funds and just work as a fine-dining server a couple nights a week.  That job is way more fun for me and allows me to live comfortably and focus on doing artist stuff and possibly taking programming contracts when I feel like it.


tanzee

  • Stubble
  • **
  • Posts: 128
  • Location: Asheville, NC
Re: Gradual Work Reduction???
« Reply #2 on: August 21, 2015, 09:31:32 AM »
That's pretty much what I'm contemplating here.  The thought of joining the rat race for the next 10-15 years in order to save up a half million or so is less appealing to me than pursuing a more balanced approach to FI.  Basically FU money with the intention of continuing to work as I see fit. 

humbleMouse

  • Bristles
  • ***
  • Posts: 297
  • Location: Minneapolis
Re: Gradual Work Reduction???
« Reply #3 on: August 21, 2015, 09:51:57 AM »
Yeah, I am only 23 years old so I am thinking if I can get 100k in index funds by age 25, I can let it compound for a long time and always have a growing nest egg while I do fun jobs like trying to be a yoga instructor or move to an obscure country and be a bartender on the beach or something.

AZDude

  • Handlebar Stache
  • *****
  • Posts: 1298
Re: Gradual Work Reduction???
« Reply #4 on: August 21, 2015, 09:53:42 AM »
I'm leaning toward the gradual reduction, as well. Making money is easy. I've always been able to make more money when I've wanted to, so I imagine "retirement" really being working 3 days a week with a large enough 'stache that going a couple months without income wont cause any panic.

lostamonkey

  • Bristles
  • ***
  • Posts: 454
  • Location: Canada
Re: Gradual Work Reduction???
« Reply #5 on: August 21, 2015, 10:18:29 AM »
In my field if you don't work full time and longish hours, you aren't going to make a decent salary. If I have to work full time for 10-15 years so I can not work for the rest of my life that's preferable to quitting full time work now and working "fun jobs" for the rest of my life. But different strokes and there is nothing wrong with a gradual reduction in work.

Roboturner

  • Bristles
  • ***
  • Posts: 492
  • Age: 30
  • Location: Colo-RAD-o
  • No Snacks, Just Math
Re: Gradual Work Reduction???
« Reply #6 on: August 21, 2015, 10:25:34 AM »
I realize that the obvious downside is extending the time to being completely financially independent, but I'm wondering if there are other downsides that my novice financial brain isn't aware of.  Thanks for the input, folks.

It will take more time not only in the basic sense (in that you have to work 2 years at 50% wage vs 1 year at 100% wage) but also in the time value of money respect - something to keep in mind, so its marginally longer than a straight 1:2 relationship

tanzee

  • Stubble
  • **
  • Posts: 128
  • Location: Asheville, NC
Re: Gradual Work Reduction???
« Reply #7 on: August 21, 2015, 11:16:47 AM »
I realize that the obvious downside is extending the time to being completely financially independent, but I'm wondering if there are other downsides that my novice financial brain isn't aware of.  Thanks for the input, folks.

It will take more time not only in the basic sense (in that you have to work 2 years at 50% wage vs 1 year at 100% wage) but also in the time value of money respect - something to keep in mind, so its marginally longer than a straight 1:2 relationship

Can you elaborate a bit?  Are you saying basically that having 10 bucks today is better than having 10 bucks in 5 years because you have the ability to invest the money for the 5 year term?  Or am I missing a piece?

Cassie

  • Walrus Stache
  • *******
  • Posts: 5739
Re: Gradual Work Reduction???
« Reply #8 on: August 21, 2015, 11:19:54 AM »
I don't see anything wrong with it as long as you realize that you will need to work much longer but maybe you would not mind since it would be p.t.  It might be your perfect solution if you really hate your field & working f.t.

Roboturner

  • Bristles
  • ***
  • Posts: 492
  • Age: 30
  • Location: Colo-RAD-o
  • No Snacks, Just Math
Re: Gradual Work Reduction???
« Reply #9 on: August 21, 2015, 11:23:44 AM »
Can you elaborate a bit?  Are you saying basically that having 10 bucks today is better than having 10 bucks in 5 years because you have the ability to invest the money for the 5 year term?  Or am I missing a piece?

Correct, also take into account inflation

For example, assuming a 5% interest rate, $100 invested today will be worth $105 in one year ($100 multiplied by 1.05). Conversely, $100 received one year from now is only worth $95.24 today ($100 divided by 1.05), assuming a 5% interest rate. (simple example from investopedia)


as well as the compounding nature of money

Assume that the future value of $10,000 five years from now is at 8%, but assuming quarterly compounding, we have quarterly r = 8%/4 = 0.02, and periods N = 4*5 = 20 quarters.

FV = PV * (1 + r)N = ($10,000)*(1.02)20 = ($10,000)*(1.485947) = $14,859.47

Assuming monthly compounding, where r = 8%/12 = 0.0066667, and N = 12*5 = 60.

