Tag Archives: Early Retirement Number

The Brilliance Of A Retire By 50 Plan

There’s a brilliance to dedicating yourself to a retire by 50 plan. The brilliant part that’s overlooked by naysayers is if you do it right, you can’t lose. It goes beyond the obvious financial aspects. It also allows us to mentally approach work with a healthier mindset. That then leads to enjoying both work and life on a higher level. 

I constantly thank my younger self for having the insight to go against normally accepted societal work and consumerist practices. My younger self instead pursued financial independence with the goal of retiring earlier than the traditional age. Something positive happens when we take control of our lives. Especially when we do so with our financial life. It provides a healthy focus and ultimately power. 

I was happy to read about how Millennials want to retire at 50. They’re now in or nearing their forties. I was 40 when I had the same burning desire. The article eagerly focuses a bit on the obstacles. It wasn’t easy for me to retire early and it certainly isn’t easy now. So what? Anything worthwhile is never easy. 

The Brilliance Of A Retire By 50 Plan

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Done Right, You Can’t Lose With A Retire By 50 Plan

This is what I found to be the best part. Even if you fail you’ve still won. Doing something is always ahead of doing nothing. Setting oneself up through a retire by 50 plan pays off long before reaching the goal line. It does take constant monitoring of not only progress but feelings about how we are living. 

One of the biggest naysayer talking points is having to waste your life in voluntary poverty in order to save enough to pull off early retirement. Here’s the problem with that nag. If done right there is no feeling of poverty or feeling of a deprived lifestyle. Naysayers should worry more about living in fear of losing a job. Fear of putting up with workplace garbage in desperation to work until old age. Fear of worrying about where to get money in an emergency.

We set ourselves up both mentally and financially while we’re doing it.

Frugal adaptability, living a non deprived lifestyle. 

Nobody should dedicate themselves to a retire by 50 plan that leaves them feeling they are living a deprived life. There will always be tradeoffs. The great thing is we get to decide for ourselves what we want and the way to get there. All is defined by us.

I found that we could still live an enjoyable life while cutting wasteful spending, eliminating debt, and setting aside money for our future. When my family or myself felt it went too far, we scaled back. When things changed and we could cut something that wouldn’t be much missed, we then did so. Frugality is different when you do it with purpose. It’s a major form of taking control. It will change over time in both what we do and how we do it.

My salary never made it to 6 figures. Frugality was a must to succeed with my retire by 50 plan. The lower the cost of my self defined happy lifestyle, the more I could save from our income to eliminate debt and invest. Creating a lower cost of living also means needing a smaller portfolio size to support it once retired. 

Divorcing our identity away from our chosen career.

It is too easy to get wrapped up in our careers. We educate, learn skills, gain experience, and work hard to advance. But it’s also easy to mentally frame our identity around our work and career accomplishments. Dedicating oneself to a retire by 50 plan starts the mental process of seeing our career as the means, not the ends nor our life focus. 

Starting my early retirement plan began my understanding that my work is transactional. It’s not a marriage of mutual interest or loyalty. It was always that way, but I found myself believing otherwise while leaning into my career over the years. 

I was painfully disappointed many times during my career thinking that it was a fair exchange based on long standing rules and promises. I wasted many years in obedience to a false employment perception and could see there are no real rules requiring the honoring of agreements when you have no power to enforce them. Getting our head straight about this aspect is the first mental step to work identity liberation. It will ultimately help us during our retirement transition once we ditch the rat race too.

The can’t lose fact: We will be far more financially ahead than if we had not made this decision.

Even if we miss our savings goals we’re miles ahead of where we would be if we hadn’t been on the retire by 50 plan. I was 9 years into my 10 year plan when the great recession hit. A year later at age 50 my target was missed because market conditions caused a diminished portfolio but I was way ahead of a lot of desperate working people in a time of constant layoffs. 

There is no way to know how we will feel, what we will be doing, or how the economy will be in the future. It’s a lot easier to come out on top if we stay on plan and have the options that come from living a financially disciplined life.  

Hustle- Chasing money will transition to chasing interests and passions.

When I was climbing the career ladder I felt like I had to put money ahead of all other decisions when it came to work. Work overtime, take extra shifts, second or third jobs, accept unpleasant tasks, whatever it took. I couldn’t turn away a chance to bring in extra money to make ends meet. Nor say no because it might tick-off the boss. As my retire by 50 plan was fully engaged with measurable progress it became easier to be choosy about what I would lean into. 

I still had a desire to accept opportunities to earn extra money or advance my position and salary. But I didn’t just accept anything because I no longer felt desperate to do so. I became focused on aspects I like doing, wanted to do, and wanted to learn more about doing. Within company work guidelines, I was mentally freed to easily reject any unpleasant assignment. I found that I was able to care less about management’s feelings and confident in knowing another opportunity that was better aligned with my goals would come.

Redefine retirement- Working in retirement is easier when retired in your 50s.

It’s time we redefine retirement, especially early retirement. Retirement is the absence of needing to work, not the absence of working. Having a retire by 50 plan allows us the time to earn skills and direct our attention to making ourselves attractive to opportunity if we choose to pursue them. Whether to start our own business or do as I did and seek opportunity into other fields that we had passion and interest in learning and doing. My early retirement work was very rewarding. The time working through a retire by 50 plan can be useful in preparing for this retirement definition shift. 

There’s no shame in missing an age 50 date.

Retiring by 50 is not easy for most people. Salary constraints, debt issues, economic shifts, market volatility, and the cost of living where one lives comes into play. Something all the naysayers lean into. The age 50 is a goal, not a measurement of failure if missed. The brilliance of this target is it gives us time to fine tune and define what success will look like while we’re on the path to try to meet it. Something that will shift as we live our lives, experience new things, and we age. 

The Nothing Tricky Financial Side of Things- The way I started my retire by 50 plan

There are all kinds of advice and metrics that are recommended on how to develop a retire by 50 plan or any financial independence plan. Some are basic and others seem extreme or unattainable because of our own unique economic factors. Personal finance is uniquely personal. When I started my FIRE journey there was little internet or anything on the internet about it. There were few books on the subject. Here’s the high-level approach I took.

