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How Much Do You Need To Save For A Comfortable Retirement?

Figure Out How Much You Need For Retirement Now – Worry About Base-Expenses

The current advice out there is that you need 80% of your employment-income in order to retire comfortably. I’ve mentioned in previous posts what smelly bullshit that is. This advice translates into needing enough money saved up in retirement so that you can replace 80% of what you make right now. If you are taking home $20k/mo then you need $16k/mo of income in retirement, according to this theory. This is an absurd amount of money and if you think you need this much then have seat on my lap, let’s chat.

It’s hard to grasp this but in fact your expenses in retirement will be much lower than what you spend in your working years. Sure, you will want to travel and spend on things you aren’t spending on now, but don’t just work your life away for that just-in-case expense! Live your life intentionally and save, plan your retirement intentionally.

I know that some docs don’t like to think about retiring from medicine, they want to practice until the day their mind or body can’t keep up with their practice, like this 95-year-old cardiologist. So instead of thinking about retirement think of a goal towards financial independence. This will give you a peace of mind that is hard to describe until you experience it.

Financial independence is the backbone of being able to retire and it also is what allows you the freedom to work how and when you like.

Let’s do the math. It might be easiest to create 2 categories:

  1. your bare-bone expenses
  2. your elective expenses


Bare-bone includes:

  • rent
  • mortgage
  • child expenses
  • groceries
  • utilities
  • healthcare
  • transportation

Elective could be:

  • auto lease
  • vacationing
  • gadgets
  • entertainment subscription
  • dining out
  • secondary home
  • cable TV
  • donations
  • hobbies

Bare-bone expenses.

If you’re a family of 4 with parents in their late 30’s and two preschool children then your absolutely-necessary-expenses are paying for your housing, food, utilities, healthcare and transportation.

Housing could be rent or a mortgage. How low can you go? I could post numbers here which might be helpful for some but either you have to go with societal standards or think outside of the box. Some families will get a mortgage, put every penny they have towards it in order to pay it off ASAP. Another family will simply rent in order to avoid the costs/headaches of home ownership. Yet another will decide that they don’t like living in a high cost-of-living area and will move to another city or state in order to cut their housing expenses.

If you can pay off your mortgage then you will be left with maintenance/HOA/taxes/insurance. This could be as low as $300/mo and up to $2,500/mo (yes, even for a paid off house).

Food in this category is simply groceries. Even if you buy organic and eat local/healthy it should come out to around $700/mo and could be lower. Bread/beans/rice/sauces can be made/prepared for really cheap at home. Is this easy to do? Hell no. It takes discipline and budgeting.

Child expenses vary quite a bit especially if you opt for private education. Food and clothing probably is the biggest category for children. It depends on whether you are okay with second-hand clothing, I suppose. I see some of my friends going a little crazy chauffeuring their kids to 85 different after-school programs – I guess consider that as an expense in this category.

Utilities will include electricity/gas/water/cable/cell. If you have a $150/mo cable TV budget then you know that you are also spending more time in front of the tube and probably adversely affecting your health. If you have a $100/mo cell phone instead of a $15/mo plan then you will need to budget more there.

Healthcare might become more relevant if you leave your job. You can become financially independent and not have healthcare because you maintain a minimum number of work-hours at a gig that comes with the added benefit of covered healthcare. If your income is low enough in retirement then you will qualify for subsidized healthcare plans. And if you pay out-of-pocket you could get close to the $1k/mo mark for that family of 4.

In other parts of the world quite a few families live without cars. No, I don’t mean Vietnam or Guam, I mean Germany and Holland. Public transportation, electric bikes and scooters can be much cheaper alternatives to owning cars. Then again, you can own a car, drive it very infrequently and probably pay no more than $100/mo for all its expenses. This requires planning, choosing the right insurance and being diligent with maintenance.

Let’s tally up

On the lowest end of the spectrum your bare-bones could be $2,000/mo and on the high-end it would be $7,300/mo. There is a good amount of wiggle room in either direction so it’s basically up to you.

Don’t poo-poo budgeting thinking that you are already optimized, that there is no other category you can improve in. I thought the same for many years and believe me, the more you focus on a category, the more research you do and talk to others about it the more options will surface.

I think what matters is how you structure your life leading up to the time you can declare financial independence or retire. If you pay off a reasonable home or move your family to a lower cost of living area then you could have an incredibly low overhead. On the flip side if you have certain comforts/luxuries you are used to then you may need to support a minimum overhead of closer to $5-7k/mo.

Elective Expenses

I actually won’t spend much time on this but I want to explain this category. You don’t have to save for this in your pre-retirement working years. Sure you could, but the right approach would be to just work little whenever you need a little extra income for these elective expenses.

I understand money to be the key to my independence, having freedom to spend my time how I want and when I want. It’s my tool to escape the job-bondage. Even if I loved my job it would be important to me to have the flexibility to leave it when I want or switch to something else if the urge arises.

What’s Your Number?

Spend a little time and figure out what you will need for your retirement spending. Is it $2k/month or is it $10k/month. Start working towards that goal by figuring out how you’re gonna create that income stream once you’re ready to pull the plug on your job.

Creating $10k a month of passive income is much harder than $2k, naturally. So the decision you have to make is whether it would be better/easier to lower your overhead or commit to working much longer to save up the exact amount you need.

Create Your Bare-Bones Expense Income Stream

If you start working on this now then you will have plenty of time to fine-tune it. Like myself, you might start out by trying to do it through index funds – easy, fast, least amount of work but slightly weaker returns.

As you master the indexing thing you will progress to thinking about real estate or a business. These require a little more work but the return is higher which means you need to save quite a lot less to achieve the same goal.

Let’s say you need around $4k a month for your minimum overhead, to keep the lights on so-to-speak.

  1. You could invest around $1.2 million in index funds.
  2. You could buy a $1 million home and rent it out.
  3. You could operate a business that needs little oversight.
  4. You could do peer-to-peer money lending with $800k invested.
  5. You could invest around $600k on real estate crowdfunding sites.


If You Don’t Want To Save Up For Retirement

Imagine that you don’t care to invest a bunch of money for retirement, having to manage it, invest it, file the proper taxes on it etc. You always have the option to generate your bare-bones expenses with some work.

This is a perfectly viable option especially if you can:

  • Do your job part-time.
  • If your work doesn’t wear you out too much.
  • If your expect to be healthy well into and past a traditional retirement age.

The issue is that you wouldn’t have a whole lot of wiggle room. If something goes wrong you would be stuck having to support your income with work or live on the disability insurance payments.

What About The Elective Expenses

I think it’s more important to focus on creating an income stream for your base-expenses and worry about the elective expenses later.

Once retired, you can always fill your free time with part-time work or some side-income that could make you enough to have some fun-money.

Without the pressure of having to cover your entire retirement overhead with investments and savings you can enjoy more free time now.

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