A lifetime effort
This new clarity changes how I respond to the retirement question.
What do I need to do to satisfy myself that I am being responsible for saving for retirement?
Retirement is the reality that after a certain age my productive capacity to earn a living to cover my living expenses will no longer be a viable option and by that time I will need to have accumulated enough financial reserves to subsist on from that point until death. The need to save for retirement is a consequence of the choice to live in an urbanized capitalist society which on the one hand provides the health opportunity to live well beyond our most productive years and also the institutionalized expectations that each household is responsible for their own means of provision of basic living expenses. I would need to give more careful thought to define exactly what the latest retirement age would be for me, but it seems 65 is reasonable given the people I have met who are around this age.
Retirement cannot be a goal of its own right, but rather it is a constraint on other life goals.
I embrace science and do not try to do things which are literally impossible. For many problems that I invested my time in the manufacturing plant the strategy was to identify and intimately understand constraints and to operate continuously as close to them in a way that balances risk with reward. Retirement is a constraint and understanding constraints and embracing reality is an essential part of solving complex problems.
As of 2017 I had been working and accumulating savings for 9 years or ā of my working career until age 65 and was on track to complete my goal by 2021 at age 37 with 28 years to spare. I was well ahead of the constraint. Not only that but the pace of savings accumulation was more rapid in the recent 5 years than in the 1st 5 years so my ability to reach retirement from a low starting point had improved from when I started.
What role does passive income from accumulated financial capital fulfil for the goal to do the impossible and leave the world a better place?
Saving for passive income as a social entrepreneur
I began re-examining the way I thought about how I valued my limited time, financial resources and a way of making decisions about trade-offs between the two and how they contributed to moving me closer to my more meaningful goals. Itās a work in progress framework and these are some of the ideas that have come out of that reflection
You get paid to work on someone elseās project
I was able to appreciate this dynamic by experiencing it first as an employee understanding that my existential purpose was to satisfy the terms of employment set by my reporting line and ultimately the shareholders, and then later as an employer and grappling with how I would manage that discretionary authority for those that I employed. The basic principle was common in both situations. I can try to look out for a company that may be a comfortable fit that has some redeeming qualities and adheres to some ethical standard and I can look for roles where the work I would be doing has moments of fun to it. All of this is within the operational constraints that my purpose for being there is to accomplish the goals of the shareholders. Thatās a design feature of modern corporations and if it is a non-profit the same principle applies but it may be more likely to be a mission that you share and also less likely to have much of a salary that affords much of a savings. For some people this is not a conflict but for me I have not been able to feel satisfied that I can fulfill the essence of Nickās ambitious call to action within the constraints of the typical for-profit corporation. Most likely if I am working on my project I am probably not getting paid a premium for it.
Earning in excess of sustenance enables me to invest in my own project
I am fortunate to have the capability to earn a premium hourly wage > S$40/hr well in excess of the minimum needed to cover basic living expenses at 170 hours a month. This capability is the enabling condition for investing in my own projects either my extra free time, my capital or in building my community relationships. Without this capacity there would not be an opportunity for a personal project. Those conditions are dynamic, could change and are determined both by my own state of executive function, skills, qualifications and also market conditions.
Projects are executed as packages of my skills in a community and capital
I didnāt have a clear picture of this in 2017 but rather learned it by experiences of success and failure in the past 2.5 years. I started off with a high capital intensive way of working. I rented out a workshop and focused on building a physical prototype. That is one type of product that could make an impact, but there are also others. The workshop and the prototype became the draw that attracted a small community around it. A few friends and new acquaintances approached me and volunteered at surprisingly high commitment levels to help in small and big ways to build the workshop and later to write the report. While this was the most capital intensive project I worked on the opportunity cost of my time and the volunteers was the clear largest expense invested.
While my experience with experimental trials and troubleshooting in manufacturing had prepared me for the prototyping project, what I didnāt fully appreciate initially was the role of relationships and community. Community fulfills a number of essential functions for creating meaningful impact. First of all a community is what helps create meaning. When I contribute to a community that finds my work useful this validates that what I had originally guessed is in fact a real problem worth solving. Partners help the quality of how I am working through conversation and the emotional connections that help to sustain motivation and creativity. Collective outputs from a team are better quality than solo work because of the improvements from constructive criticism and diverse perspectives.