Build an emergency fund.

The conventional advice is to save 6 months worth of expenses in an emergency fund. Great if you can, but if you can’t don’t let that stop you. 

I started with a target of 6 months housing, not full lifestyle expenses. In my case it was a modest mortgage payment. The idea was if I lost my job I could get by until getting back on my feet with unemployment or temporary work. 

Setting emergency savings goals at different levels was the way I approached this. I felt that it was important to cover the other necessary personal finance aspects too and not go all in exclusively on a full 6 month emergency fund first. I dropped this to a small monthly allotment until I could ramp up emergency savings amounts as the other retire by 50 plan goals were met. 

Eliminate debt.

One of the reasons I was slow to build a respectable emergency fund was I had debt to clear. We were good to avoid a lot of credit card debt at this point in our lives but with a family there were always the occasional large financial hit that caused me to tap an equity line of credit against the house. 

Our debt load was eventually reduced not only by a dedicated amount from income but also by savings from making lifestyle changes through frugality. Debt was a primary target of earnings to resolve first. One of my delayed emergency fund goal relief thinking was that if the worst happened I could still access needed money from the line of credit that I was paying off. 

Set and Work Towards Meeting An Overall Savings Goal 

I had dug into defining our lifestyle costs over a number of months while setting aside money. When it was time to figure out an overall retire by 50 savings target, I sought the help of a financial planner. I was not saving enough and wasn’t saving it in the right places or allocations to meet my early retirement goal. It was hard to squeeze more out but we found it was there all along. With having solid direction it was easy to dedicate ourselves to the plan.

The Goal Of A Maxed out 401K.

The first rule I accepted regardless of my income level was If your employer matched a percentage of your 401K savings, then you have to at least do that. Mine at first was a measly 100% match of my first 3% of 401K savings. Not doing it was leaving money on the table. I started at this small percentage earlier in my career but bumped it up to 10% which was where I was at when I chose a retire by 50 plan. 

While I was still working on the other goals, I began adding about half the amount of my yearly salary increase to 401K allocation increases. As debt was cleared and emergency fund goals were met I was eventually able to set aside the allowed 401K maximum yearly allocation. When the IRS raised the allowed threshold I also increased my allocation. It is important to invest early because time is our greatest ally and the more we have invested the more time helps us. 

Maxed out IRA and Roth IRA strategy. 

My wife and I never made enough money to limit our participation in side funding an IRA or Roth IRA alongside 401K savings. Once I was meeting 100% funding of my 401K I started funding an IRA and Roth IRA. I initially split the yearly maximum IRA limit between the two types for both my wife and I. 

Because contributed Roth IRA amounts can be accessed if necessary without penalty or tax, I later funded the yearly maximum amounts into our Roth IRA accounts instead of splitting it with IRA contributions. I saw the Roth as another emergency fund source although that was not its primary retire by 50 plan objective.

Began non-retirement account savings and investments.

I eventually added a non-retirement investment account. I chose a stock mutual fund through a financial planner I was using.

Leveraged my skills for better pay. 

I became a courageous salary negotiator. My journey and shifted goals toward early retirement allowed the time to open my mind to see things from a different place. I went from going with the flow at all costs to advance my career, to challenging management misdeeds to secure the higher income that I earned so I could further feed my retire by 50 plan. 

This also reduced workplace disappointment. It was replaced with the strength to demand what was promised if I held up my end of any bargain. My growing portfolio and financial confidence provided the power to leverage my skills and accomplishments. 

Having my well won financial backing allowed me to stick up for myself without fear of job loss or worry about any quiet firing tactics

Establish an early retirement funding strategy.

My portfolio was primarily behind 401K and IRA accounts. That meant getting required retirement funding at age 50 without early withdrawal penalty by using a SEPP 72t arrangement. This substantially equal periodic payments scheme allowed me to start receiving monthly checks from my IRA at age 51 without penalty and only paying normal income taxes. A sort of  backdoor approach to fund early retirement. When I took on paid work I would live off of my retirement income. Then i’d invest all of my work earnings back into my net worth. 

Having an early retirement healthcare strategy.

Of all the early retirementment costs that await us, healthcare is most likely the trickiest. What I paid when I first retired 13 years ago and what I pay today is beyond any of my planning.

This one is tough because things can change over the duration of our early retirement journey. The way I see planning ahead for a retire by 50 date is to stay informed about early retirement healthcare, learn the ins and outs of the ACA, and vote in your future’s best interest. 

If There Is A Trick, It’s This-

The trick is to have the discipline to knock out the primary goals and increase retirement savings as soon as you can get to it. But at the same time finding a happy medium living your defined efficient and enjoyable frugal lifestyle. If the word frugal is a turnoff, use purposeful.

It is a choice to live a life of optimism based on actions taken instead of just hoping it somehow works out. It’s optimism based on our financial investments and investments in ourselves through solid personal financial discipline.

The best part of being dedicated to ditching the rat race while young is we get to determine what lifestyle meets our needs and allows us to still live a happy life. We can practice and refine it over time. There are no hard rules and if you screw it up it just means a retirement delay. Understanding what our enjoyable retirement lifestyle would be like and what it would cost provides enormous motivation and confidence in knowing we have a solid financial target.

The brilliance of a retire by 50 plan goes beyond actually reaching the goal. It is the way that it trains our brain to see life, spending, work, and power differently. We can improve our lives while on the journey. Even if we fail to hit our financial target by age 50 we still win. We are closer than if we hadn’t and it’s surely better than failing a risky work until 70 retirement plan

How to Conveniently Manage Your Private Investments

 

This article was contributed to Leisure Freak by writer Samantha Higgins.

It’s not easy managing your private investments, but it doesn’t have to be a pain. There are many ways you can make the process easier and more convenient for yourself. This article will talk about how you can easily manage your private investments by looking at different tools to manage investments.