FV = PV * (1 + r)N = ($10,000)*(1.0066667)60 = ($10,000)*(1.489846) = $14,898.46

$10,000 < $14,898.46

so

$10,000 today is 'worth' roughly 15k in 5 years

AZDude

  • Handlebar Stache
  • *****
  • Posts: 1298
Re: Gradual Work Reduction???
« Reply #10 on: August 21, 2015, 11:26:42 AM »
He is saying that if person A makes $100 in 1 year, and then retires he will have more money in year 3 than person B, who makes $50 in year 1 and then $50 in year 2, and then retires. Because, due to inflation, the $50 in year 2 is actually worth fewer *real* dollars than the $50 in year 1.

Plus you have the missed opportunity cost of what that $50 could have earned. If the market returns 8% and inflation is 3%, then person A has $100 year 1, ((100 * 1.08) * .97) => $104.76 in year 2.  Meanwhile, person B has $50 year 1, (50 * 1.08) * .97 + (50 * .97)  => $100.88 in year 2. So even though they both earned the same, person A ends up with about $4 more.

Now imagine we are dealing with $80K and $40K and over a 5-10 year time frame. It could be tens of thousands of dollars less.



teen persuasion

  • Handlebar Stache
  • *****
  • Posts: 1060
Re: Gradual Work Reduction???
« Reply #11 on: August 21, 2015, 11:43:10 AM »
Using the Roth conversion ladder becomes more difficult.  Your part time income may effectively fill up your 0 bracket, or at least limit the amount you can convert at 0 fed tax.

Roboturner

  • Bristles
  • ***
  • Posts: 492
  • Age: 30
  • Location: Colo-RAD-o
  • No Snacks, Just Math
Re: Gradual Work Reduction???
« Reply #12 on: August 21, 2015, 11:43:54 AM »
He is saying that if person A makes $100 in 1 year, and then retires he will have more money in year 3 than person B, who makes $50 in year 1 and then $50 in year 2, and then retires. Because, due to inflation, the $50 in year 2 is actually worth fewer *real* dollars than the $50 in year 1.

Plus you have the missed opportunity cost of what that $50 could have earned. If the market returns 8% and inflation is 3%, then person A has $100 year 1, ((100 * 1.08) * .97) => $104.76 in year 2.  Meanwhile, person B has $50 year 1, (50 * 1.08) * .97 + (50 * .97)  => $100.88 in year 2. So even though they both earned the same, person A ends up with about $4 more.

Now imagine we are dealing with $80K and $40K and over a 5-10 year time frame. It could be tens of thousands of dollars less.

+1 good exp.

tanzee

  • Stubble
  • **
  • Posts: 128
  • Location: Asheville, NC
Re: Gradual Work Reduction???
« Reply #13 on: August 21, 2015, 12:16:18 PM »
Thanks all.  That's helpful in understanding this stuff a little better.  I don't really mind my field in general, but the shelf life for me is really dependent on the work situation (I'm a mental health counselor).  So I'm just exploring different avenues for FI in order to maintain flexibility. 

mozar

  • Magnum Stache
  • ******
  • Posts: 3001
Re: Gradual Work Reduction???
« Reply #14 on: August 21, 2015, 02:18:13 PM »
It's possible hypothetically. It depends how hard you are willing to hustle to get that part time job. Part time jobs are hard to get, but I imagine it will get easier, as fewer and fewer companies are willing to pay benefits.  Things are changing so fast, in 5 years they might require you to go part time.

tanzee

  • Stubble
  • **
  • Posts: 128
  • Location: Asheville, NC
Re: Gradual Work Reduction???
« Reply #15 on: August 21, 2015, 02:44:30 PM »
Wow, that's a thought.  There was a whole series on Planet Money a while back about the future of work with technology supplanting many jobs.  Definitely worth a listen.

StetsTerhune

  • Bristles
  • ***
  • Posts: 451
Re: Gradual Work Reduction???
« Reply #16 on: August 22, 2015, 07:25:41 AM »
I think it depends on what you'd enjoy. I think in some ways it'd be fun to work random part time jobs in retirement. Or it could be super annoying and hold you back from doing what toy want.  As for me, I make so much money these days that i can't imagine I'd get anywhere near as much on a part time basis. I'd rather work one more year now than have to make 15k a year for the next 10.

BlueMR2

  • Handlebar Stache
  • *****
  • Posts: 2008
Re: Gradual Work Reduction???
« Reply #17 on: August 23, 2015, 12:56:52 PM »
...possibly taking programming contracts when I feel like it.

That's the way things should be.  Work as needed.

However, what I've found is that it takes a job to get a job.  People (like me) that have full time programming jobs get approached all the time about open positions.  However, among my friends I have several that lost their jobs and couldn't ever get another one despite being highly skilled.  There's a stigma to being jobless/not working in the industry.  Once you're out, you may never get back in...

k9

  • Stubble
  • **
  • Posts: 241
  • Age: 39
Re: Gradual Work Reduction???
« Reply #18 on: August 23, 2015, 01:59:23 PM »
Correct, also take into account inflation

For example, assuming a 5% interest rate, $100 invested today will be worth $105 in one year ($100 multiplied by 1.05). Conversely, $100 received one year from now is only worth $95.24 today ($100 divided by 1.05), assuming a 5% interest rate. (simple example from investopedia)

A 5% IR sounds like science-fiction nowadays. This low interest period is often said to be bad news for FIRE guys ; for instance, the YMOYL guy could live from a bunch of treasuries yeielding double-digits safe returns, while his strategy cannot be implemented this way anymore.

