When can I retire? That’s not a trick question, but the answer is tricky because it depends on many things. Even if we simplify things, the answer may still be surprising!
A super simple example
Jack and Jill want to want to retire in 25 years and live at least 20 years in retirement.
They plan to spend $5,000 per month ($60,000 per year) during retirement.
If we ignore all other considerations, how much money will they need?
This looks easy, $60,000 per year x 20 years = $1,200,000 of spending in retirement.
Planning for this also looks simple.
Assuming Jack and Jill have nothing saved for retirement, they need to save $48,000 per year for the next 25 years because $1,200,000 / 25 years = $48,000 per year.
Simple. Easy. Done.
Reality is not so simple
Aside from the fact that most people cannot afford to save $48,000 per year, there’s also the inconvenient reality that $1,200,000 is nowhere close to being enough.
If for no other reason than just inflation. Prices go up over time. In the U.S. the long-term average is about 4% inflation per year. At that rate, the total amount of inflation-adjusted spending balloons to $4,953,529.39!
How is that possible? First, inflate the $60,000 by 4% per year for the 25 years before retirement. Next, inflate that inflated amount by the 20 years in retirement.
The 20 years of retirement spending equals the total inflation adjusted amount Jack and Jill will need to spend in retirement. It adds up to over $4.9m!
What about taxes and healthcare? What about providing for loved ones? What if $5,000 per month is not enough or if they live longer than 20 years in retirement?
Imagine diligently saving up $1.2 million over 25 years only to find out we’re $3.7 million short at retirement – a huge whoops!
The bright side is we wouldn’t need the entire $4.9 million on day 1 of retirement. Things like social security and pensions would help.
But we’d still need at least some of it saved, and even saving $1.2 million is a challenge for many people.
Can’t make the numbers work? Then spend less, retire later, and/or make more money. Repeat as needed and until the numbers add up.
The Happy Wealthy Lesson
Regardless of how much we can save, the lesson is the same. Make sure we start by correctly understanding how much we want or need to save.
If we don’t have a target, then we’re just shooting into thin air. Or worse, possibly shooting ourselves in the foot!
Start with a plan. Not sure how or where to start? Then work with a professional who can answer your questions and guide you in the right direction.
There’s no shame in asking for help. Even world champions have coaches and trainers who help them reach their full potential.
Whatever you do, start now, there’s no time to waste.
—
HWL
Happy Wealthy Living 
Leave a comment