How to Conveniently Manage Your Private Investments

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How To Manage Your Private Investments

One way to manage your private investments is by using software applications. There are many different software applications that you can use to manage your private investments, such as SPV administration services, and each one comes with its own set of features. Some of the most popular software applications include Personal Capital, Quicken, and Mint.com.

Personal Capital

Personal Capital is a software application that you can manage all your private investments from one location. It also comes with features that allow you to see how much money you have spent on things like groceries or clothes. You can quickly and easily check up on your spending habits without having to go through individual bank accounts. It’s easy to sign up for Personal Capital, but you have to link it to your bank accounts. Once all of your accounts are linked, you can see how much money you’ve spent on groceries or clothes just by clicking through different categories.

Another thing that makes Personal Capital an excellent tool for managing your private investments is that it uses technology to help you make better investment decisions. The software application has a built-in financial advisor that will help you make more informed investment choices.

Quicken

Quicken is another popular software application that you can use to manage your private investments. Quicken comes with many of the same features as Personal Capital, but it also offers unique features that make it stand out. One of the best features is the investment alerts. With investment alerts, users can set up notifications for particular investments, so they know when a change has been made. Quicken also offers a built-in retirement planner that will help you create a custom plan to get you on track to reach your retirement goals. The software application also connects directly with over 14,000 banks, so you can easily track your finances.

Mint.com

Mint.com is a software application that you can use to manage all of your financial accounts in one place. Mint.com comes with many different features, but the most popular one is the budgeting feature. With the budgeting feature, users can create a custom budget and track their spending. The software application also comes with a debt reduction feature that will help you pay off your debts faster. Mint.com is free to use, and it connects directly with your bank accounts and credit cards so you can get a complete picture of your finances.

Financial Advisor

Another way to manage your private investments is by using a financial advisor. Financial advisors can help you better manage your private investments by providing investment advice. A financial advisor will work with you to set up a portfolio that is best suited for your current financial situation. You can either go with an in-person financial advisor, or you can choose to work with one online. An online financial advisor can be more convenient because you don’t have to meet in person, and you can usually get started for free.

Brokerage Account

The final way to manage your private investments is by using a brokerage account. A brokerage account is an account that you open with a financial institution that allows you to buy and sell stocks, bonds, and other types of investments. When you open a brokerage account, you can choose to use an online broker, or you can go with a full-service broker.

Full-service brokers are financial experts that will monitor your investments and make changes as necessary, but they generally charge higher fees than online brokers do for the same services. Online brokers offer many of the same features as full-service brokers because they allow you to buy and sell investments online, but they don’t offer as much personalization or hand-holding.

 

No matter how you choose to manage your private investments, it’s important to make sure that you have a plan in place. Having a plan will help you stay organized and make better investment choices. Failing to plan is planning to fail.

Much thanks to Samantha Higgins for contributing this article to Leisure Freak,  sharing convenient ways to manage your private investments. 

SamanthaHiggins How Manage Your Private InvestmentsAuthor Bio: Samantha Higgins is a professional writer with a passion for research, observation, and innovation. She is nurturing a growing family of twin boys in Portland, Oregon with her husband. She loves kayaking and reading creative non-fiction.   

FIRE Choke? How I Accounted For The Risks Of Early Retirement

FIRE is hard to accomplish, not impossible. For many the dream of financial independence and retiring early is extremely alluring. Enough to motivate us to accomplish the necessary personal finance goals and overcome the hurdles of a system that wasn’t intended to allow escape from. It is something to be proud of and celebrated. Then just as it’s right in front of us we can find ourselves unable to pull the trigger, we FIRE choke. Fear of taking that last step is common. 

I wasn’t blind to the many risks of early retirement and covered it in my plan. Yet I still experienced anxiety from the enormity of my retirement move. It’s all too easy to focus on the celebrated sunny day images of early retirement and overlook or underestimate the probability of storms. That is until it’s all on the line at crunch time.

FIRE Choke? How I Accounted For The Risks Of Early Retirement

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Avoid FIRE Choke: Dealing With The Risks Of Early Retirement 

The risks of early retirement are real. They must be recognized and accounted for in any early retirement plan. Even if we’re fortunate enough to never actually experience them, without understanding how we would counter them can cause expending too much energy and time worrying about “what if”. 

I had delayed my early retirement by a year because the recession came right as I hit my goals. It ruthlessly moved my target further away from me and set me back. But later when all signs pointed to being good to go, my recent memory of the recession’s last minute target devastation caused me a little battle with FIRE choke. It would have been much more paralyzing had I not accounted for all the risks we’re warned about. 

Market Risk

Investing over the long-term usually favors the investor. Retiring early means relying on our portfolio over a much longer period of time. But using a retirement calculator that accounts for multiple historical return cycles isn’t a guarantee that we won’t enter a risky run at the wrong time or for a devastating prolonged period of time. It was something I had to mentally deal with.

My counter to relieve some of the market risks of early retirement was with diversification and rebalancing allocations as necessary. I had the stock to bond ratios to support my investment risk tolerance. Along with enough cash to get through any bumpy markets. After my recession experience I wanted a recession hardened portfolio. Now 11 years into my early retirement I have to say it has worked flawlessly. The portfolio also proved less worrisome when I saw during the pandemic market drop that my portfolio allocations did their job. 

My tip- To reduce the market risk worries of early retirement pick a portfolio allocation, diversification, and cash holding strategy within your risk tolerance that relies on data. Don’t bounce around based on emotions. Especially those driven by fear or greed. I’ve heard too many stories of folks jumping in and out of their strategy and causing damage to both their portfolio and retirement.

Health Insurance- Medical Costs

Medical cost is something that causes many to FIRE Choke. Retiring early before Medicare eligibility can make retirement healthcare pricey. I had earned a retirement health insurance benefit. My short-term healthcare was covered. But my company had been merged with those that had an adversarial attitude toward earlier earned benefit promises. Although benefit cuts made before I retired were worrisome enough, I had to counter concerns about how much worse it could get over time. I retired 14 years before I would be Medicare age. When I retired the ACA was being worked on, nowhere near passing into law. 