But low interest rates and low inflation are good news for people taking the part-time jobs route since, with today's low rates and low inflation, $100 today is almost $100 in one year. Compounding interests, in practice, only works for a long period of time and a big interest rate.

kpd905

  • Handlebar Stache
  • *****
  • Posts: 1734
Re: Gradual Work Reduction???
« Reply #19 on: August 23, 2015, 04:08:33 PM »

A 5% IR sounds like science-fiction nowadays. This low interest period is often said to be bad news for FIRE guys ; for instance, the YMOYL guy could live from a bunch of treasuries yeielding double-digits safe returns, while his strategy cannot be implemented this way anymore.


Nobody is suggesting that you put the money in the bank. 

The returns of the S&P 500 including dividends were:

2009: 26.46%
2010: 15.06%
2011: 2.11%
2012: 16.00%
2013: 13.69%

Ozapftis

  • 5 O'Clock Shadow
  • *
  • Posts: 27
Re: Gradual Work Reduction???
« Reply #20 on: August 23, 2015, 04:43:42 PM »
I have a theoretical question for those forum members who are more knowledgeable on early retirement math than I.  It seems like the common practice among forum members and and early retirees in general is to set an FI goal and work full time until they reach it.  Then quit their jobs and live the FIRE life.  The question I have is whether or not it is advisable to pursue a gradual reduction in work while approaching FI.   I'll include some rough math just to illustrate the example.

Imagine I have a stash of $200 000 and a yearly budget of $15 000.  At that point, could I reduce my work load to the point where I would earn a net $20 000 for the year and still be able to stash away the profit from my invested stash and the surplus earnings every year.  And then, some years later, reduce work further as my stash approaches say $300 000. 

I realize that the obvious downside is extending the time to being completely financially independent, but I'm wondering if there are other downsides that my novice financial brain isn't aware of.  Thanks for the input, folks.

I'd take your age into account as a parameter. If you haven't substantially advanced in your career by age 40, chances are very slim that you still will (there exist numerous studies on this topic). So, in case you're 40+ you can expect your current income and job position to be rather stable, exceptions aside of course.

If you're 35 or younger, however, I strongly recommend that you put a good amount of effort into your job, focus on advancing your career, and continue to work full time. Depending on the profession, you'll be able to generate a lot more income down the road this way and thus will find it easier to contribute to your stash. Also, reducing hours on a well paid job later provides you with additional flexibility.

tanzee

  • Stubble
  • **
  • Posts: 128
  • Location: Asheville, NC
Re: Gradual Work Reduction???
« Reply #21 on: August 23, 2015, 05:51:53 PM »
I have a theoretical question for those forum members who are more knowledgeable on early retirement math than I.  It seems like the common practice among forum members and and early retirees in general is to set an FI goal and work full time until they reach it.  Then quit their jobs and live the FIRE life.  The question I have is whether or not it is advisable to pursue a gradual reduction in work while approaching FI.   I'll include some rough math just to illustrate the example.

Imagine I have a stash of $200 000 and a yearly budget of $15 000.  At that point, could I reduce my work load to the point where I would earn a net $20 000 for the year and still be able to stash away the profit from my invested stash and the surplus earnings every year.  And then, some years later, reduce work further as my stash approaches say $300 000. 

I realize that the obvious downside is extending the time to being completely financially independent, but I'm wondering if there are other downsides that my novice financial brain isn't aware of.  Thanks for the input, folks.

I'd take your age into account as a parameter. If you haven't substantially advanced in your career by age 40, chances are very slim that you still will (there exist numerous studies on this topic). So, in case you're 40+ you can expect your current income and job position to be rather stable, exceptions aside of course.

If you're 35 or younger, however, I strongly recommend that you put a good amount of effort into your job, focus on advancing your career, and continue to work full time. Depending on the profession, you'll be able to generate a lot more income down the road this way and thus will find it easier to contribute to your stash. Also, reducing hours on a well paid job later provides you with additional flexibility.

This is kind of where my thinking is headed.  I'm 30 and I have a Master's in Counseling.  I'm hoping to enroll in a PhD program next fall with the hope of being a professor down the road. So not the easiest job to switch to part time.  But it does provide an alternative path for those of us who aren't solely focused on being totally financially independent, but generally agree with mustachianism. 

ender

  • Magnum Stache
  • ******
  • Posts: 4864
Re: Gradual Work Reduction???
« Reply #22 on: August 23, 2015, 06:10:34 PM »
I plan on doing something like this someday.

Also, just a note on the "live on interest" stuff, it all depends on what inflation is. You might get 5% at the bank for interest but if inflation is 7% you are in bad shape, just as if you have a 0% interest rate but inflation is 2%.

