Are you ready to retire?
Are you thinking about being ready to retire?
You should be.
What, you’re only in your twenties?
Doesn’t matter. Twenty or Sixty, you should always be in one of two states of mind: Retired or planning to retire.
Here’s the thing. If you are working, depending on where you are on the scale, you have a particular mindset. You have either been working your whole life, or you are going to be working your whole life.
But that mindset is wrong. And it’s that last phrase that makes it a lie. That ‘whole life’ part.
With today’s life expectancies, you will hopefully only be working from one-half to two-thirds of your adult life. That leaves a lot of life at the end of your life. The good part. The so-called golden years.
And, when you get there, I can guarantee you two things. If you’ve planned properly, you’ll be okay financially, and this is the big one; you’ll wish you had done it sooner.
Why? Because you’re not working anymore! You’re not giving half your waking hours to someone else.
But here is what many people lose sight of. They start thinking that a job is their life. It’s not. That job is so you can have a life. You are simply trading some of your time, knowledge, and experience for the money. Money you need to live now. And more importantly, money so you can enjoy your life later. When you’re not working anymore.
But how much money will you need to retire? When can you retire? Well, the answer to the second question will hopefully depend on the answer to the first one. I say hopefully, because you may not have a choice. You may work somewhere with mandatory retirement age. But if you do, that’s a known factor, also. Plan for it.
How much money do you need to retire? That’s a huge question. And the answer is a simple one. I’ll tell you that answer in a minute. But first, I want you to Google it. Go ahead.
I’ll wait here.
Wow. That’s a lot of information. A lot of opinions on how much money you need. And I’ll bet very few of them agreed with each other. I know because I did the same thing years ago.
Once I thought about it, most of the answers were crap. Why? I’ll answer that one in a minute also. But take a look at some of the advice you found. I’m sure at least one of them said you need a million dollars to retire. It’s a number experts have tossed around for a hundred years. But a million dollars doesn’t mean anywhere near as much as it did a hundred years ago. Where did they get that from? Some arbitrary benchmark someone came up with.
My favorite were the ones with complex formulas. Your current salary is multiplied by some made-up factor times life expectancy minus retirement age. You’ll grow old and die before you figure that one out.
And, of course, most of the advice came from people trying to sell you something. If you give me a bunch of money, I’ll tell you how much money you need. Wait, what?
Okay, I’m ready to answer those two questions now, and I’ll start with the second one. Why is most of the advice from financial experts about how much money you need crap?
Because they don’t know you.
They want to know you. Mostly, they want to know how much money you have now. So they can get some of it. Then you’ll have less money. How does that help?
And here’s the big one. The answer to the question you read this article for and has kept you reading all the way down here.
How much money do you need to retire?
That’s not the answer I was going to go with. My original response was, how the hell should I know. But I didn’t want to offend anyone. Actually, I don’t care if I offend anyone, but I did want you to keep reading.
Because you’re helping to pay for my retirement. Thank you very much.
Now, let’s return to our regularly scheduled program.
How much money do you need to retire?
I can’t answer that. No one else can. Not a financial expert and certainly not some random person that popped up in a search engine.
The only person that can answer that is you.
Because you are the only one who knows what retirement means to you. You have to follow your own dream, not someone else’s. Maybe you do need a million dollars. Perhaps you need five million, or ten. Maybe you need a couple hundred thousand.
How the hell would I know.
Whew. I’m glad I got that off my chest.
Now, let’s get to how you can answer the question.
First, you need to set up a complex spreadsheet with lots of formulas and calculations.
Or get a piece of paper and a calculator. Whichever works for you.
But if you can swing the spreadsheet, that would be better. There will be many calculations, and your numbers will often change, depending on how long before retirement.
But before you do that, there is one other thing you need to accomplish.
Wow. That’s kind of like giving somebody instructions on how to defuse a bomb. Cut the red wire.
Anyway, before you can start with calculations, you need to understand what you are calculating. So back to that dream part. What is yours? What does retirement look like to you? Visit this dream often, because it will change. It changed for us several times.
For some, retirement will be almost the same as now except for that whole going to work part. Others will want to travel extensively at any point there isn’t a worldwide pandemic in place. Still others may want to get off the grid and build a log cabin in Alaska.
You do you.
You need to figure that part out because everything else hinges on it.
But even if you can’t nail down every detail, you can get started. You know your basic needs: food, clothing, and shelter. And medical care. You need to factor that in. Come up with a number for insurance or Medicare and out of pocket expenses. That is, if you live in a country where you have to pay for it as needed as opposed to it coming out of your taxes for forty years and being ‘free.’
But concerning that, you also need to think about long-term health care. End of life stuff. What if you need to move into assisted living or a nursing home. Those are expensive. You can shop for insurance, but in most cases, the cost vs. return doesn’t work. So look into how much that costs so that you can factor it in.
But don’t freak out. I know, it’s expensive. But you need to think about all the things you won’t be paying for if you end up there. Mortgages, vacations, cars, you may or may not give up more expense than you will be taking on, so consider all that.
Food should be fairly easy. You know how much you spend now. Start with that number. Then adjust it according to that dream. Will you be eating out three meals a day? Are you going to stay home and cook gourmet meals? Are you going to kill wild game with your bare hands?
Either way, that’s an easy one. Put that down.
Clothing should be easy also. Spoiler alert: You won’t need as much. Not only do you not need to buy business attire every season, you may never need to buy clothes again. Okay, that’s a bit of an exaggeration, but I can attest from personal experience, a single pair of sweatpants will take you a long way.
Shelter. That’s a big one. How much are you spending now? Will you stay in the same place? Most don’t. Most people downsize to some degree. And depending on your current equity and your dream home, you may be able to pay cash. Or you might want to live on a cruise ship. Or in a pup tent. Again, once you figure that out, the number should be easy to arrive at.
Next, add in all the things that will make up your dream. Travel is likely to be the most significant change if you enjoy that. You will certainly have time. What else do you want? Are they one-time expenses or recurring costs? You need to factor in as much as possible for an accurate picture.
Okay, that’s all the expenses, now how about income. Or not. This is where those formulas come in. Start with your total assets at the time of retirement. Savings, pensions, 401Ks, stocks money in your sock drawer. How much cash do you have? That’s your starting point. Now, it’s just a matter of tracking that through the years to some arbitrary life expectancy. You need to add in any income or investment growth for each year and deduct all the expenses. Is there any year where the number falls into negative numbers? Do you run out of money before the end of the road?
If yes, you need to change something. You work longer, or you spend less are the two easiest. But make sure you are factoring in everything. If you downsize and pay cash, the mortgage payment is gone. But utilities and other household expenses will drop also. If you move into an over-55 community, then all exterior maintenance and landscape charges may go away.
Whatever you do, don’t listen to any financial experts unless you happen to be married to one. They don’t know you. They don’t know your dreams. They can’t possibly come up with a number that you need to retire.
Discover your dream, follow your bliss, and plan for your retirement.