With my early retirement at the end of 2009 I had a monthly health insurance premium for my wife and I of $475 with $25 copays. Now in 2021 I pay $1472 with a midrange deductible before an 80/20 payout begins. If it becomes too unaffordable my “plan B” is to structure my income to use the ACA.

My tip- What I did to calm the risks of early retirement medical cost concerns was to double my medical budget of insurance premiums plus out of pocket costs when running my numbers through the retirement calculator. In hindsight my doubleling was not enough to cover my full pre-medicare 14 year period. I recommend using a projected budget that uses double current healthcare costs for the 1rst 7 years of early retirement. Then trippel it for any remaining years before Medicare. See how your retirement calculation works out for the years before Medicare and after.

Remember, it’s just long-term projections in a calculator

I had to plug in a higher withdrawal amount into the FIRECalc calculator than I was planning on using. What I was looking for was my retirement funding success rate. I ended up initially with a higher portfolio withdrawal rate than the recommended 4% but post Medicare it will be lower. 

No More Paychecks Syndrome

The one joy of employment is getting a paycheck. Then doing our thing of managing the budget plus putting some aside to pay ourselves. Knowing that paychecks end when we walk off the job can mess with our head. I planned to get around this by having my IRA account holder directly deposit a monthly check into my bank account. 

My tip- Create your own paycheck scheme. I went from bi-weekly work paychecks to once a month distributions for my bucket strategized IRA. I had the retirement distribution deposited into a savings account and I then make bi-monthly paycheck transfers from that. 

Thoughts Of Needing More Money

One of the risks of early retirement is not having enough money. Even when the numbers check out it’s easy to succumb to thinking to maybe playing it safe and accumulate even more. This is a common FIRE Choke. Putting retirement off for another year or longer of portfolio padding. Both the fear of running out of money or being greedy and thinking more is always better than anything else can cause us to choke and derail retirement plans at the last moment. 

My tip – Retiring on our terms means picking the day we toss the job for the adventure of retirement freedom and owning our own time. When the thoughts of needing more creeped into my mind, I reminded myself that time is finite and not guaranteed. My father in-law shared through his own experience that retiring early is like leaving the casino when ahead. I used that metaphor to quiet the more money seduction.

Be Mentally Ready

Most importantly is planning to be mentally ready to retire and walk away from the only life you have known. It might not be the life you enjoy, but it’s the devil you know. Even if all the other bases are covered, not being mentally ready means none of it will matter. FIRE Choke is then inevitable. Even if we were to power past that, there would be no mental peace about the decision to retire early if our head isn’t right. There are plenty of nonfinancial aspects that we need to account for to avoid mentally regretting our early retirement decision.

My tip- Plan to deal with separating your identity from what you did for a job, expanding your social life, defining an ever changing purpose, and transitioning from saver to spender of your portfolio. Much of this requires being aware of it before retirement. But most will have to be fine tuned on the fly after entering retirement. So finally, give yourself time to work through it. 

 

There are many reasons why we may question our decision to retire early once the goals have been met and our plan looks solid. Dealing with issues that range from fear to greed are common. We just need to be aware of them and address them logically. If we can’t account for them in a reasonable way and there’s still mental reluctance then maybe it really isn’t our time to take the leap. There’s no shame in that. Afterall, we’re the ones that have to live with ourselves and the outcome of our decisions. 

How Does Early Retirement Zero Earnings Impact Social Security Estimates?

Here’s How Mine Went

One of the knocks on early retirement is how it can negatively impact one’s future Social Security benefit. My recent Social Security estimate with zero earnings going forward is somewhat surprising. We pull our Social Security estimate to get an idea of what it will be. We then can use that information in our retirement plan and plug it into our favorite retirement calculator. It’s quite obvious when looking at our SSA estimate that claiming our benefit early at age 62 will result in a lifetime of lower monthly payments.

Choosing early retirement means we have decisions to make about when to claim our future benefit at age 62 or later. But how accurate is our Social Security estimate? The problem is that it uses something that’s a little less clear. It has a line that says: Your estimated taxable earnings per year after 2019……………..$XX,XXX. It uses our prior year’s earnings in the benefit calculation going forward to the reported filing ages to come up with the estimated age based payment results.

That earnings part of the Social Security calculation will be lower than the optimistic forward earnings estimate they used when it drops to a lesser number or to NONE once we retire early. Based on that sometimes overlooked line, one would expect that our received benefit may be lower than what we are looking at and used in our pre-retirement planning. But how much lower?

How Does Early Retirement Zero Earnings Impact Social Security Estimates?

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My Social Security Estimate With Zero Earnings

There are a lot of moving parts to how our Social Security benefit is determined. It’s presented to us in today’s dollars so we can make a mental association. We get a monthly benefit figure for age 62, our Full Retirement Age (FRA), and age 70. Before I reveal my numbers it’s important to understand the basics of how our Social Security is calculated. At a high level it has 4 components that go into it.

1- Social Security Payment Years

To qualify for Social Security benefits we must have had at least 10 years of paying into it through accumulated work time with a significant amount of earnings. The benefit is calculated based on the highest 35 years of earnings. If we have less than 35 years of paying into Social Security then $0 is used for the deficit number of missing work years and averaged for our benefit calculation. But it is more complicated than just that.

2- Surprise! Social Security is means tested through PIA

Primary Insurance Amount, aka PIA, is a weighted formula that gives higher Social Security benefits relative to overall career earnings for lower earners than for higher earners. The PIA formula uses what’s called your average indexed monthly earnings (AIME) in the calculation.

3- Our ancient salaries of decades past are normalized for inflation with AIME

The Average Indexed Monthly Earnings, aka AIME, is an inflation adjustment that uses wages instead of consumer prices. It reflects the U.S. economy’s average wage to normalize our years of earnings. It‘s done by indexing that puts our earnings in a comparative basis within the earnings level of the US by using the average wage indexing series. I have yet to find all the parameters used to get the actual index factor Social Security applies in our estimate against long past earnings years. Not surprising since it would change yearly as our estimate is always updated to be presented in today’s dollars.