Most people looking back on the days of super high interest rates forget this.

Mr FrugalNL

  • Stubble
  • **
  • Posts: 131
  • Location: Netherlands
Re: Gradual Work Reduction???
« Reply #23 on: August 24, 2015, 12:46:39 AM »
He is saying that if person A makes $100 in 1 year, and then retires he will have more money in year 3 than person B, who makes $50 in year 1 and then $50 in year 2, and then retires. Because, due to inflation, the $50 in year 2 is actually worth fewer *real* dollars than the $50 in year 1.

Plus you have the missed opportunity cost of what that $50 could have earned. If the market returns 8% and inflation is 3%, then person A has $100 year 1, ((100 * 1.08) * .97) => $104.76 in year 2.  Meanwhile, person B has $50 year 1, (50 * 1.08) * .97 + (50 * .97)  => $100.88 in year 2. So even though they both earned the same, person A ends up with about $4 more.

Now imagine we are dealing with $80K and $40K and over a 5-10 year time frame. It could be tens of thousands of dollars less.

+1 good exp.

Good points, but don't forget to factor taxes into it. This is especially relevant to jurisdictions that tax income very progressively. The difference between the highest and second-highest tax bracket where I live is 10%, for example. If full-time work puts OP into a higher tax bracket than part-time work, then the added value of the additional hours worked is less. Could still be worthwhile of course, depending on the variables.
« Last Edit: August 24, 2015, 12:48:17 AM by Mr FrugalNL »

marty998

  • Walrus Stache
  • *******
  • Posts: 6480
  • Location: Sydney, Oz
Re: Gradual Work Reduction???
« Reply #24 on: August 24, 2015, 02:20:32 AM »
I'm one who is going to subscribe to this gradual work reduction thingo. From mid next year planning to go to a 4 day week using 1 day week annual leave as a trial, before going to a 4 day week permanently. If it extends my FIRE day by a year or 2 then so be it. Not a lot of difference between 35 and say 37, still 25 years more than most.



A 5% IR sounds like science-fiction nowadays. This low interest period is often said to be bad news for FIRE guys ; for instance, the YMOYL guy could live from a bunch of treasuries yeielding double-digits safe returns, while his strategy cannot be implemented this way anymore.


Nobody is suggesting that you put the money in the bank. 

The returns of the S&P 500 including dividends were:

2009: 26.46%
2010: 15.06%
2011: 2.11%
2012: 16.00%
2013: 13.69%

Notice you left out the current year (to date)    :D

velocistar237

  • Handlebar Stache
  • *****
  • Posts: 1422
  • Location: Metro Boston
Re: Gradual Work Reduction???
« Reply #25 on: August 24, 2015, 08:20:35 AM »
I've run this trade-off. I can work for 4 more years full time or 8 years half time.

In my field if you don't work full time and longish hours, you aren't going to make a decent salary.

Also, some companies and fields just don't have part-time options, and if you manage to negotiate it, what are the odds that they'll give you an ultimatum after a year or two?

However, what I've found is that it takes a job to get a job.  People (like me) that have full time programming jobs get approached all the time about open positions.  However, among my friends I have several that lost their jobs and couldn't ever get another one despite being highly skilled.  There's a stigma to being jobless/not working in the industry.  Once you're out, you may never get back in...

Unless you start your own contracting business. Whether or not you have many clients has nothing to do with what goes on your resume. Dunno how hard that is to set up, though.

robartsd

  • Handlebar Stache
  • *****
  • Posts: 2423
  • Location: Sacramento, CA
Re: Gradual Work Reduction???
« Reply #26 on: August 24, 2015, 09:32:00 AM »
Assuming part-time wage does not keep pace with inflation, the value of future work is less than the value of current work; however, the time value of money already invested and tax implications of a lower income might (more than?) make up for the difference. In some situations this choice might lead to fewer total lifetime hours of work.

AZDude

  • Handlebar Stache
  • *****
  • Posts: 1298
Re: Gradual Work Reduction???
« Reply #27 on: August 24, 2015, 09:54:32 AM »
Many people end up working P/T after FIRE anyway, so unless you are just all-in on doing nothing, which I can totally understand if you are, then a farther FIRE date probably does not matter.

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1211
  • Age: 39
  • Location: Texas
Re: Gradual Work Reduction???
« Reply #28 on: August 24, 2015, 10:16:16 AM »
I knew a guy that made a deal with his boss. Instead of getting more raises, he took off of work whenever he wanted. If the fish were biting, he went fishing. If it was hunting season, he'd be out for days at a time without needing to ask off. Obviously, he had a good relationship with his boss and they made it work. He worked a full career of ~30 years but a good chunk of it was on his own terms.

