What it’s really like to retire from trading before you’re 40
Jobs in finance aren’t as highly paid as they used to be, but plenty of people still get paid enough that early retirement is a realistic prospect. A lucky few could even walk away from their jobs before their 40th birthday. Given the stressful nature of the industry that probably seems tempting.
Personal observation suggests most early retirement goes something like this: (i) Have a bad day at the office; (ii) go home and after a quick back of the envelope calculation decide you can afford to leave, and (iii) walk into your boss's office the next morning to resign.
Several glorious months of gardening leave follow, but then life goes downhill. Most early retirees will find themselves bored, broke or both within a few years.
The secret to a happy retirement is twofold: (a) be confident you have enough money to retire, and (b) have firm plans for what you are doing next.
The thing is that, ironically, many people in finance are poor managers of their own liquid assets. A lot of us tend to be high spenders, having developed expensive tastes. This combination makes it hard to walk away. Also, when you get near forty, you may well have young children. Paying for private education and pony club might seem necessary to keep up appearances, but it will delay your retirement considerably.
For successful early retirement you need to keep your expenses low whilst still working. You might save a few thousand on your season ticket, and you won’t have to buy another bespoke suit any time soon, but otherwise it’s unrealistic to expect huge efficiency savings after retiring.
Your capital will go further if you take risks and trade your own account. However you must be realistic about the chances of trading profitably: will your strategy really survive outside the ecosystem of a hedge fund or without the flow of orders you see on the buy-side? You could end up replicating all the stresses of your day job for lower earnings; one reason that my own trading is fully automated. Be careful: if things go badly wrong you’ll be back in the job market with your savings reset to zero. To avoid this I keep only a fraction of my capital in my trading account; the rest in low yielding but safe investments.
Of course, if you find a new job after 'retirement' then you won’t need as much capital. However don’t assume you will easily glide into a high paying position. Salaries in finance are only vaguely matched in jobs that require years of specialist training. It is hard to convince employers that your ability to buy low and sell high is really a transferable skill. And outside of finance there’s a bias against former bankers and hedgies that makes it hard to get hired elsewhere.
Otherwise you’ll have to rely on a well timed inheritance, or to persuade your partner to keep working - presuming that you have one.
Once you have enough money you need to think about what you’ll actually be doing with all that free time. Well trodden paths for semi retired finance professionals include consultancy, non executive directorships, and philanthropy. More recently there has also been a stream of ex-banking types into fintech businesses. But be warned: founding a fintech start up is effectively an expensive hobby given the low probability of success. -Though it does mean you have something cool to put on your business cards.
Sadly none of these activities can really make up for the excitement of the trading floor. Perhaps only competitive sport can match the thrill of trading. One sport ideally suited to ex-traders is cycling. The ubiquitous Strava app will give you an outlet for your competitive instincts, trying to beat your personal bests on nearby roads.
There is also some bad news: after retirement your partner will be expecting you to pick up a higher share of the housework and, if relevant, childcare. This can be quite a shock if you currently see your children only at weekends.
Robert Carver is a former head of fixed income at quantitative hedge fund AHL. He retired from his job in systematic trading at the age of 39 (and a half). Now he trades his own account, does occasional consulting, conference speaking, writing, blogging, cycles, and helps look after 3 children. He is the author of “Systematic Trading” and “Smart Portfolios”