“Save 10% of your income for life and retire when you’re 60″
The trap here is deceiving. This type of simple math causes a long-term problem of lifestyle inflation that destroys the exact thing that retirement is supposed to represent… freedom. Freedom to let you make life-long decisions. If you ascribe to the quote above this article is certainly for you.
Spending 90%: This sounds like an idiotic point so we’ll dive in further. If you continue to spend 90% of your income… the years you previously saved are worth less today than they were yesterday because your lifestyle has inflated if you make more money. If you made $50K a year and 10 years later make $100K… well your lifestyle retirement spend is now on a 90K salary.. this is 200% higher than the 45K you were originally spending when you made 50K. Instead why not find the minimum amount needed to live your life.
Retirement is not an End: Do you remember summer breaks when you were little? If you were poor they sucked. Why did they suck? You were bored out of your mind so you did nothing but watch TV or play sports… whoops can’t do that last one effectively at 60 unless you’re lucky. In fact many people got summer jobs! So the infatuation of “doing nothing” is a trap in itself, when we’re busy doing something we dislike we constantly want to do nothing and when we are doing nothing we want to be having fun! The word dislike is highlighted for a reason as it gives us a hint to a long-term solution…
The Wall Street Playboy Solution:
Partial Retirement: Now we’re getting somewhere. No one really gives this option out in your financial classes but why not shoot for a “semi-retired life style in the 30-40 range?”. Instead of saving up for an “end to it all” how about you shoot for mobility and a job that you enjoy doing. For us weight room freaks it could simply be working at a gym, a health nut could be at a juice bar and a person who loves kids could teach. This type of cash should be your spending money while your accelerated savings can cover your living costs. This way you’re doing something you enjoy for the vast majority of your life while you leave your savings unscathed.
Percentages: Now lets take a look at the math in percentage terms. Lets say you save 33% of what you make instead of the old wisdom of 10%. In roughly, 25 years you’d be able to “retire” on 7% returns for the rest of your life. I can hear the hard core players already… “You’re too old at the point to crush it in the game”… well lets stop and take a look. The 25 years assumes you have zero income. Instead we will make the assumption that you could easily replace ~1/2 of your current income with any hobby you like and your time to retirement sinks like a rock, you’re mobile in a decade.
Here’s the math of the suggested scenario for $60K:
1) For 10 years you save 33%. 20K annual would get to $200K
2) With 200K you are now able to earn $14K a year without doing anything… 14K/40K is now covering 35% of your life expenses without touching the initial 200K
3) From year 10 on you can now earn 26K plus doing any job you want for the rest of your life.
The scenario above is a terrible downside case as it assumes you never make any more money and the 20K a year you save is not reinvested until it grows to 200K. For the mathematically sound, the biggest determinant to your freedom is actually the rate of spend you need to be happy.
Conclusion: Naysayers and people with high cost lifestyles are going to be unable to relate. Sure a select few of us may start a successful business and it is true that you can make a lot of money that way, but life is tough and unfair. You could see yourself sidelined and forced to work regular jobs. With that said it is Thanksgiving and the one thing we’re thankful for is game. Getting a body, eating healthy, stacking capital and never buying expensive things we don’t need combined with game gives us hope that the future is bright for an early “retirement”.