Some things take a long time to develop
These packages are already available in prefigured forms within corporations and thatās one of the reasons why many people may find it easier to find fulfillment within an existing company. I started out only with free time and a modest budget but was missing the community, a clear, compelling mission statement and the right skills for the project. Growing each of these components does not come fast. The process of saving and growing financial capital through retained earnings has its own pace. Whether it is crowdfunding or attracting VCs other forms of raising capital also take time to develop. The same is true for working relationships. Partners need trust, a shared sense of common goals as a prerequisite for committing to working together and taking risks. If a community does not already exist around an idea or product then growing that network one relationship at a time is a process that can take years. When it comes to my own skills there is also a learning curve. I spent another 12 years in industry learning practical skills of problem solving in manufacturing plants, working in teams. There is a tension between learning and producing output so the pace of learning was necessarily slower during my working years. There is still a finite pace of learning. I spent 5 years of alternating semesters to earn my undergraduate degree which in perspective is a relatively narrow knowledge domain.
What may be the most time limiting process that cannot be easily sped up with more resources is the pace of learning the problem itself. This learning is also part of the process of refining and clarifying a meaningful mission statement. The appreciation for this limit is the motivation for the design of agile project management which is based around the sprint as the fundamental unit of work. In each sprint resources are invested and there is an opportunity to learn something new about the problem and adapt, or pivot closer to achieving the mission. The distance from the initial starting point and the final mission completion is measured in sprints. PhD candidates may appreciate this concept by relating to the uncomfortable struggle of investing time in a particular direction only to have to drop it and start again, possibly backtracking and frequently pivoting. This process could in theory go on for a lifetime and never reach a satisfying end point.
Saving is a trade-off between my time now and in the future
There is also a cost to excessive precautions on the pace towards retirement. The promise of saving for passive income at a rate faster than the minimum pace for retirement is the prospect of fully committing your time to your own project in the future, but that comes with the opportunity cost of utilizing that time in the present.
This idea is illustrated in two charts below for early retirement and a slower pace where the y-axis is available energy allocation per week and the x-axis is years of life.
My bandwidth in any week is finite. I can only commit so much of my energy restricted to weekends and evenings. Past a certain point there are quality differences so the trade-off is not 1-for-1. My earning potential at age 65 will not be the same as it is at 40. More generally my productive capacity towards either someone elseās or my own project past a certain time will decline with time. Furthermore employers may be less willing to hold onto or hire an employee who is nearing retirement.
One tempting idea is to consider if the projects I invest in the future can also generate a return, so that I am utilizing both my free time and my accumulated capital. Depending on what I aim to do there may be such opportunities but I canāt rely on this to be the case. If there are opportunities for a predictable return, finding capital will not be limiting and it wouldnāt matter whether it is my capital or someone else's. There are many worthwhile projects to invest in which cannot appropriate a return back to the investor and in particular this is true for contributions I am interested in aimed at the public commons.
So accumulating capital for the project further pushes out the age where I will be committing my time to the project, and also demands that I have the skills of how to deploy this capital to achieving the mission. In 2017 I did not have a clear idea of how I would deploy my capital and energy towards my ambitious but generic ādo the impossibleā goal. If I wait only when the capital is accumulated I may not have time left to learn the managerial and entrepreneurial skills of how to effectively implement that capital.
Path-dependent constraints may be more limiting than retirement math
All of these considerations are abstract but real life has constraints in the short run imposed by social expectations and institutions in which we are embedded. A few weeks or months of runway may be enough grace period for the institutions and relationships to absorb to keep me connected and open for contribution. Stretching beyond a year though risks irreversible losses that are not accurately captured on these retirement scenario charts. A vulgar term that I picked up from a gruff mentor in my oil and gas job that captures this harsh reality is:
Dicking around license
The patience from the support network around me is finite. A deep fear that had kept me clinging closely to the comfort of employment was the warning that venturing off and failing would risk losing my wife, and that fear turned out to be true. Iām grieving that loss and I would not have taken that risk had I understood that it wasnāt just paranoia but a real constraint. In the short run the lifetime retirement math and my runway cushion donāt matter. Those arenāt the rules by which society forms its own appraisal. Judgements are assessed in real time in months, weeks and days. These rules are enforced in social pressures from many directions from the family, friends and new social connections on anyone who is unemployed with no clear source of income and satisfying answer to āso what do you do (for money that is)ā. Not only social pressure but also institutions have limits. For one my Singapore Permanent Residence must be renewed every 5 years, rent must be paid on time every month and there is only so much that banking institutions will lend me. These rules are not arbitrary, because there is also a real risk of irreversible loss in my own skills and human capital. Just as patience is finite so is my own memory. Certain types of skills will atrophy when they are not in practice. Studies have found the risk of loss of skills can be measured for extended unemployment beyond six months.
In theory each of these limits, patience and memory, can be mitigated if they are anticipated. One way to respond to the limits of patience is by managing expectations. This may involve including the people who are invested in whether I succeed or fail in the decision making process, give them the rationale of the strategy and provide them with regular updates. Skill loss can also be mitigated if the time is invested with complementary skill development and implemented towards moving my projects forward in their own measures of success.
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