4- Bouncing our AIME against PIA

The PIA is calculated using our highest 35 years of wage-indexed earnings and if we have less than 35 years then those missing years will be marked as $0 to make up 35 years. It is then averaged out and expressed as a monthly amount. That average amount is our AIME. Our AIME is then bounced against the PIA. Within our AIME amount the PIA applies a graduated percent of benefit. It goes from the lowest earnings bracket up to higher earning brackets. There are bend points within the PIA formula which represent earnings segments. The PIA formula gives 90% of our AIME for the first segment. Segment one is currently the first $826 of our monthly AIME. The next earnings segment between $826 and $4,980 is at 32% of AIME. High earners with AIME amounts above $4,980 get 15% of their AIME in the last segment.

For example, If our AIME is $5835. Then segment 1 is $826, Segment 2 is $4980, and Segment 3 is $29 ($826+$4980+$29=$5835). Our PIA bend point/earnings segment 1= $826 X 90% = $743. Bend point/earnings segment 2=$4980 X 32% = $1594. Bend point/earnings segment 3=$29 X 15% = $4. Total PIA benefit is then $743 + $1594 + $4 = $2341 per month.

Should Future Earnings of NONE Impact Our Social Security Estimate?

It’s easy to believe that having zero earnings going forward will impact our Social Security estimate. We are most likely earning far more later in our careers than we did some 35 years ago even after indexing. A pre-retirement estimate doesn’t consider retirement before collecting benefits. Basically the projection is optimistic before we retire by calculating that we will continue earning the higher later life earnings rate until our Social Security filing date. All those projected higher earnings years then override older lower earnings years. It actually says: *Retirement    You have earned enough credits to qualify for benefits. At your current earnings rate, if you continue working until…

When I looked back 35 years from my early retirement year to 1975, my part-time earnings was $1002 that year. If I had $0 earnings going forward then that 1975 earnings would be counted as part of my 35 years for my AIME, not the last year’s reported earnings projection. Even when indexed that 1975 earnings amount should drag the Social Security estimate down once Social Security is calculated going to $0 income projected forward. I did accept that my actual Social Security benefit would be lower than what I looked at and used in my retirement planning before pulling the early retirement trigger. I just didn’t know how much.

High Income Earners

None of this may matter to anyone having 35 years of earnings above the Social Security earnings cap. The cap for maximum taxable earnings for recent years are –

  • 2019 $132,900
  • 2018  $128,400
  • 2017 $127,200
  • 2016 & 2015 $118,500
  • 2014 $117,000
  • 2013 $113,700
  • 2012 $110,100

If you have 35 years of high earnings that surpasses the Social Security earnings cap, then you qualify for the maximum Social Security payment amount. For 2019 that is $2,861 a month at full retirement age.

How My Social Security Estimate with Zero Earnings Going Forward Turned Out

My Social Security estimate at age 51 when I retired early with 35 years employment earnings.

My estimate includes 2 years working part-time when I was in high school within my 35 year earnings history. But those and other lower earning years of my youth wouldn’t matter. There is a high projected forward earnings based on the last year of my career in the calculation for another 11 to 19 years (depending on benefit filing age) into the future used to get the displayed benefit payment amounts.

*Retirement    You have earned enough credits to qualify for benefits. At your current earnings rate, if you continue working until…

your full retirement age (66 and 8 months), your payment would be about- $ 2,417 a month

age 70, your payment would be about……………………………………. $ 3,113 a month

age 62, your payment would be about……………………………………. $ 1,687 a month

Your estimated taxable earnings per year after 2010……….  $106,800

As of now I have a total of 42 years of social security recorded earnings because of some sweet retirement gigs. I did things I wanted to do and learn to do for only as long as I wanted to do it. The 7 years of retirement gig’s yearly earnings ranged from a low of $668 to the high of $107K. My best guess is that 4, maybe 5 of my retirement gig year’s earnings ended up higher than earlier indexed earnings years. That obviously should improve my Social Security calculated amount once $0 earnings (NONE) is used in the calculation going forward and my benefit is calculated solely on my highest 35 years earnings history.

Here is a comparative view of some of my early retirement Social Security estimates. It includes the projected earnings listed as part of the estimate calculation.
You have earned enough credits to qualify for benefits. At your current earnings rate, if you continue working until… your full retirement age (66 and 8 months), your payment would be about age 70, your payment would be about age 62, your payment would be about
Your estimated taxable earnings per year after 2010…..$106,800 $2,417 a month $ 3,113 a month $ 1,687 a month
Your estimated taxable earnings per year after 2015……$66,918 $ 2,423 a month $ 3,069 a month $ 1,746 a month
Your estimated taxable earnings per year after 2016……$40,438 $ 2,474 a month $ 3,134 a month $ 1,783 a month
Your estimated taxable earnings per year after 2018……$668 $ 2,589 a month $ 3,279 a month $ 1,866 a month
Your estimated taxable earnings per year after 2019……NONE $ 2,678 a month $ 3,392 a month $ 1,930 a month
I found it interesting when comparing Social Security estimates and reviewing my lifetime of earnings

Of my total 42 years of working and paying into Social Security I had 11 years that paid out high bonuses which allowed me to hit the Social Security earnings cap. I do remember having a few Decembers in my first career when I got a take home pay bump because Social Security wasn’t withheld from my check until the new year. Also included are 13 earlier years where I worked 2 jobs so my wife could care for our kids. Childcare was too expensive even in the 80s so we did what we needed to do. Working 12 hour days boosted my income those years so we could make ends meet and later pay off debt. That helped increase my AIME during those years although it added zero earnings years for my wife’s Social Security AIME calculations.

When I retired early I used the FRA amount of my Social Security estimate in my retirement calculations.

Since I wasn’t retiring with a million in the bank I needed to make sure I could fund my early retirement the way I wanted to. I believed that my Social Security may end up a couple of hundred dollars less once it’s recalculated with $0 earnings going forward. I was OK with that and started my new retire early and often life. But between inflation adjustments and the way Social Security PIA bend points favor lower earning segments, I now find that my FRA benefit amount is a couple of hundred dollars higher. Understanding of course it isn’t apples vs apples. One estimate is presented in 2010 dollars and the latest in 2019 dollars.

