Articles with retirement planning

How do you define retirement?

“Retirement isn’t the right word anymore”, is the phrase used by an article that I was reading recently. It was describing how people used to see retirement as, You hit 65, quit work, and sit around and get a pension, living out your golden years, or even more generally, you stop working and life slows down.

Anyone that is reading this blog has probably come across Mr. Money Moustache, and other blogs and heard them referencing the “retirement police”. These are the trolls or just misguided folks who seem to prefer the, “If you are working, then you’re not really retired” type of definition of retired. I say ballyhoo to all that, and I prefer to describe our upcoming change in life as a pre-tirement, stay at home parent type of thing. Real specific huh? I will likely work at some point, but chances are it will because I want to, not because I have to – so bring it on retirement police!!!

The biggest difference I see in those that define retirement as “You don’t work” is that they see work as a financial obligation and not a choice. Simply put, I will see it as a choice I can make and decide whether to participate or not. If it gets to be no fun, I can quit and not stress about bills, getting another job, and how this short stint may affect my resume, or even next job application. I have no doubt that I will work once I quit my corporate job and transition to stay at home dad. I’ll bet even more on the fact Mrs. SSC will also work in some capacity. We’re hoping to move to a place with a small college, so that either one or both of us may be able to teach. Also, we will be in a place with outdoor activities, which means there should be some outdoor stores, possibly even flyshops and I wouldn’t mind spending a few hours a week getting to talk shop about good trails, nice hikes, good fishing spots, what’s biting, what flies are working, etc… Yeah, they’ll come with mundane times of inventory, restocking, setting up displays, yada yada yada, but I’m too social to start sitting around in my recliner watching golf and holing up at the house for weeks on end. 1) I can’t stand watching golf, even for background napping noise; 2) I need a better recliner; and 3) why the hell wouldn’t I spend more time outdoors now that I don’t have a job chaining me to a desk?!?!

Actually just this weekend, I was double checking with Mrs. SSC that our current dream retirement town has a ski resort/big hill with lifts that take me up, so that I can snowboard down. I don’t need anything huge like Vail, or Breckenridge, I prefer the smaller places like Loveland Pass (usually empty and a LOT of fun runs). The point is we were talking about being able to get the kids to school and hit the slopes for a bit when there’s fresh snow on a Monday, or maybe Wednesday, or whenever there’s fresh snow. So working at an outdoor outfitters  and being able to relay that info to tourists looking for nice runs on the slopes, sounds like a fun time for me. If you couldn’t tell from my posts, I can be quite a Chatty Cathy if you catch me on a topic I like. Topics that I’m not knowledgeable about, or don’t find very interesting though, can be a lot harder to discuss. For me, financial management is one of those. I can discuss it very thoroughly, but what I can’t do is explain “good financial management”. Actually, I can regurgitate what everyone else says you should do with your money, but I would have a hard time showing how to apply it in your life. I’m not financially minded, and except for the means to an end aspect of it, I could do well with not ever reading any more finance articles in my life. It just doesn’t do anything for me, so I can assure you, in my retirement, I will NOT be doing any financial advising, seminars, or anything related to that. Come to think of it, it does sound like an easy way to make some coin, “Come to my seminar and find out how you too can retire before 45!! For only $200, I will reveal my “secrets” to early retirement and you too can tell your job to shove it! (individual results may vary: especially if you don’t marry well, invest well, or marry someone that does both, oh and nice incomes to fund the retirement nest egg are also strategic and advised).  Sounds like every other seminar I see ads for on tv, but rest assured, you won’t see Mr. SSC on your television shilling for your hard earned dollar.

Fishing shouldn't only be done on vacations!
Fishing shouldn’t only be done on vacations!

So back to the point of this post, what do you see as “retirement” and why is it that we have retirement defined in our head as “no work, receiving pension, take up gardening/golf/fishing/knitting? My Grandad was scared to death of retirement. In his family, people quit working and then died. I mean literally died within a few months or less of “retiring”. He finally retired at 72, and fortunately made it another eight years, but he could have retired way earlier as he was at FI way before most people. He fit more of the traditional model, doing more gardening, volunteering, and staying active, but not anything that earned money, just satisfaction.