Most people on here that have already retired early or are pursuing it, expect to work side gigs on their own terms while in retirement anyways. If you have a job that you don't mind, my friend's strategy may be fine for you.

eliza

  • Bristles
  • ***
  • Posts: 367
Re: Gradual Work Reduction???
« Reply #29 on: August 24, 2015, 05:56:37 PM »
I'm planning something similar.  The goal is to keep working for a few more years until I hit $450,000.00 in investments and save up $35,000 to fund a round-the-world trip.   I figure I'll travel until the $35M is gone and then figure out what is next. 

I believe I could live on $1,500 a month, but I will likely choose to work a bit to fund luxuries.


Able was I ERE

  • Stubble
  • **
  • Posts: 160
  • Location: Austria
    • FIREhub.eu
Re: Gradual Work Reduction???
« Reply #30 on: August 24, 2015, 06:31:29 PM »
Sounds like an excellent idea to me.  I currently work 4 days / week and may gradually taper off.  Per my calculations in this thread (Anyone calculate portfolio growth without additional contributions?), I could work only enough to support my current expenses and still be FI within 9 years.  Or keep working as-is and be FI in 4 years.  Tapering off would be an in-between value between those two extremes.

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 6752
Re: Gradual Work Reduction???
« Reply #31 on: August 24, 2015, 07:17:16 PM »
I work 4 days per week now and just offered to work 3 days per week next year to help the company's cash flow.

I'd much rather work part-time for 10 more years and have time off now than work full time for 5-6yrs and never have to work again.

No wrong choice here. Just depends on what your goals are and how you evaluate the risk proporition.

My thinking is I don't need 12 months off a year to have an awesome life, but every day of non-working fun time I get under my belt now is great and can't be taken away from me if I die early.

dess1313

  • Bristles
  • ***
  • Posts: 441
  • Location: Manitoba Canada
Re: Gradual Work Reduction???
« Reply #32 on: August 24, 2015, 08:16:08 PM »
I am also thinking of doing the part time route eventually once i have things under control and in shape here at home.  I'd rather have them pay for my fun gradually while working part time than run a constant hard core rat race.  Here the tax brackets help, as part timers fall into a lower bracket that helps a bit.  Also helps you wind down the expenses and get used to lower incomes gradually.

Spruit

  • Handlebar Stache
  • *****
  • Posts: 1203
  • Location: Netherlands
Re: Gradual Work Reduction???
« Reply #33 on: August 25, 2015, 04:16:33 AM »
Fun to read how you (mostly) US peeps regard working parttime. I think it was mentioned earlier, but it depends on the incentives by taxes too. In the Netherlands we have a progressive tax system, so whoever earns more (i.e. works more hours, if we pressume same hourly wage) has to pay a higher percentage of income tax. I believe in the US it is actually the opposite, right? A degressive tax system. So I guess in the US it pays off to earn as much as you can over a short time period, as you get to keep increasingly more of what you're paid as you earn more. I guess that's why most US mustachians work their ass off now, to get to FIRE asap. But maybe the lack of parttime jobs forces it this way.

In NL it is considered very normal to work parttime. Actually, in some industries it's hard to acquire a fulltime position even if you wanted one (education, health care etc.). This country has the highest percentage of employed citizens in Europe (measured as working 1 hour or more per week), and also the highest degree of people working parttime (almost half of all employees work parttime, both men and women). Remarkably, us Dutch parttimers are very happy working less hours: only 3,3% wants to work more hours if available, the rest is content with their current work-life balance.
It's definitely a cultural thing here to voluntarily opt out of working 40+ hours a week - and I feel very grateful that it is! Finding a parttime position is very doable this way.

I work parttime at the moment (28 years of age), but I work 5 half days a week. I would ideally like to bring it down to 2 or 3 days eventually to have more free days on my hands. To acchieve that later on, I'm okay with working fulltime for the next few years if the chance presents itself. However, this will only be worthwhile if my hourly wage also increases, otherwise I'd just be working more to pay more taxes. And I actually really like my current job, so it would have to be a good offer to switch.

tanzee

  • Stubble
  • **
  • Posts: 128
  • Location: Asheville, NC
Re: Gradual Work Reduction???
« Reply #34 on: August 25, 2015, 05:48:29 AM »
Fun to read how you (mostly) US peeps regard working parttime. I think it was mentioned earlier, but it depends on the incentives by taxes too. In the Netherlands we have a progressive tax system, so whoever earns more (i.e. works more hours, if we pressume same hourly wage) has to pay a higher percentage of income tax. I believe in the US it is actually the opposite, right? A degressive tax system. So I guess in the US it pays off to earn as much as you can over a short time period, as you get to keep increasingly more of what you're paid as you earn more. I guess that's why most US mustachians work their ass off now, to get to FIRE asap. But maybe the lack of parttime jobs forces it this way.

In NL it is considered very normal to work parttime. Actually, in some industries it's hard to acquire a fulltime position even if you wanted one (education, health care etc.). This country has the highest percentage of employed citizens in Europe (measured as working 1 hour or more per week), and also the highest degree of people working parttime (almost half of all employees work parttime, both men and women). Remarkably, us Dutch parttimers are very happy working less hours: only 3,3% wants to work more hours if available, the rest is content with their current work-life balance.
It's definitely a cultural thing here to voluntarily opt out of working 40+ hours a week - and I feel very grateful that it is! Finding a parttime position is very doable this way.

