The other day, I heard some people talking about their dreams of winning the lottery. They decided they’d really need to win the big money, because if they only won $2 million or so as a lump sum after taxes, that wouldn’t be enough to retire.

Their reasoning was that if they got 5% interest on $2 million, that would be $100,000 a year of taxable income. But that’s like a normal salary, not enough for the lavish retirement they have in mind. So how can you retire on only $2 million?

Aside from the ridiculous odds of winning that much money in the lottery, their logic isn’t quite right. You can get more than a 5% rate of return, and also you’re not limited to spending only the returns (you can spend the initial $2 million too).

But the basic idea is right: what may sound like a lot of money isn’t so much when you need it to support your big spending plans for the rest of your life.

Whenever someone asks if $x is enough to retire, the answer is always no. Because if you were planning to live within your means and spend money at an indefinitely sustainable rate, you wouldn’t have to ask.

If you have to ask, what you’re really wondering is “Since my desires will expand completely out of control with my unrestrained greed and carelessness, is this so much money that I can’t possibly screw it up?” No, it never is.

I remember when Michael Vick got his 6 year, $62 million contract in 2001. Everyone wondered how he could possibly spend it all. Aside from the obvious fact that you don’t have to spend it all, I didn’t see any reason he couldn’t run out of money if he wasn’t careful. Oprah had recently spent $52 million on a single house.

Fast forward 7 years. He had lost his salary and endorsement deals because of the dogfighting scandal. And the bills continued to pile up: steep lawyer fees, 6 luxury homes, and living expenses and 10 cars for friends and family. With no other options, he filed for bankruptcy.

Your retirement could last longer than you think, and you probably won’t have close to $62 million to take you through it. So how can you prevent this from happening to you? It’s pretty simple, actually.

1. Be frugal. It might not be fun and sexy, but it’s by far the most important tip for becoming and remaining financially independent.

2. Don’t stop earning money in retirement. Earning money comes from creating value. Why do you need to stop creating value at a certain age? You might want to change the way you do it, but you don’t need to shut down completely.

Keep these tips in mind, and you can live indefinitely with no savings at all. Ignore them, and no amount of money will ever be enough.

I’ve got a guest post up on IttyBiz about the meaning of life.

It was originally titled “Planning For The End Of Your Ittybiz,” but it’s really not specific to business at all. It’s about what you’ll do once you no longer have to do anything.

Stop by and get some life advice from the Dalai Lama, Thomas Jefferson, Steve Pavlina, Tim Ferriss, Neo, and Ferris Bueller.

Photo by rodrigo senna

After being laid off from my software development job last Friday, I’m now a problogger! The last time this happened, I was “unemployed.” Now, I’m a “problogger,” which sounds infinitely cooler.

I’ve never liked the fact that the term is defined by something you don’t do (have a job) instead of something you do do (reaching certain blog milestones). Hehe, I just said doodoo. I also find it interesting that people write it as one word because they’re used to it as a domain and blog name. You wouldn’t write “he’s a protennisplayer,” right? Anyway, the term problogger has caught on, so I’ll stick with it.

What does being a problogger mean for me? I’m looking at three options.

1. Go back to work immediately

For close to two months, I suspected I would be laid off on or shortly after October 3. And every time someone asked me how the job search was coming along, my answer was “I haven’t started yet.” That was still my answer on Friday after being laid off.

My boss looked at me like I was crazy, and said, “Well, you really need to get on the ball now. You need to decide what your specialty will be within .NET development, because there are lots of opportunities…” I didn’t want to tell him that I stopped caring a long time ago.

Anyway, I made it to the end, so I get severance pay. I didn’t want to accept another job before then and miss out on the severance, but now it would be reasonable to look for another job. Still, I don’t think I’m going to.

In A Year Without Paychecks, Part 2, Akemi Gaines wrote about her life shortly after quitting her admin job in Oregon:

“There were mornings I woke up and wondered what to do. Occasionally, I thought of looking for temp jobs. Then I thought why the heck would I get another admin job in Oregon – if that was what I wanted to do, I didn’t need to quit. Duh.”

I love that Duh at the end. And that’s exactly right. I’ve been looking forward to being laid off (even dropping hints that they didn’t need me) so I didn’t have to work anymore. If I went back to work right away, then what did I need to get laid off for? Duh. Besides, you’d have to be crazy to want a job.

2. Stay retired forever

The opposite extreme is staying retired forever. By “retired,” I don’t mean lying comatose under a pile of empty beer cans, just not having a 9-5. I’ll talk more about that in the next section.

Tina Su has recently ditched her day job, getting by mainly on the income from her blog’s 400,000 monthly page views. But I’m not close to that yet.

I’m going to be looking into some different options for making money, such as freelance blogging (which I already do some of), other kinds of writing or editing, tutoring kids in math, day trading (just kidding!), etc. (Not sure how much you’re allowed to do outside of blogging without endangering your problogger status.)

