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On early retirement

My biggest reason for considering early retirement is that I can just about afford to do so. This isn't because I'm hugely rich, but because my outgoings are low. Most of the things I'll do in retirement are low-cost activities: walking, reading, gardening, cycling, playing guitar and learning the lap steel and Appalachian dulcimer.

Also, I might not have much time left. None of my grandparents got past 80, and my dad didn't see 70. This gives me a double reason for retiring early. I want to live before I die. And it means I can run down my wealth because I might not need to provide for a long life or for social care. Also, I have no dependants to whom to leave a bequest.

In this context, some research by Alex Bryson and George MacKerron resonates with me. They sent phone messages to thousands of people at different times of the day asking how happy they were. They found that people were less happy while working than they were during any other activity except being ill.

But here's the thing: this was as true for older and better-paid people in good jobs as it was for younger poorer ones doing grunt work.

There's a reason for this: opportunity cost. Working stops you from doing other things. The awareness of this fact makes us miserable while we're working. And the older you are, the more conscious you are that time is running out, which makes the opportunity cost of working even more salient, with the result that work hurts more. This offsets the fact that older people often do more pleasant jobs than younger ones. My job at the IC is as good as I could get, but it's not good enough to overturn the laws of time.

So much for the case for retiring. What of the case against?

One problem is that I don't have very much of a cushion. A severe bear market would cause me some discomfort, at least if it happens in winter; I'll remain a seasonal investor. Income from work helps diversify this risk.

That, though, isn't my only problem. There's another risk - that I might acquire more expensive tastes. I'm hoping to travel a little when I retire, to go to Nashville and Lafayette. But what if I get a taste for travelling? What if I find a wife and want to buy her presents? Working protects me from these taste risks partly by depriving me of the time to acquire them, but also by giving me the income to indulge them once acquired.

One macroeconomic fact reminds me of these dangers. It's that the proportion of over-65s who are in work has more than doubled in the last 15 years, to 10.6 per cent. This hasn't happened merely because over-65s are healthier than they used to be and because some employers have become less ageist. It's also because some people underestimated the risks they'd face in retirement and so need to work: not the least of these risks, of course, is that interest rates have stayed low.

Yes, there's also the opposite risk of saving too much and dying with regret at missing opportunities. Nevertheless, this reminds me that overconfidence and the optimism bias might prompt me to retire too soon.

You might think that I could always return to work if these dangers do materialise. I'm not so sure. Retirement is for me in large part an irreversible investment. It's far easier to keep a good job than it is to find one. Sure, if needs be I could stack shelves at Aldi, but working for the IC is more pleasant and better-paid.

Now, the thing about irreversible investments is that the greater the uncertainty, the less you should undertake it. Having an option to make an irreversible investment is much like having a call option on an equity: if uncertainty is high, you should hold it rather than exercise it. This argues for delaying retiring - because I have a call option on doing so.

You might think a solution to this is to go part-time. Maybe. But there's a risk here. Working part-time might increase the pain of working by creating a contrast between working days and non-working ones.

I appreciate that all this might seem like self-indulgent navel-gazing. But there's a point here. It's that the biggest financial decision most of us will take is one that has little to do with conventional financial advice. Weighing the disutility of work against the variability of my future tastes and the option-value of working is a question largely neglected by standard financial advice. What's more, it's a calculus which is almost impossible to quantify.

Conversely, much of what financial advice does is irrelevant to my decision. Yes, I'll need some advice on tax. But the question of how I should invest is a second-order one.

There's an old story of the economics professor who was thinking of taking a job in a new city. A colleague asked him: "Why don't you use the decision theory you teach your students?" He replied: "I can't use that for important things." Financial advice, at least as offered by the empty suits, is much like that. Perhaps we haven't progressed much since the day that Samuel Johnson said: "Deliberation, which those who begin it by prudence and continue it with subtlety, must, after long expense of thought, conclude by chance. To prefer one future mode of life to another, upon just reasons, requires faculties which it has not pleased our Creator to give us."