The Transition: Leaving Work Well

Reaching the number and leaving work are two different events. Between them sit practical decisions (when to leave, what to do with workplace accounts, how to cover the first years) and personal ones that spreadsheets ignore: what fills the days, who you see, and who you are when nobody asks what you do. This chapter covers both, including the habit of working "one more year" and how a little income in the early years can do more for a plan than another year of saving.

One more year

Many people who reach their number keep working anyway. Another year of saving makes the plan safer, the job is familiar, and leaving feels irreversible. This is often called one-more-year syndrome, and it is not always a mistake. A year that turns a tight plan into a comfortable one can be well spent.

The trouble is that each extra year buys less safety than the one before, while costing the same year of your life. A useful way to decide is to write down, before you reach the number, what would make the plan good enough: a withdrawal rate you accept, a cash buffer of a set size, health coverage lined up, and a test of the budget (below). When those are met, the case for another year has to be about something other than fear. If you still want to work because you like the work, that is a fine reason; it is just a different one.

A little income goes a long way

The first years of retirement carry the most risk, because a market fall while you are withdrawing does lasting damage (Chapter 8). Income in those years, even modest, lowers what you take from the portfolio exactly when it matters most.

The two cards below use a steady return to isolate that effect. They show the same portfolio over the same 50 years; in the second, part-time work covers part of the spending, so the withdrawal rate is lower.

With $1,000,000 and a first-year withdrawal of $50,000, the money does not last all 50 years on these assumptions (lasts: no). If part-time income lowers the withdrawal to $35,000, it does (lasts: yes). The highest steady rate that lasts here is 3.7%. In real life the part-time work would probably not run for all 50 years, but even a few years of it in the riskiest stretch helps. The barista FIRE calculator models a mix of portfolio and earnings.

This is why many people treat early retirement as a change of work rather than an end to it: consulting in their old field, seasonal work, teaching, or a small business built around something they enjoy.

Practical steps before you leave

The last year of work has a checklist of its own.

• Time the exit. Check when bonuses are paid, when stock grants and employer contributions vest, and whether staying a few more weeks finishes a vesting schedule. Leaving just before a vesting date can cost a large sum for no reason.
• Decide what to do with the workplace plan. Rolling a 401(k) into an IRA gives you more investment choices and makes 72(t) payments and Roth conversions simpler. But if you leave in or after the year you turn 55, keeping the money in that employer's plan preserves the rule of 55, which lets you withdraw without the 10% additional tax. A rollover gives that up. Chapter 5 covers both routes.
• Line up health coverage. Know whether you will use COBRA or the marketplace, and remember that losing job-based coverage opens a 60-day window to enroll in a marketplace plan (Chapter 6).
• Hold a cash buffer. One to two years of spending in cash or short-term bonds lets you avoid selling stocks after a fall in the first years. It also covers the gap while you set up withdrawals.
• Set up the first year's income. Decide which accounts pay for the first twelve months and how that choice affects your taxes and your health insurance credit.
• Use the last paychecks. Some people raise contributions to the workplace plan and HSA in the final months, since the paycheck will not be needed for spending once the buffer is in place. Check the annual limits, which count all your contributions for the year.

Rehearse the budget first

Before leaving, try living on your retirement budget for six months to a year while still working, and invest the difference. It tests the spending figure your whole plan rests on, it adds to the portfolio, and it shows you which costs you genuinely care about. If the budget turns out to be unrealistic, you learn it while you still have a paycheck.

Identity, structure and people

People who leave work early often describe the money as the easy part. Work supplies things that are easy to overlook until they are gone:

• Identity. For many people, what they do is a large part of who they are. "What do you do?" can become an awkward question. It helps to build interests that you would happily name as your answer before you leave.
• Structure. A job decides how most of the week is spent. Without it, days can blur. Some people keep a loose weekly routine: a fixed time for exercise, a standing commitment to a volunteer role, a project with a deadline.
• People. Colleagues are often a large share of someone's social contact. Friendships outside work take deliberate effort to build and keep, so start them while you are still employed.
• Purpose. Many early retirees find meaning in mentoring, volunteering, caring for family, creative work or building something. The common thread is contributing to something beyond yourself.

None of this needs a spreadsheet, and all of it is easier to start while you still have the routine and the colleagues of a job. Planning the non-financial side costs little and protects the part of the plan that money cannot fix.