For me, I’m scared to death of 80. Except for the senile and decrepit few in my family that made it to their 90’s, most people in my family die by 80, if not well before. No wonder I need to retire early, I’ve got a clock ticking down people! Actually, we all do but I just don’t want to be one of those people that I see emails about in my office. At my last job and this one, I have gotten emails about so-and-so was diagnosed with “blah” and is terminal and going to spend his last days with family. Then a few weeks later, you hear so-and-so passed away and will be missed, and I read, hit delete and get back to work thinking, “Lord, I have got to retire soon and get out of this office.”  A good friend of mine back in LA worked his whole career, finally got to retirement, had all of these plans made, and got a virus and died 2 weeks into his retirement. 2 weeks, and 1.5 of those weeks he was sick. What a pisser. Retired or not, I still see myself working to some degree, whether it’s at a job with a paycheck, making wooden stuff at home and selling it on Etsy or some other e-commerce platform, or maybe just playing bluegrass and getting the occasional gig. Who knows? But, I know that I’ll have some internet police giving me the business when I mention “work” and retirement in the same post. Until then, I’m still working and counting down the days until I can define my schedule, job, and what retirement will be like for me.

How do you see your retirement taking shape? Will it be more of a traditional model, or more of a FI approach where you can choose where and how you want to work if you choose to work at all?

Hurry up retirement!

I'd rather have a mountain view than look at this all day!
I’d rather have a mountain view than look at this all day!

So you’ve been noticing that I’m very bad with financial decisions, getting better, but seriously it did take me about 6 years to realize that this whole FIRE thing really would work out and we could retire in another 4-6 years without our current lifestyle being affected. You’ll also notice that  one of my big hang-ups is to not retire and live off of Ramen in an RV park somewhere (not that there’s anything wrong with that). So, here we are ready to go, just sitting back and investing and saving and planning and now that I’m fully aware of our situation, it has become the foremost thought in my head most days of the week, I close my eyes and see a giant ‘Retirement Countdown’ clock ticking.

I remember once when I was eight thinking to myself, “OMG, I’m never going to be 16, that’s like 8 years from now, I’ll never get my license to drive!” Every year I would count down 1 year closer, but my goodness it was brutal and agonizingly slow. Sort of like Christmas as a kid. I would look forward to it and the magic of it with the decorations, cold weather, fires in the fireplace, holiday dinners and music, culminating with the opening of presents on Christmas Day and more food. And then January, I would start counting down to Christmas again and it would seem to take forever. I think I’m probably OCD somewhat in that I have lots of countdowns going on for lots of things. Let’s see, there’s the “build a banjo before 40”. I made the neck, pot, fretted it, and essentially just need to put it together and then the kids came along I need to finish it before 40 due to an errant sentence by Mrs. SSC “one day, you’ll look up and be like,  I’m 40 and haven’t even finished that banjo”… There’s the weekly countdown; only 4 days to the weekend. Vacation countdowns -only 2 weeks before a week off for Christmas. There’s the countdown to death, morbid I know, but I see 80 as that scary crossover point. IF I get to 80, it will be a great achievement, but every day after that will be like a gift of sorts. Most people in my family die around 80, if they even get to 80, hence 80 being the magic number of death. There’s the” start a bluegrass band when I don’t need the money from it to live on” countdown. What’s the difference between a banjo player and a large pizza? The pizza can feed a family of four! Hahahaha That countdown has gotten moved up quite a bit. There are plenty more, but I don’t want to get too off topic and you’ve probably quit reading by now and I’ve probably made my point.

The newest and loudest countdown is currently the countdown to FIRE, and OMG is it loud!!! Every day I think, only 2 more months until 2015, and then only 4 months until April, and then only ~4 years left. OMG there’s still 4 whole years left! Did you see my trick of breaking it into shorter chunks though? Those seem to fly by! Two months here, 4 months there, next thing you know, we’re halfway there, which is only 2 years and 3 months away…. Seriously, it’s kind of disturbing in here sometimes. I’m not like Russell Crowe disturbing in “Beautiful Mind” but it can feel like it sometimes. I need to figure out a way to get this on the back burner of my brain, but for the life of me I can’t. I can’t get it back there or get it to quiet down.

