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WTF: I need HOW much to retire?

  • Do you need 70% of your income just to live off of? According to  most financial advisors,  “you should retire with 70% of your pre-retirement income to maintain your lifestyle when you retire.” Some advisors even recommend 80-85% of your current income! What kind of lifestyle are they referring to? For instance, Mrs. SSC and I currently live off of ~50% of our income, and use the other 50% for investing, saving, putting towards reaching Financial Independence Early Retirement (FIRE). However, one key factor that most of these financial advisors and even yourself may not take into account (because I know I never did) was what bills are you paying now that you won’t be paying in 5 years, 10, years, etc… For instance, we have daycare, full time for 2 kids that runs about $2,000/month, which is ~$24,000/yr. That’s a LOT of money! But, we’re not going to have that bill forever. We’re going to get to leave that bill behind and suddenly be $24,000/year “richer” in about 4 more years when the kids go to school. If we take that into account, we immediately need less than before to maintain our current lifestyle in retirement.

Another assumption is that we will stop putting money into the kids college funds. We’re saving fairly aggressively right now, but we feel that we will have enough saved for them to go to a state school, assuming there are no scholarships, grants, or other means to help out with college tuition. If they want to pursue graduate school, I would support it, but I feel that no one should pay for a graduate school degree. I got a full ride for graduate school, as did my wife, and I can assure you my grades were not stellar, but I was able to work hard and get accepted into the program I wanted. The point is most graduate programs that are worth pursuing offer research assistantships, Teaching assistant positions, and more as well as cover tuition. Getting back to finances though, this is another cost we’re paying out each month that will immediately save us on money that we won’t need each year in retirement. For us, another one is mortgage. We plan on saving enough to cover our house when we retire and move so that we won’t have a monthly mortgage. This is another HUGE cost savings (not as much as daycare), but still, this again cuts our monthly bills for retirement.

Mrs. SSC did a post explaining our current needs/monthly bill assumptions with her spreadsheet. I looked at this spreadsheet off and on for years before it sunk in that, we really can do this, and keep our current lifestyle. We will be doing it living off of ~20% of our current income, pre-retirement levels. Yep, about 20%. Your number will most certainly be different, maybe it’s 40%, maybe you can pull off 15%, but the point is you’ve looked into and found a number you would need for your lifestyle and your current income and you didn’t take the blanket statement that you’ll need 70-85% of your income. More to the point, you aren’t listening to all those yahoos that keep saying, WHAT?! You can’t retire before 60! How are you going to live?! You can’t access your 401k until you’re 60, what will you do for money?!” Yeah, let those guys keep working that long, and in the meantime, figure your number out and start working towards it and living life on your terms, not the naysayers.

The more I have looked at our numbers since my initial realization that we really can do this, the more I’ve come to realize a few things.

1. When we hit 60 and can access our 401k’s we’re set! Meaning that the money that has been growing in those accounts will allow us more income/year than we have been living off of the last 7 years, and most likely the next 30 years. Besides being able to already live within those means, we will be back to having even more extra money to spend. We can use it to go see the kids, grandkids, if we want to travel more, or who knows what we may be in the mood for then.

2. We live pretty comfortably off of way less than we bring home. When we got out of the habit of just purchasing things because we “wanted” it and didn’t need it, it saved a lot of money that we were able to put towards retirement. Tracking our spending helped with that a LOT. If you’re not tracking your spending in some form, you should start. NOW. It’s amazing.

3. I’m no less happy now than I was when I was spending willy-nilly like I had all the money in the world. It’s like buyers remorse. Sure, you feel good about that Amazon purchase, and sure you really did want that thing, but then it gets to the house and a few months later you realize you don’t even use it… Ugh, the money I’ve wasted on late night comfort buying.