But I keep reminding myself that the goal isn’t just to make money. I have to be careful not to pursue paths that will involve doing things I don’t like too much, for not too much money. Even if it’s not a job, it could very well be worse than one. Which leads me to the option I’m leaning towards…

3. Have a mini-retirement

The concept of mini-retirements was popularized by Tim Ferriss of The 4-Hour Workweek. Most people are participants in the deferred life plan, where you work for decades and then get to enjoy your life just in time to die. The idea of mini-retirements is that you split up your work life by taking short stints of temporary retirement, such as by living in another country for a few months. Tim’s life is now basically one mini-retirement after another, funded by the proceeds of his nutritional supplement business that he works on for 4 hours a week (thanks to masterful delegation, elimination, and automation).

Tim previously made up to $70,000 a month in different business ventures, but was working himself to death. Now he’s basically retired and does everything he wants for less than $5,000 a month. He says he’s not a multi-millionaire, nor does he particularly care to be one.

After reading his book, people sometimes say something like, “That’s so great that he stopped chasing money, because he realized that all that matters is happiness.” But if they think that, they apparently didn’t understand the book very well.

The only reason he can do everything he does is because he makes enough money to pay for everything without working (OK fine, working 4 hours a week). He doesn’t have to be a multi-millionaire because he found a way to create the passive income of one. (Generating $5,000 a month in dividends from an S&P 500 index fund takes roughly $5 million. There are better ways of doing it, but this is just an example.)

Likewise, everyone seems to love the story of the Harvard MBA and the Mexican fisherman, and they think it’s a great example of how money doesn’t matter. Except they’re missing the fact that the fisherman can only do what he does because he makes enough money from his hobby that he doesn’t have to work. I invite you to go fishing and see if you can support your family that way.

Every loves to say that money doesn’t buy happiness. True, but it does buy freedom.

My mini-retirement

Fortunately, I have enough money to buy a little freedom, so it looks like I’ll be taking a mini-retirement. Most people associate mini-retirements with travel, but I won’t be going anywhere (or at least, that won’t be the focus). I’m just not that into travel, and I already went to Japan and Charleston, SC this year, so I don’t feel the need.

One common problem of having too much time on your hands is the high risk of boredom. Many people don’t know what to do with their newfound freedom, and need to go back to work just to have something to do. That seems like an awful solution to me.

Tim Ferriss talks about “filling the void.” You suddenly have a bunch of empty time, and you have to fill it with something. The goal is not to be idle all the time, but to be active doing what you want to do. If you can’t think of anything better to do with your time than running in the rat race, then exactly how are you better than a rat?

I’m sure it will be an adjustment, but I’m not worried about being bored. For one thing, even if I suck at this and end up craving a 9-5, (1) at least I’ll know that I need to figure out what’s wrong with me, and (2) I’ll be a lot more enthusiastic about working after a break.

Besides, I think I have plenty to keep me busy. Because I’ll have a lot more physical and mental energy, I’ll be able to take up interesting projects that I just wasn’t motivated enough to do before.

I haven’t even begun my first day of retirement yet (since I’d have the weekend off anyway), but already I’ve experimented with my first vegetarian meal. Of course, everyone has vegetarian meals all the time (I never have meat for breakfast), but I mean consciously choosing vegetarian when meat was readily available and would have been my normal choice, and real food, not like when I went to a restaurant a few years ago and had ice cream for dinner.

I had a vegetarian burrito at Chipotle, and it was good. I could have easily made it vegan too–I don’t think I would have missed the cheese and guacamole. It was pretty enormous, and there’s actually a Smaller Burrito at Chipotle Petition you can sign. I’d just as soon make it two meals though.

I’m not saying I’m trying to become a vegetarian, but I’ve heard enough that I was interested in doing some experiments, though I didn’t have the energy to try before, because I don’t really like vegetables. But now I know that rice and beans and such seem like normal food to me. It’s a first step.

This is just one example of something I’m trying. My next post will announce a really wacky personal growth experiment I’m going to be doing. I don’t know everything I’m going to be doing in my mini-retirement, but I know it will be interesting (for me at least). I’m sure I’ll be writing about some of it, but at the same time, this blog isn’t a personal journal.

Time management will be a challenge. It’s easy to manage your time when you don’t have any, or when all you want to do is unwind after a stressful day at work. It’s a lot harder to manage your time when you have all the time in the world. You become overconfident in your ability to get everything done, and then at the end of the day you find that you didn’t actually do anything. I’m going to be whipping up a new todoodlist or two to stay on track.

One trap I’m going to be sure to avoid is spending too much time blogging, meaning both reading and writing (yes, even as a “problogger”). I used to often have huge chunks of free time at work that I could spend reading blogs, sometimes the full eight hours. But now, I have to always be asking myself, “Is this the most important thing I could be doing?” Blogging will still be a very important part of my day, but I want to do a lot more.

I’ve always had a hard time justifying mini-retirements because the mathematician in me would think about compound interest, and all the money I’d really be losing by not working. On the other hand, I’ve always been putting aside money for retirement, and now I’m going to be doing exactly what I’m saving for. There will always be jobs available, but I think I have to take this time to enjoy life now.

Here I am writing this on a Sunday night, and for the first time in a long while, I’m not dreading tomorrow.

P.S. Assuming FeedBurner is working correctly, I hit 600 subscribers yesterday. I guess I’m like John Chow: “I gain subscribers by telling people how many subscribers I gain.”