Book review: Work Less, Live More

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Work Less, Live More: The Way to Semi-Retirement by Bob Clyatt.

Early retirement is a topic I've always been interested in.  The particular version of it that this book deals with--living well on less money, as a means to getting by without having to work at a regular job--is not only interesting, it's the life I'm living.  Allowing for the fact that it's aimed right at my own personal sweet spot, I liked it even better than I expected.  It reads like the author started following me around a year ago, figured out exactly what questions I needed answered, then carefully and thoughtfully wrote a book to answer them.  

The book is aimed at people interested in "semi-retirement," by which he means people who want to (or have to) work less, but who aren't in a position to (or don't care to) stop working altogether.  There are an increasing number of people in that situation:

• people who are burned out on their old careers
• people whose skills no longer match the job market
• people who want to spend more time with their families
• people who want to focus on interests (art, music, writing) that don't pay enough to support them

About half the book is about money, because for most people, money is the limiting factor in making the sort of lifestyle choices the book is talking about.  

There's a chapter on frugality (which is necessary before semi-retirement, to free up cash for saving and investing, and then necessary after semi-retirement, to make that modest portfolio last).  It's got some good information on how to include less-than-annual expenses (like major home repairs, replacing a car, and so on) in your planning.

There's a chapter on investing, with a focus on asset allocation and setting up a portfolio that will earn a good return without too much volatility.  It starts with basics, like low-cost index funds, then expands on it just a bit (adding investments whose values aren't strongly correlated with those, to help stabilize your portfolio's value).

There's a really good chapter on figuring out how much of your investment portfolio you can safely spend each year.  It covers a lot of the same information I cover in my article on How much you can spend in retirement, and ends up in about the same place, but he's got an interesting twist that I think is really valuable.

Others who have looked at this have concluded that you can probably spend about 4% of your capital the first year, and then increase the amount you spend each year by enough to keep you even with inflation--and expect that the return on your investments will add up to enough to maintain your portfolio indefinitely.

There are several negatives with this strategy.  If you have a bit of good luck in the market--especially good luck early--your portfolio might grow quite substantially.  In that case, just growing your spending to match inflation might seem a little meager.  On the other hand, if you have some serious bad luck in the market, continuing to take the inflation-adjusted draw could burn through your capital very quickly.

The intuitive solution is to go ahead and step up your withdrawals in good years, while cutting back slightly in bad years.  (Cutting back drastically might be even better, but most semi-retirees are already living frugally enough that it might not be practical to cut back to just 4% of a portfolio that was sharply reduced after a severe downturn in the market.)

What Clyatt has done is put some numbers to that intuitive solution.  He proposes that you feel free to spend 4% of your portfolio each year:

• In a good year, you get the full benefit of your portfolio growth.  
• In a so-so year your 4% might just barely (or not quite) match inflation, but a semi-retiree can probably deal with that.
• In a poor year, your 4% might shrink so much as to produce an actual decline in the amount of money you can spend.  In that case, Clyatt says, you can go ahead and spend 95% of what you spent last year, putting a floor under the amount your available cash can shrink from one year to the next.

And here's where Clyatt provides some real value.  That 95% value isn't arbitrary.  He tested it.  If you'd started following this strategy for any 40-year period since 1927, you'd not only not have run out of money, your portfolio would have at least maintained its value.  Over 10, 20, and 30 year periods you'd sometimes see a decline in value, but no instance when the portfolio ran dry.

For me, just that analysis is worth the price of the book.  The stuff on taxes is just a bonus.

The rest of the book is about other aspects of being a semi-retiree.  There's stuff on finding the right work--meaningful, remunerative, and not as stressful as the full-time work you're semi-retiring from.  There's stuff on dealing with no longer being part of the work-a-day world.  There's stuff for couples, if one or both of you is suddenly spending a lot more time at home.

It's worth comparing this book to Timothy Ferriss's The 4-Hour Workweek.  The "work less" theme runs through both of them, but Ferriss focuses on making a bit of money from something other than a regular job, and then on convincing your regular employer to let you turn your regular job into one where you don't need to show up all day every day.  Clyatt doesn't have anything about that second  part (dealing with your boss), and a different focus on the first (work that's meaningful and low-stress, rather than maximum return for minimum hours).

I've also previously reviewed Retire on Less Than You Think.  It's a good book, but it's focus is largely on how a retiree can live cheaply without much loss in standard of living--and I was a little underwhelmed by the insight that you can retire on less money through the magic of spending less.  (If you--or perhaps your spouse--needs to internalize that message, it's a great book.)

If you've already got that part down, then Work Less, Live More may be a better choice for you.  It doesn't skimp on the frugal living part, but it assumes you can figure a lot of that stuff out for yourself.  (It does have a good section on health insurance for early retirees.)  If you've ready to deal with the details of being a semi-retiree--or planning to be one--this is a great book.