Remember the post about the cruise and noticing the Miller’s “Boat-tober 2014” shirts and thinking, man, that’s probably a lot of coin spent on shirts that may get worn 2-3 times? Well, that revelation helped me to  start noticing the other extravagances that people were sporting. Even more mundane, I was a little proud of myself a few months ago when I realized that if I took the second on-ramp to the toll road to get to work, I could save 45₵. Yep, 45₵. I even calculated (while driving of course) that if I did this every day  I could save about $80/year. I told Mrs. SSC and then she noticed the same except on her drive, getting off one exit sooner does the same thing, so that’s an easy $160/year we just saved. More recently, I was testing a new route on my commute, and found that I could not only save 3 minutes or more on the drive to work, but also entirely avoid the toll road doing so. That’s close to $275/year saved, and I save time on the drive in. You’re probably focused on the fact that I’m proud of saving 3 minutes on the drive, but this is much like the countdowns. I know how many minutes it “should” take to get somewhere and how many minutes I’m ahead or behind of the normal schedule. For instance, it should take ~17 minutes to get from my office to a certain on-ramp, lately I can’t get there in less than 24 minutes. Disheartening… It should take ~10 minutes to get through the elevated portion of 59 southbound on a good day, slow days 14-17 minutes. Slow days, I can get through downtown surface streets bypassing that section in 12 minutes.

Back to the point of this post. How do you get around not having FIRE at the front of your brain all day every day? I’m really expecting some buyers’ remorse when I do achieve it and can tell work I’m retiring. I need to figure it out soon though, or maybe embrace it and just try not to get overboard with it. The blog I thought might be good getting out, exorcising some the demons so to speak, but instead it seems to be “exercising” them and just making those thoughts stronger and more entrenched. Which has its side benefits, like saving money on tolls, and I’ve broken my “trolling the internet looking for anything to buy” habit and my allowance account has been uber-positive this past year, and my appreciation of what I have has grown, as opposed to constantly wanting more and more. Maybe it’s not that the countdown to FIRE is loud in a negative way, I just think it’s going to be a LONG time getting there. And I realize anything can happen to derail that timeline, but until then, I’ll be thinking about what to do in another 4 years and 6 months….

 

* Mrs SSC: I apologize, I believe Mr. SSC drank fifteen pots of coffee this morning…

The ‘lightbulb’ emails

Since Mrs. SSC and I have been together she has been in charge of the finances, investing, etc… It just works great for us, and if you read any of my posts, you’ll realize why it works well financially. The interest in this “lightbulb going off” moment has built to a head, so we thought a quick post might make this easier. Here’s my version of how we got to the email chain and spreadsheet listed below. It all began back in Fall of 2009; we had been at our jobs for a year, and open enrollment was upon us at our company and that brought up conversation around HSA elections, and other investment money types of questions. Since everyone knew Mrs. SSC was the human calculator and investment maven for our household, they asked her advice on how best to diversify their 401k portfolio’s, and other investment strategies. She passed around her investment spreadsheet which was an excel spreadsheet that made my eyes glaze over anytime I’d look at it. But, what it did have was years and dates and when we should hit our number for retirement. I knew it was around age 45, and the numbers played out, but her assumptions for cash available to live on seemed scary low, and I wasn’t going to quit a good job with a nice paycheck to eat Ramen and live in a trailer (not that there’s anything wrong with that, if it works for you).  So, except for getting emails from our friends amazed that we were going to retire at 45, I’d roll my eyes and think, “Sure, sure, 45, uh huh…”

Last summer, I started paying attention. There was plenty of back and forth, and when Mrs. SSC was talking about “We only really need ~$60k/yr to be comfortable” I had to put the brakes on this crazy train, and I began to argue debate her assumptions on how much we would really need to live off of.

And this is where the story picks up with the email exchange below….

 

To: Mr. SSC
From: Mrs. SSC
Sent: August 13, 2014 9:05AM

Oh – I’ve accounted for tax, don’t worry – I added in 10% of federal tax, and 7% State tax (for Idaho – they are high!), and then also property tax.  So that is all in the formula. It’s just I wonder if there are ways to avoid paying taxes…

Yeah – I like a 15% cushion.  Some years we may need it, some years not. In my new & improved spreadsheet (still working on, it’s complicated) I’m adding in cash – setting it at 2 years cash (maybe we can have 1 year cash, 1 year CDs, and then our normal emergency fund in cash).    Plus, if we need to tighten up, that 2 years of normal cash would last us at least 3, maybe 4 years in a bad economy – without us getting jobs, and without us taking money out the investments.

So – in the budget I’ve made a few adjustments. Note that cable TV isn’t included, I’m assuming in 5 years you will have found a way to get football streaming. Note also how I’ve added in $500/month on misc. stuff – like house misc. (broom, furniture polish, picture frame, new garden hose, etc), shopping (I guess pharmacy type stuff or just random shit), and kids’ stuff (clothes, school stuff, sports, etc.).  So that is almost $6k/yr. of mostly optional crap built in Plus, I am rounding up to 65k with my calculations anyways.