I work parttime at the moment (28 years of age), but I work 5 half days a week. I would ideally like to bring it down to 2 or 3 days eventually to have more free days on my hands. To acchieve that later on, I'm okay with working fulltime for the next few years if the chance presents itself. However, this will only be worthwhile if my hourly wage also increases, otherwise I'd just be working more to pay more taxes. And I actually really like my current job, so it would have to be a good offer to switch.

Yeah, I'm routinely amazed by how well the Dutch have it figured out.  My father is from Holland (I'm American) so I've had the good fortune to spend lots of time there.  It seems to me that mustachianism is much more the norm in Holland than in the States. 

I think the US tax system is broadly speaking progressive, but that there are certain loopholes that mean that certain wealthy people pay lower taxes than their poor counterparts.  So if my wages went up, so would my tax contributions, because I make a relatively low salary.  But if I was living off of my investments, I would pay much lower taxes under a capital gains tax bracket.  Others here would likely know a lot more about it, but that is my understanding. 

Gray Matter

  • Magnum Stache
  • ******
  • Posts: 3643
  • Location: Midwest
Re: Gradual Work Reduction???
« Reply #35 on: August 25, 2015, 06:02:45 AM »
I am doing gradual work reduction, though I am much older than you are (44 and counting).  I ramped up my career from 30-43 and made a good living in the financial services.  Unfortunately, I hadn't found MMM until the last two years, so we spent way more than we saved, but we did max out our 401(k)s during that time and have decent retirement savings.  I could have pushed ahead and worked full-time for 3-5 more years in order to be FIRE (was, in fact, offered a promotion that would get us there faster).  But I was burned out and wanted to move to non-profit work, and so that's what I did.

I have been in my new job (80% time) for just over a year and am much happier (although still fantasize about retiring).  I took a substantial pay cut to do this, pushing FIRE out to 6-8 years instead of 3-5, but it's worth it to me.  I may go even more part-time and reduce responsibility at some point, even if it pushes FIRE further out.  My personality is such that I think I may be better suited to working part-time (40-50%) in a job that is really rewarding than to full-on FIRE.

One thing I would say about getting a Ph.D. and becoming a professor--I would only do that if you have a burning passion for the work, are willing to work extremely hard in a competitive field, don't care where you live, and don't need to earn much.  I think professors can have excellent quality of life at some point in there careers, but they invest a lot of hard work and time to get there.

Good luck with your decisions!  I think it's possible to look at work as an important part of the journey, not just the means to the end (FIRE).  There are lots of people here who view it that way.

ender

  • Magnum Stache
  • ******
  • Posts: 4864
Re: Gradual Work Reduction???
« Reply #36 on: August 25, 2015, 07:13:24 AM »
Fun to read how you (mostly) US peeps regard working parttime. I think it was mentioned earlier, but it depends on the incentives by taxes too. In the Netherlands we have a progressive tax system, so whoever earns more (i.e. works more hours, if we pressume same hourly wage) has to pay a higher percentage of income tax. I believe in the US it is actually the opposite, right? A degressive tax system. So I guess in the US it pays off to earn as much as you can over a short time period, as you get to keep increasingly more of what you're paid as you earn more. I guess that's why most US mustachians work their ass off now, to get to FIRE asap. But maybe the lack of parttime jobs forces it this way

The US definitely has a progressive tax system. There are a lot of weird quirks, but in general your marginal tax rate increases as your income goes up.

The work culture in the US is definitely more of a "work lots of hours" culture though. Many other countries have a lot more laws/restrictions on what salaried (or exempt) types of employees can work than the USA though. Some are worse too (such as India).

AZDude

  • Handlebar Stache
  • *****
  • Posts: 1298
Re: Gradual Work Reduction???
« Reply #37 on: August 25, 2015, 09:48:28 AM »
Fun to read how you (mostly) US peeps regard working parttime. I think it was mentioned earlier, but it depends on the incentives by taxes too. In the Netherlands we have a progressive tax system, so whoever earns more (i.e. works more hours, if we pressume same hourly wage) has to pay a higher percentage of income tax. I believe in the US it is actually the opposite, right? A degressive tax system. So I guess in the US it pays off to earn as much as you can over a short time period, as you get to keep increasingly more of what you're paid as you earn more. I guess that's why most US mustachians work their ass off now, to get to FIRE asap. But maybe the lack of parttime jobs forces it this way

The US definitely has a progressive tax system. There are a lot of weird quirks, but in general your marginal tax rate increases as your income goes up.

The work culture in the US is definitely more of a "work lots of hours" culture though. Many other countries have a lot more laws/restrictions on what salaried (or exempt) types of employees can work than the USA though. Some are worse too (such as India).

I think the fact that investment income is taxed lower is what is confusing. The "super rich", or just FI mustachians, pay far lower in taxes than someone who earns a lot of money through a job.

humbleMouse

  • Bristles
  • ***
  • Posts: 297
  • Location: Minneapolis
Re: Gradual Work Reduction???
« Reply #38 on: August 25, 2015, 10:18:55 AM »
...possibly taking programming contracts when I feel like it.