Inflation aside, one might think it should be higher since I worked some awesome retirement gigs that replaced some low earning years of my youth. However, that Social Security estimate I pulled way-back-when before I retired projected high forward earnings right up to my benefit filing date, not NONE as it is now. Those old future optimistic earnings figures Social Security used would also override old lesser earning years in the estimate. It would override much more of them than my few years of retirement gigs and a future earnings of NONE going forward to my benefit filing date. Those retirement gigs probably do help with the new estimate but doesn’t fully explain the numbers now being provided.  

What can I say about the impact to my Social Security estimate with zero earnings projected forward —

Hard to completely figure it out without having the full wage indexing factors they used against the small earnings of years-past to calculate my AIME. I can say that the latest Social Security estimate with NONE earnings going forward is better than I was expecting. If we have 35 years of work earnings paid into Social Security before we retire early, that pre-retirement Social Security estimate we pull and run through the retirement calculator might be a lot closer to our benefit amount than we think it will be. Both because there will be no zero earnings years calculated in our AIME and there being a shorter amount of years to our benefit filing date used in the earnings forward calculation.

Anyone who pulls off early retirement in their 30s or 40s with less than 35 years paid into Social Security may find a different result. Especially since there will be a longer calculation to age 62 or older projected forward with their current earnings amount. A more accurate Social Security estimate may only happen after a year or two of lower earnings or NONE. When deciding to retire early, running your numbers with a reduced anticipated future Social Security payment amount should be considered.

I always believed a lower Social Security benefit was a good trade for early retirement and still do.

Social Security may or may not live up to the estimates they give us. I believe that since we are required to pay into it our entire working lives that it will meet its obligations, although possibly reduced. So much can happen with the markets and Social Security but we plan with the data we have. The future is unknown, so we should always add a little worst case scenario planning, just in case. 

My Early Retirement Spending Miscalculation, It’s Less Than Expected

I was looking at my retirement budget calculations. Just a quick glance at the planned long-term numbers I used pre-retirement to ditch the rat race at the age of 51 on December 17, 2009. I’m happy to see that after 9 years of monthly retirement budget tracking I made an early retirement spending miscalculation. Happy because it’s in my favor.

Overestimating early retirement spending is certainly a good thing. When we plan for retirement we have to figure out how much retirement income we need. It comes down to estimating what our retirement budgetary needs will be and applying inflation to the equation. To get our starting number we guess what costs will go up and what costs will go down once we dance our way out of the workplace. But it’s all an educated guess. We won’t know until we are actually living our desired retirement lifestyle and the real inflation rate is revealed down the road.

My Early Retirement Spending Miscalculation, It’s Less Than Expected

Photo by Andre Hunter on Unsplash

It’s Easy To Make A Retirement Spending Miscalculation

The default advice is you’ll need 70% to 80% of your salary in retirement. That didn’t make sense to me as I was saving a high percentage of my income for retirement. I also expected to pay less taxes. I took the approach that I needed 100% of my pre-retirement frugal living budget minus estimated savings of work related costs like commuting, clothes, and the alcohol I had depended on to counter work induced stress. Then I added 10% to cover my tax obligations. That final estimated figure was far less than using the salary based calculation.

Once I settled on the budget amount I then applied a reasonable yearly inflation factor of 3%. That is except for healthcare. I pulled that amount aside and applied a 6% inflation factor against it to get a closer estimate. Running the numbers through a retirement calculator and coming up with good results is the green light to take the leap.  

The high level retirement spending miscalculations –  

My early retirement spending reality is that healthcare went way up over that 6% inflation amount each year while some others were less than the 3% I used. Some things I initially budgeted for have even disappeared. That’s because things change as we live and experience retirement doing the things we want to do. We settle into an entirely new way of living and our taste for certain things changes over time. Here’s some of my early retirement spending findings.

Healthcare – Medical Insurance

Nobody should be surprised that this went way higher than inflation for everything else. It’s my biggest retirement spending budgetary item and pre-retirement miscalculation. When I retired in December 2009 my retirement health insurance benefit cost $476 a month. For 2018 it was $1,064 and in 2019 it will rise to $1,340. Ouch! The difference between 2010 and 2018 is 123%. That’s a huge healthcare cost increase over 9 years. It should be easy to see how this one will skew anyone’s retirement spending calculations.

I thought doubling to 6% would be high enough when I separately calculated inflation costs for this item from everything else. I figured it was a reasonably obscene inflation percentage to make sure this expense item was covered. The reality is it should have been calculated using a 12% inflation rate. Aside from the company killing this retirement benefit (as they occasionally threaten) and our going on ACA if it still exists, I see little relief from this until our medicare years. I have adjusted future budget projections to reflect that realization.

Cable TV and Entertainment

When I retired we had a basic cable plan. That was our family’s frugal living compromise. Our retired parents all said with more time in retirement you will want to have a good paid TV package. Thinking our basic cable plan was plenty, I included it in our retirement spending calculation. When I retired my cable cost $35. Over the first 6 years of my retirement the same cable service slowly climbed to $92 a month with all their higher channel and fee increases. That increase was well above the 3% inflation rate I used.

We found in our retirement the opposite of our parents retirement experience. We were satisfied with local TV viewing and really only watched a handful of cable channels. It didn’t justify the cost. The nationwide analog to digital TV transmission upgrade and new antenna designs made cutting the cord easy to do. Streaming development also made paid cable or satellite service an easy retirement cost to eliminate.

We have also eliminated other entertainment cost.

We’ve started using our library where DVDs are free to check out. We also connected to our community’s event online calendars to get event email notifications and have enjoyed free concerts near us. Having time also allows us to go to the movie theater or other venues during off hours at a discount.

Retirement brings more spare time but it didn’t raise our TV and entertainment cost. It instead lowered them.

