You are experiencing the “One More Year Syndrome” (OMYS), because your FIRE plan isn’t bulletproof yet. You might need to review your plan and/or your finances so that you feel comfortable to finally claim that you are Financially Independent.
What is the One More Year Syndrome?
You are a few months, weeks, or days away from reaching your FI number, the FIRE holy grail! You have worked so hard for it. However, you are feeling anxious about pulling the trigger and switching to your new, hard-earned life. There are many reasons why you are uncomfortable. Two of the main explanations are your finances and the global economic outlook. Do you have enough money in the bank to sustain your lifestyle till your very last day and beyond?
Trust your gut
Whenever we approach a new life event, we are unease. Indeed, we are feeling stressed because of the unknown, which is totally normal. However, it is difficult to discern it from doubting the plan. In my humble opinion, you may just listen to your inner voice and ask yourself a couple of questions.
Is your plan sound?
Many variables need to be taken into consideration. Some are within our control and foreseeable, which is fantastic but these are rather limited when you are planning for the next 40 to 60 years. Others are within our control but not foreseeable, which applies to many things in life, for example extra expenses due to healthcare or new family member. Then, some others are out of our control and foreseeable, such as increase in education expenses, and ultimately, they are the events which are out of control and unforeseeable, such as, well, war induced price surge.
Rule of thumb, one shall not worry about those which are out of control. Otherwise, you might experience a feeling of helplessness. That said, you should still plan accordingly. As we say, “hope for the best, but plan for the worse”.
Review your assumptions
How did you compute your FI number? Did you multiply your yearly expenses by 25, or 33? So, you are planning withdrawal rate of 4% or 3.33%? This approach is simple but only gives you a ballpark number. I wouldn’t set our lives on a path by oversimplified calculations.
In fact, today’s expenses might not represent your expenses in the future. Naturally, these form a good starting point, but you should also consider extra costs. You might need to budget for your kids’ education and/or added healthcare costs as you are getting older. These can vary greatly depending on the places you decide to live.
Have you under-budgeted?
You should accept that you might have underestimated your budget need. It is rather common and tempting to do so as you have been twisting your plan all you can, making many compromises in order to exit the rat race at the earliest possible. However, there are many expenses which may turn out to be more substantial than previously assumed. And I am not even mentioning the 2022 inflation rate which averages around 10% for the OECD countries. As mentioned in my previous post, Treat yourself with holidays for a happy and successful retirement!, you will need to take vacation trips. It is something that we have under-budgeted as we envisioned RE to be our everlasting holidays.
“If you constantly check if you can afford something, you are not truly Financially Independent.”
Mama FC
We are happy parents of three wonderful young children. However, our expenses were initially calibrated for only two kids. And for some items, we have to increase our costs by more than proportional. For example, in order to put 3 car seats in a car, we needed a larger car. Also, wherever we travel, beyond the extra seat, we now must take an extra room or a suite, whereas a single room was still manageable/allowed for a 2+2 family. If you add the education cost over 20 years, it accumulates significantly. But too avoid any misunderstanding, I need to state that our children are worth every penny, and even more.
Earning more now or later?
We are very glad that we stretched our work life by an extra year and accumulated more wealth. At that time, we were in our prime years of earnings. It was easy to just continue working and to make good money. If I were to go back to work after almost three years or RE, I doubt I could request a similar package. I would likely have to accept a discount over my last salary.
Assuming that you would accept a 25% salary discount on you last payslip, you would need to work 33% more to just make it back up to 100%. So, 12 months of earnings now, worth almost 16 months later in life. And this is to assume that you get a job right away, which could be unrealistic depending on market. In the best scenario, it would take a few months to go through the hiring process between hiring budget approval and the several round of interviews. As an optimistic assumption, let say the process takes two months. So, the 12 months’ income now, would be worth at least 18 months of your life later. I let you add the loss of opportunity for this income to compound over the gap years. Finally, you also need to add the emotional stress associated with an insufficient portfolio. Now, it is all up to you to decide.
Emotionally, it is difficult to accept having to go back to work full time for a lower salary when you are currently enjoying 100% of our time. As time passes by, remaining lifespan shortens, time is even more valuable than a few years back, and in order to trade time for money, one would request a higher salary than before. However, life and work don’t work that way. When one decides to stop his career, he also implicitly waves goodbye to his employability and his bargaining power to make a significant salary.
Better to be safe than sorry
Unless your work puts you in an unbearable or dangerous situation, I would recommend staying a bit longer at work and accumulating some extra buffer. This extra buffer will be more than welcome later when you are faced with unexpected expenses, drop in wealth, or the prospect of returning to work doesn’t appear to be a realistic or attractive proposition.
How much more? How much longer?
Buffer is a nice cushion, but some will likely need more than others. People without kids may be able to tighten their belt and be flexible when times become challenging, whilst parents may not have much flexibility in their budget. We decided to put our kids in private international school which represents a significant share of our yearly expenses (~15%). When times are fine, we are more than happy to spend the money. In case of a real financially catastrophic event, we would likely scale down and return to a free public education. This could be our downsize scenario, and we surely do not hope to assess this possibility at all. Otherwise, it would mean that we are not truly Financial Independent.
What did we do?
I remembered looking for an answer to the OMYS question a few years back when we were getting closer to our FI number. Around that time, there was a small market drop which took us a few steps back from attaining our FI number. We sold some assets due to panic, just to observe the market picking up quickly after. After the incident, I decided to make it up by working a few extra months, and rounded it up to almost a year, as we were planning to align the beginning of our early retirement with the education schedule of our daughter. Indeed, it did not make much sense to work for just 3-4 extra months as we planned to relocate after. Since a few extra months would mean we are completely off the school calendar.
We are more than grateful for this extra year of prime-year income. What initially appeared like a step back when the market dropped and we panic sold, turned out to be a blessing. It simply encouraged us to top up for the wealth reduction, and build a little extra buffer. We also benefited from a nice bull market (+20% in 2020 and +21% in 2021) which compounded our buffer, helped to soften the impact of -30% drop in 2022. If we had to do it over, I would still work longer and earn more than the initial FI number. The Sequence of Return Risk is very real. Unless you enjoy financial and emotional rollercoaster, I would suggest you earn some extra money and set it aside for a more peaceful future. But how much more? Only you can tell.
More research
The OMYS has been discussed before in other blogs. For the most part, people who did work an extra year are grateful that they made that decision, as we are. I would suggest you to read Fritz’s point of view in his Retirement Manifesto, or Karsten’s detail financial simulations in his post about the Effect of One More Year.
And you, did you experience the One More Year Syndrome? What did you do? How long extra did you work and why? Do you regret working or not working more? Please share your experience to help other aspiring FIRE participants who might struggle to find their own answers. Stay positive and Happy Fire Cracking!