That's the way things should be.  Work as needed.

However, what I've found is that it takes a job to get a job.  People (like me) that have full time programming jobs get approached all the time about open positions.  However, among my friends I have several that lost their jobs and couldn't ever get another one despite being highly skilled.  There's a stigma to being jobless/not working in the industry.  Once you're out, you may never get back in...


See, this is the only thing I am worried about right now.  It is very scary seeing all these jobs wanting 7+ years doing "web programming".  Do these people understand that the  web 7 years ago is nothing like it is these days?  Do they understand that once you understand how HTTP/DOM/Businesslogic/Databases work, you can pretty much program anything for anyone? /pontification

MayDay

  • Magnum Stache
  • ******
  • Posts: 4015
Re: Gradual Work Reduction???
« Reply #39 on: August 25, 2015, 10:38:49 AM »
We hope to go part time.  But will it actually happen?  I don't know.  Probably more likely is a "full time" but really 40 hours job that is easy and low stress.  Or a 9 month appointment at an academic institution.  Something like that. 

ShaneD

  • Stubble
  • **
  • Posts: 184
Re: Gradual Work Reduction???
« Reply #40 on: August 25, 2015, 10:47:05 AM »
Another here doing fewer hours now over a longer haul. The basic trade-off is money vs. time: which now, and which later. Like Vikb said, there's no wrong answer here; just a preference of priority. Due to my family's circumstances, we've chosen more free time now.

NathanP

  • Stubble
  • **
  • Posts: 136
Re: Gradual Work Reduction???
« Reply #41 on: August 25, 2015, 02:45:03 PM »
I am a SW engineer in the US and plan to drop to 30 hr/week soon. Both my current and previous employer offer full benefits for 30 hours per week with a linear reduction in salary. My wife on the other hand has a job that is all or nothing. She is either 45-50 hrs+ or must take a lesser position with a significant pay decrease.

By dropping hours, I can get our income safely within the 15% bracket and qualify for Traditional IRA deductions which will help to offset the lost salary. My children will also appreciate the extra time I can spend with them after school.

In summary, I am in favor of cutting back especially if you already have children.

k9

  • Stubble
  • **
  • Posts: 241
  • Age: 39
Re: Gradual Work Reduction???
« Reply #42 on: September 09, 2015, 08:25:09 AM »
Nobody is suggesting that you put the money in the bank. 

The returns of the S&P 500 including dividends were:

2009: 26.46%
2010: 15.06%
2011: 2.11%
2012: 16.00%
2013: 13.69%
And you chose the 2009-2013 period because... ? ;)

More seriously, though. There is a risk premium associated with stocks when compared to FI because, well, they're risky (volatile). But the return of stocks depends a lot on FI's returns. Because, since the markets are supposed to be efficient, when FI give a shitty yield, people fly to stocks, until stocks appear overvalued when compared to FI's low-but-safe returns. So, whatever the return on FI, the long-term return on stocks usually is treasuries + 1% to treasuries + 2%.

TL;DR If you want your stocks to produce juicy returns, you better hope treasuries have a decent after-inflation-yield.

Jellyfish

  • Stubble
  • **
  • Posts: 154
  • Age: 47
Re: Gradual Work Reduction???
« Reply #43 on: September 09, 2015, 09:22:56 AM »
I have scaled down to 80% pay and 80% hours.  It may theoretically push my FIRE date back a bit but I have a 10 year old now and this lets me be home with him after school.  I would rather do that than work full time and be FIRE at the time he leaves home and doesn't need me anymore. As it is, I will still probably FIRE about the time he graduates high school, but the potential trade off (if there is one) is worth it. 

epipenguin

  • Stubble
  • **
  • Posts: 124
Re: Gradual Work Reduction???
« Reply #44 on: September 09, 2015, 01:56:31 PM »
I currently work 20 hours a week at the day job, and am trying to build up my fun/semi-retirement business up on the side. I started by going down to 30 hours, and then transitioned to 20 after a few years. It's been slow going with the side job, I admit. I had assumed that I would have been fully transitioned to that by now but I count my blessings constantly that I don't have to do the high stress nonsense any more. And even though my day job is still the same old job I used to do, the fact that I have removed myself from the promotion track and my employer (miraculously) lets me turn down work projects if I don't have time means that it is WAY more tolerable than it used to be.

I do still max my IRA and HSA, and put money in my 401k, although I don't max the 401k. I'm on track to totally retire by 59/60 even if I don't put another penny in. Hopefully it'll be more like 55. But I still would like to do my fun job at least part time/seasonally anyway. So I missed retiring at 40 but I really don't mind. Having more time during the week has been wonderful. The next step will be time to travel but that's waiting for retirement.