4. Having a goal of FIRE and working towards it makes me even more conscious about how I spend money, and areas where I can save money. I used my allowance to surprise Mrs. SSC with a short cruise to celebrate our anniversary recently. It was a good deal, we can drive there, and it was only a 4 day cruise, so it was more about getting to spend time with her and relax, while the grandparents watched the kids. While standing in line to embark on the cruise, we were both struck by the thought of “how much money people waste on useless things.” The amount of people with matching bedazzled shirts, boas, tiaras, etc… for their cruise groups, or better yet, matching monogrammed luggage (it was only a 4 day cruise…), and even the families with matching shirts and slogans like “Miller’s “Boat-tober 2014”. Anyway, we both commented on it to each other at about the same time, mainly due to the lavishness of a group or two near us in line.

How much of your pay do you actually use to live off of? If you’re not tracking it, you should start, and you will probably be surprised by a few things. First, is how much money you probably waste on little things without even knowing it. We realized we were spending about $300-$400/month at Target for nothing. Just random,  “oh we could use this, Oh that’s cute, put it in the cart” type of spending. That could be close to $5,000/year we could have been saving. Now we go to Target once a month, and have a list of what we need when we get there. The second is probably how little of your income you actually need to live off of. Granted everyone’s situation is different, and many people probably have car loans, credit card bills every month, cable, cell phone, and other bills and other things that they think that they really need. Or if you are like me and are just finding out about FIRE, then you read some of these people’s blogs and think, “No way in hell am I going to get some ghetto cell plan, get rid of cable, bike everywhere, ALL the time, and cut out all kinds of other comforts, just so I don’t have to work. I don’t hate my job that much, heck I even LIKE my job, why would I want to quit and eat Ramen and crackers? No thanks!”

That’s how it started with me. I realized early on, there were a few different camps that FIRE people seemed to fall into. One that turned me off from FIRE was the “I’ll do anything to not work” camp, and that could include moving into an RV, eschewing all comforts of life for the cheaper version of everything, and ultimately being very cheap, not frugal, cheap…  Not that there is anything wrong with that, if that lifestyle works for you. I didn’t like living on $25,000/yr when I was single and in college (actually, I’m pretty sure it was less than that), but certainly not now when I have 2 kids, a wife, and I realize I like the comforts that my career choice, and current lifestyle offer. Especially, growing up poor and knowing how it feels to not be able to do school activities due to no money being available, or even scrounging for money for lunch each day, or constantly worrying about money as a child because my parents were horrible at managing finances well and we were the poster child of living “paycheck to paycheck” with no real savings, emergency fund, any of that security. I don’t want my kids to experience that, and I choose to not go to extremes just to retire early.

So what did we compromise on to be able to achieve early retirement? Not a lot really. I mean, we didn’t spend all of our income to show the world that we could afford to drive fancy cars, and live in fancy houses, and wear $200 sunglasses, and expensive clothes. We’ve put that towards retirement instead. We don’t buy the newest phone or tech gadget just because there is a new one. I’ve had my same smart phone for over 2 years now, and it still does everything I need to even though it’s only a Galaxy S2 (EEEP! S2, but they’re up to S5 now!). We eat well, but make most of our food at home, and if we go out to eat it comes from one of our allowances. We realized we saved ourselves a lot of money just by switching eating out to coming from one of us personally. Also, clothes come from a personal allowance, so you can get as nice or shabby clothes as you choose to buy without affecting the family finances. Ultimately, we may have times where we spend money on “needless” things, but we are consciously doing it and make the choice that it is worth it, like the cruise. No one needs to take a cruise, ever. They can be a huge money trap depending on what you do onboard, but we enjoyed the quiet time reading and relaxing on our balcony, and getting to relax for a few days without the kids. It was forced relaxation, because where else are you going to go?

Ultimately, we didn’t read the news articles and finance articles saying “you need 70% or more of what you make today to retire comfortably!” and then think to ourselves, “Well, we’re never going to get to retire.” You shouldn’t do that either! We analyzed our spending, bills, etc.. and found the number we needed and are now working towards it. Within 5 years, we will be able to take the kids to school, come home and have some coffee on the back porch before we get to what it is we’re doing for the day.

What’s your number, and how close are you to getting there? Are there things you’ve done to be able to get there sooner than most of America? Let me know!