 

To: Mrs. SSC
From: Mr. SSC
Sent: August 13, 2014 10:14AM

What I’m worried about is saying, “yeah see we can retire even earlier, we just have to tighten the belt even more. Let’s quit now, we can do it, we’d just have to tighten the belt even more, and move it up to our neck, and tie it to something high….” I’m just saying I don’t want to move our budget so far down that we retire, things go south and we’re struggling week  to week. And worried about money. Especially If we live somewhere that we can’t pick up oil jobs, I’m a bit more skeptical of the 2019 date.

Just something to think about to let you know where I’m coming from. Xoxoxo

 

To: Mr. SSC
From: Mrs. SSC
Sent: August 13, 2014 10:41AM

I know.  But don’t worry – we will have a nice big buffer in there by the time it all comes around. All I’m saying is 2019 is possible. Do you see anything missing from the ‘budget’ or what makes you think 65k wouldn’t be enough? (this is just a conversation , not an attack).  The way I see it 65k has a ton of money built into it – 10k of ‘fudge factor’, 2k in rounding –up, maybe 2k in tax deductions, and if things get rough – up to 12k in deferred ‘allowances’. That is $26k of leeway even before cutting-coupons and turning town the AC/heat and duct-taping shoes to make them last…  😉

Here is a comparison… showing all our expenses currently.  The credit card goes down ~$500 because no maid, cheaper cell phone plan, online TV instead of cable, less car expenses (commute/tolls gone).    This is what I mean by we aren’t going to need to change our lifestyle much.  The July 2014 credit card amounts shown are the average of what we’ve spent the last 6 months – and there were some pricey months…   I mean daycare, mortgage and college savings are over $4k themselves that we won’t be paying when we retire early.

THE spreadsheet

Trust me – I’m not trying to fudge numbers to get out of here earlier… I am just trying to understand the actual costs and balance them with being conservative, our comfort level with ‘risk’, and how much time an extra year in the office vs in the mountains hanging out with the kids is worth 😉  I hate cutting coupons!!!! Lol   And honestly – there is no way I am not going to have some part time job.  I might not get it until the kids go to middle school, but I will have one just to stay busy.  Plus, there are ways we can start tapping the 401k early.

 

To: Mrs. SSC
From: Mr. SSC
Sent: August 13, 2014 12:12 PM

Ok, so you’re saying that right now we have ~$8k going out each month, BUT that includes stuff that won’t be there in 5 years or less. So essentially we drop out ~$4.5k each month. SO, make sure I’m doing this right… with those bills dropped out we are at ~$3700/mo in bills. Then you add a 15% buffer to that to get to $51k/yr for our “pseudo-minimum” needs. Then you add in taxes to work back to where that would put us “pre-tax” which is ~$63k. Then you’re rounding up to $65k as another small buffer. Hence the target of $65k/yr. Huh…

What you’re saying in the right column is that if things get really bad, we cut out allowances, and other things to get to $35k BARE minimum need, but those would be some really sucky times. But, targeting 65k/yr, we would only need about half that to cover the “non-bankruptcy option”. That’s assuming neither of us is working, just living off our saved income. So if we got any jobs that would be on top of this, and if they covered any health care, that would be less overall number.

So then, essentially, this doesn’t even factor in 401k’s because that’s “future money” not included here, this is just the “getting to 401k” type budget, not factoring in any sort of part time work, or other income? Holy shit! Seriously, if this is the budget from now until then, and we both plan on working part time or side gigs, why in the hell are we still working?! Oh right, we need to hit our number first…

I can’t believe that’s all we’d need though. I mean it’s all right there, but yeah, I’m just amazed that the number is what it is, with all those buffers built in and not counting any side income or jobs. I just thought it’d have to be higher… Seriously, I figured it’d be higher…

 

I think at this point Mrs. SSC read this and smacked her palm to her forehead while rolling her eyes. On the plus side, she was probably happy I finally got it and was on board.

It seems like this is common amongst FIRE couples, with someone pushing the issue and the other person is in my position until they have their own “lightbulb” moment.

Do these types of conversations seem familiar with your better half? Please let me know we aren’t the only ones out there that went through this…

 

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!