AZDude

  • Handlebar Stache
  • *****
  • Posts: 1298
Re: Gradual Work Reduction???
« Reply #45 on: September 09, 2015, 02:41:49 PM »
I currently work 20 hours a week at the day job, and am trying to build up my fun/semi-retirement business up on the side. I started by going down to 30 hours, and then transitioned to 20 after a few years. It's been slow going with the side job, I admit. I had assumed that I would have been fully transitioned to that by now but I count my blessings constantly that I don't have to do the high stress nonsense any more. And even though my day job is still the same old job I used to do, the fact that I have removed myself from the promotion track and my employer (miraculously) lets me turn down work projects if I don't have time means that it is WAY more tolerable than it used to be.

I do still max my IRA and HSA, and put money in my 401k, although I don't max the 401k. I'm on track to totally retire by 59/60 even if I don't put another penny in. Hopefully it'll be more like 55. But I still would like to do my fun job at least part time/seasonally anyway. So I missed retiring at 40 but I really don't mind. Having more time during the week has been wonderful. The next step will be time to travel but that's waiting for retirement.

^ this sounds like the way to go. Curious though, do you work 3 normal days a week, or like five days of four hours? Or is it flexible and you do whatever you want as long as you are there 20 hours?

k9

  • Stubble
  • **
  • Posts: 241
  • Age: 39
Re: Gradual Work Reduction???
« Reply #46 on: September 10, 2015, 02:12:26 AM »
And even though my day job is still the same old job I used to do, the fact that I have removed myself from the promotion track and my employer (miraculously) lets me turn down work projects if I don't have time means that it is WAY more tolerable than it used to be.
[...] Having more time during the week has been wonderful.

This. Mrs. K9 took that road rather than going full-time work then RE. She says quite the same : "my colleagues are under pressure, but not me, because I don't give a shit anymore". She only works on the afternoons, at even not all of them, mind you. She has a fun, side job and she might even quit if main job was becoming a nightmare even for her. Maybe I'll follow her tracks once the mortgage is repaid and I have a minimal stache (in, say, 2 years), because this is much more efficient in France than the full-time-then-full-retirement scheme when you consider the total # of hours worked in your life (because of taxes and pensions).

epipenguin

  • Stubble
  • **
  • Posts: 124
Re: Gradual Work Reduction???
« Reply #47 on: September 10, 2015, 07:11:23 AM »
I currently work 20 hours a week at the day job, and am trying to build up my fun/semi-retirement business up on the side. I started by going down to 30 hours, and then transitioned to 20 after a few years. It's been slow going with the side job, I admit. I had assumed that I would have been fully transitioned to that by now but I count my blessings constantly that I don't have to do the high stress nonsense any more. And even though my day job is still the same old job I used to do, the fact that I have removed myself from the promotion track and my employer (miraculously) lets me turn down work projects if I don't have time means that it is WAY more tolerable than it used to be.

I do still max my IRA and HSA, and put money in my 401k, although I don't max the 401k. I'm on track to totally retire by 59/60 even if I don't put another penny in. Hopefully it'll be more like 55. But I still would like to do my fun job at least part time/seasonally anyway. So I missed retiring at 40 but I really don't mind. Having more time during the week has been wonderful. The next step will be time to travel but that's waiting for retirement.

^ this sounds like the way to go. Curious though, do you work 3 normal days a week, or like five days of four hours? Or is it flexible and you do whatever you want as long as you are there 20 hours?

It's flexible. The job is more about getting stuff done and meeting deadlines rather than face to face interactions with people so the exact hours don't matter. My boss does like to have some predictability so I generally try to stick to a somewhat similar schedule from week to week, and ideally he'd like me there every day even if it's for a short time so I usually go in 4 or 5 days a week. Some days I might only be there for 2 or 3 hours though as I try to do 2 regular length days and then mix things up the rest of the time.

Fishindude

  • Handlebar Stache
  • *****
  • Posts: 2119
Re: Gradual Work Reduction???
« Reply #48 on: September 10, 2015, 07:44:50 AM »
My plan is one more year of full time work, five years after that of part time (6-800 hours annual) work where I will continue to still receive insurance benefits and be able to contribute to 401K, etc., then full time goof off at 62 years old.

A part time situation for seasoned employees can be a great deal for both the company and the employee.   Allows employee to gradually transition into retirement, and company retains a skilled, seasoned employee they don't have to worry about to do special projects, mentor new younger employees, etc.

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8356
  • Age: 63
  • Location: The Villages, Florida
Gradual Work Reduction???
« Reply #49 on: September 10, 2015, 07:58:20 AM »
I went from full time (9 years) to 75% (1 year) to 50% (1 year) to project-based hourly (8 months so far), all with the same consulting firm. I much prefer billing hourly. The problem with reduced hours consulting is that issues come up when you are off the clock and you need to deal with them. Although I tried to take comp time off, I still ended up working more hours than my contract called for. Being able to bill every minute I work eliminates the problem. It also works out well for the firm. If they get a call Friday afternoon from a client for some task that needs to be done by Monday morning, they give it to me. My husband is retired, our hours are flexible. The work gets magically done. The wage slaves get the weekend off. Everyone is happy.