Mortgage

I retired with a modest mortgage still on the books. I calculated our monthly payment into our retirement spending calculation without thinking I would ever pay it off. But then I started a short but sweet encore career. Since I was basically living off of my retirement funding I simply directed 100% of my paychecks to the mortgage and cleared it within 18 months. This move is what made the insanity of rising healthcare cost a near wash for my early retirement spending miscalculation. This is a case of you won’t know what will impact your retirement budget until you are retired. You simply don’t know what you will do until you do it. I had no idea this would happen when planning my early retirement.

Eating Out

Even with all the free time, restaurants didn’t call our name any louder than they did before. In fact they are even harder to hear. Initially we took advantage of happy hour discounts but soon got over it. We prefer home cooked healthy meals and we now have the time to make them. We spend 50% of what we initially modestly budgeted for this.

Travel

We had a decent travel budget. We try to save money when we travel and have done that for decades. With retirement we have time to look for deals and can travel off-season. We also can make reservations and lock into deals months in advance. Another thing we have experienced is our appetite for travel has decreased over the 9 years of retirement. We simply like where we live and play. As far as travel goes we prefer quality experiences to quantity of travel. Although the cost of travel has increased over the years, I’ve found that we travel as much as we want to but are spending the amount we started with. Our travel spending has seen a near 0% inflation increase over these 9 years.

Fuel

I calculated a 50% drop in fuel cost once I retired. Simply thinking that I would be using some of my extra free time to go places but also subtracting out my 20 mile (200 miles a week, whoa!) work commute costs. In actuality the drop has been closer to 75% of our pre-retirement cost. We shop local and travel shorter distances and prefer to spend most of our time outdoors, not driving somewhere. We are lucky that we have outdoor recreation and everything needed within 5 miles of our home. Not only is fuel cost down but so is all auto maintenance like tires, brakes, oil changes, etc.

Taxes

I was paying a large percentage of income in taxes when working so I calculated 10% for my retirement income tax obligation. The reality is when I am not working it is actually only around 5% of total retirement income. Some of that is due to using a more tax efficient withdrawal strategy that I hadn’t considered before I retired.

The Takeaway From This Early Retirement Budgetary Exercise

This exercise wasn’t a yearly spending study.

I merely looked at our initial retirement budget at the end of 2009 with my planned yearly projected increases using our applied inflation estimate. Then I compared that to our spending for 2018 to see how it tracked.

I was happy to see that we are 14% less than what our calculated long-term 2018 budget projection was.

2018 was a year where we did everything we wanted to do. It was also a normal year without any catastrophic events.

For the between years there was one that did go over budget projections. It was a bad year due to a medical crisis. But the other years came in under spending calculations, some much more than others depending on retirement life events. For instance the year we paid off our mortgage and a couple of the following years before health insurance had risen so high came well below the earlier budget calculations.

Having a plan matters.

I believe this shows that having a reasonable plan along with purposeful living and spending discipline, even crazy stuff like obscene healthcare increases won’t necessarily derail one’s retirement plan.

It’s good to have an emergency fund or access to other funding in retirement.

Having the means to carry us through a bad spending year is important. The medical crisis year that we experienced could have caused problems if we only had a fixed monthly income to depend on. We need funds beyond our sunny day budget projections to get through any rainy years.

Retirement life happens and things can change.

During retirement we will do things, stop or decrease doing other things, and make decisions that we couldn’t know to plan for. In my case starting that encore gig and casually paying off my mortgage was a decision that had huge implications in the outcome of this exercise. Had I instead invested my salary, my retirement spending would have been ratcheted higher by healthcare. I would however have more money in my portfolio. Hopefully doing that would have provided higher income to counter the retirement healthcare spending increase. I think I made the better choice.

Inflation is tricky to predict but plays a huge role in planning and outcome.

I admit that my first nine years of early retirement came with many lifestyle cost items having an actual low inflation rate. Healthcare’s massive increase ate solidly into what should have been a stellar lower than expected retirement spending amount. However, had I correctly applied the higher 12% inflation rate to my healthcare calculation the results of this exercise would be off the charts in my favor. The opposite is also true. If we begin to see hyper inflation increases across the board then we have to recalculate our budget going forward. Hopefully investment income can keep up but if it can’t then spending control or possibly returning to a paid opportunity is our best defense.

Having more free time doesn’t necessarily mean spending more to fill it.

I thought we would spend more than we are for travel, entertainment, and all else we do when we are out and about. Although this was partially true in the first couple of years of our retirement, it didn’t stick. In our case having time allows us to save money while still doing everything we enjoy doing.   

Retirement Comes With All Kinds Of Spending Variables

Everyone’s retirement experience will be different. Things like retiring with a child at home that causes spending changes as they age, experiencing a health crisis, or finding out during retirement that you are a passionate travel freak, can throw all projections out the window. If that happens it will hopefully be short-term and you can find yourself back on track or find a way to adjust your budget to meet your retirement’s new spending needs.

Retirement lifestyle cost is a concern for most people when they decide to retire.

What I have found is that as long as there is a reasonable plan based on the lifestyle we want to live and can afford to live, we have a retirement funding cushion available for any bad years, and we  monitor our spending, we can overcome most challenges before they become a huge retirement financial nightmare.

There are no guarantees in life or budgets, but worrying too much about things does no good. Instead know that planning well and tracking our spending gives us the best chances. If the worst should happen then it won’t be due to head-in-the-sand financial recklessness.

Is The Million Dollar Barrier Keeping You From Early Retirement?

 

It seems to be widely accepted that it takes at least a million dollars to afford early retirement. But is saving that much money really necessary? The million dollar barrier is something that most people can’t overcome to achieve their early retirement dream. Maybe it’s time to just stop chasing other people’s numbers. This million dollar thinking gets its traction from the often repeated safe withdrawal rate of 3% to 4%. With this safe withdrawal strategy, depending on the percentage one settles on, a million dollars would allow for $30,000 to $40,000 a year in inflation adjusted retirement income. Not to live a wealthy lifestyle but an amount many feel they could manage a decent life with.

Having a million dollar portfolio is definitely excellent guidance to follow if you have the income and time to hit it. It sure makes early retirement a lot easier to call and hats off to those who do. But generalized guidance or consensus about a minimum early retirement savings number doesn’t fit everyone’s situation. People have unique variables that should drive their early retirement savings target.