8 thoughts on “WTF: I need HOW much to retire?

  1. Emily @ Simple Cheap Mom

    We haven’t sat down to pick our number yet because we’re still a few years off. My husband’s defined benefit plan kicks in at 57, so that would be our upper limit.

    I think he’d join you and work a few more years to be comfortble, but I’m more in the let’s move into an RV so you don’t have to work camp.

    I’d be happy if we were FI in our 40s and had the option for him to retire, even if he didn’t take it. I’m a stay at home mom now, so I’m already in the “do what I want and maybe work if I find something that interests me” stage.

  2. Mr. SSC

    Even with us, being ~5 years out from FIRE, I found it super helpful to actually know what the number is and how quickly or slowly it would take to achieve that. If you’re into playing with numbers to see different FI scenarios with your situation, I like the following 2 links:
    The fun thing (actually Mrs. SSC does this, I like checking out the resulting graphs) is that it runs Monte Carlo simulations with your numbers from 1880 onward. You can also adjust your “income” to be set, or fluctuate with the markets. By adjusting how much we’d live off of in retirement, we didn’t hit any fail scenarios, through the 20’s or the 80’s. But by using a set number, we failed 2/125 runs in the 80’s.
    Anyway, knowing a number to work toward I find is helpful, plus, you may find out you’re closer to FIRE than you think.
    Thanks for the comment!

  3. Mrs. Frugalwoods

    For us, having low expenses is pretty key. We’ve got our annual expenditures dialed down so far that we just don’t need that much to live on. We like the 4% withdrawal rule and that’s essentially what we’re basing our FIRE goal (scheduled for 3 years from now) around. We also feel best with quite a bit of padding in our emergency fund, so, we won’t be going entirely sans income post-early retirement.

    1. Mrs SSC

      I like the 4% rule also… as a guideline. When we retire I plan on taking a few years off, but there are so many other jobs I’d like to try out, or fun business ideas I have, that I know money will still be coming in one way or another… so that is kind of my buffer. And I am toying with the idea of having a large cash/CD fund, to help ride out any bear markets. But low expenses is key! I don’t know how anyone could FIRE without low expenses – now I just have to hope as my kids grow older they will be frugal teenagers 🙂

  4. Zee @ Work To Not Work

    I’m not sure what my number is because I know that it’s going to change. Right now my monthly expenses are pretty low, but I know that in a few years it will go up, and that’s because I’m delaying lifestyle inflation as long as I can. BUT the thing that I’m delaying is something that most people give up many years or even decades before I have, and that is living with roommates. I sort of hate roommates but I have 2 roommates in my house so that my expenses are low. Eventually I will get my own place, I’m not sure when but it’s bound to happen sometime. And when that does, I know my housing costs will rise.

    Your approach to FIRE sounds a lot like mine, I don’t feel like I sacrifice a lot, but at one point I realized that I bought things because I thought they were useful or “why not?” similar to your target experience. Once you realize all the little things that you don’t need you can save a significant amount. Most people seem to have a hard time recognizing that though. But I also make almost all of my food myself, including lunches, but that’s mostly out of laziness, it would probably take longer for me to go out and get food than it would for me to make it myself.

  5. Even Steven

    Miller’s “Boat-tober 2014, LOL fantastic. I think you can run projections and estimates to get a pretty good idea of what lies ahead, but I really think that least year/first year of retiring early or “playing retire early” if it’s the last year and you are working will really get you a nice practice of how things are really going to be like.

  6. Stockbeard

    Still figuring out my numbers.
    I found out that I might be closer to FI than I initially thought, with my side business being a more “sure” thing than I initially admitted. I didn’t count it in my initial plans, but I’m thinking more and more of including it.
    But I’ve also seen that my initial estimates of expenses were a bit optimistic, so I have to take that into account too…

    1. Mr SSC Post author

      That’s awesome that you’re closer than you think! This year is a good measuring stick to see how close our “yearly living cost” number is to our past year estimates. With closer tracking we can at least see what categories we’ve gotten nailed down and which others have way more spread in the spending.

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