I retired early at the age of 51 with far less than a million dollars after 31 years of honoring my end of the career-driven devil’s bargain in the corporate world. What I did was look past the million dollar barrier. I took a hard look at what early retirement really is and what it would take to have it.

Is The Million Dollar Barrier Keeping You From Early Retirement?

Bypassing The Early Retirement Million Dollar Barrier

Early retirement still takes saving a considerable percentage of your income to achieve. For the working class there is only one way to early retirement. It’s the same advice every early retirement enthusiast preaches.

Make as much money as you can

You can make more money to amp up your early retirement plan in a couple of ways.

  • Dive deep into the devil’s bargain working overtime or increasing your skills and then killing business objectives to climb the career ladder.
  • Leverage your skills to jump somewhere else that pays much more.
  • Work a second job.
  • Start a paying side hustle.
Cut your spending

Not just a little, but in a big way. Embrace frugal living and a happiness focused lifestyle instead of the stuff-ownership lifestyle of a consumerist world. Take it as far as you can without feeling you’re living a deprived life. A sustainable budget and happy lifestyle is the long-view goal.

Be debt-free

Killing debt is a must. Even better if you can also pay off your mortgage. Any debt that isn’t associated with income producing rental properties needs to disappear. Not only does vanquishing your debt for all time free-up more money while you are working to save for retirement, but it also reduces your lifestyle cost. This then reduces the amount you will need for financial support in retirement.

Become a super saver

Saving 10% to 15% of your income for retirement is an awesome start. It’s especially a great percentage when paying off all your debt. But once debt is dead you have to put on the cape and go full super saver. This is the only way to build any sizable portfolio before you are 65 or older. It will take having a strategic retirement savings plan and investing wisely.   

Get your healthcare figured out

Most importantly stay healthy. Healthcare cost is a bear to deal with outside of work. If you have a retirement healthcare benefit at your or your spouse’s employer then do what you have to in order to secure that benefit. Others who have successfully lowered their lifestyle costs should get to know the ACA healthcare subsidy thresholds and use them. If “THEY” finally kill the ACA or your taxable income is above subsidy earnings thresholds then use a healthcare broker like eHealth to find the best rate. Don’t forget to plan for possible long-term care down the road.  

The Big Problem With The Common Early Retirement Advice

For most people, doing all the above may never result in a million dollar early retirement portfolio.

Most of us don’t make enough to save enough in dollars to hit the million dollar mark before we are well into our 60s. Especially if we didn’t start aggressively saving in our 20s. I never had a 6 figure salary while saving for my early retirement. I saved throughout my career but like most people it was a huge achievement just to hit the yearly 401K maximum contribution amount. Even with putting in herculean savings efforts, the most I could save was about $20,000 a year until the last few years of my career where it was around $30,000. That was 50% of my take-home pay.

Life, kids, all the stuff we do financially to cover raising a family and making a life has costs. Even with a frugal lifestyle, without having a huge salary it’s tough to support saving enough in dollar amounts to hit a million dollars.

Obviously time matters.

The sooner you invest the easier it is to save a large amount of money, as compounding interests and gains dramatically adds up. My earlier 401K contributions, although smaller, really increased. But it is all relative to how much is there in a dollar amount to grow. Saving 30% to 50% of your income is impressive, but not so much when comparing your saved dollar amount to the million dollar mark. My $20,000 to $30,000 sure wasn’t.

Even if there had been an impressive uninterrupted 8% return for each year (there wasn’t) my yearly contributions would each take 9 years to double. After aggressively saving for the last 10 years of my career I didn’t want to stay in the rat race another 9 or 10 years to break through the million dollar barrier. The math towards a million dollar portfolio only works if you can contribute and invest high dollar amounts over lots of time.

Shift Your Early Retirement Thinking

If you have the time and income to save a million dollars or more then that’s awesome. By all means go for it. But that’s a tall order for most of the financially responsible working class. Early retirement needs to take a different mental and financial approach. It also takes honesty with ourselves and what’s really going on in the early retirement game.

First off, all the standard early retirement advice mentioned above is a must. The budgeting, debt elimination, super saving, all of it. The shift comes in the million dollar or more portfolio thinking. Here’s the million dollar barrier busting approach I took.

Cost of Lifestyle Dictates Retirement Savings Needed, Not The Million Dollar Consensus

Your retirement lifestyle cost is the key to early retirement. The lower your cost the less your required portfolio total will be. The quick and dirty calculation based on the 4% withdrawal rate is to take your yearly lifestyle budget amount and multiply it by 25. When I did that the result was close to a million dollars and my portfolio was short. Yet when running my savings total against my funding needs in the awesome FireCalc retirement calculator I came in with a 100% success result.

I ran it to age 90 and included the amount from my full retirement age Social Security estimate. I even reduced that estimate by 20% just in case they cut payments. Why did I include Social Security? Social Security is the country’s workforce mandatory retirement account. We were forced to pay into it for decades with the promise it would be there to help pay for our retirement. I count it because I played by their rules and yes, I do expect it.

The problem I found with the 4% rule is it assumes we take that amount with inflation adjustments each year. I take the position that it may be a more valid guideline after starting Social Security benefit payments. Without a million dollars in the bank my needed early retirement funding was closer to a 5.5% withdrawal rate. But I knew that wasn’t a static withdrawal rate throughout my long retirement. It was temporary. Many things would change over the years. There could be a mortgage payoff or downsizing our home. I took my budget amount and instead multiplied it by 20 for a closer down and dirty estimate. Then I ran my assumptions through FireCalc.

Retirement is the absence of needing to work, not the absence of work.

I knew that retiring young with all my go-getter energy and drive wouldn’t disappear when I walked away from the rat race. I always knew I would do what I call the “retire early and often” thing. There were things I wanted to learn and experience that would also pay me something when doing it.

I think whenever you read about successful early retirees they all have some kind of paying pursuit that they passionately engage in or occasionally take on. Some of the posted blog income of early retirement gurus is very impressive. Other early retirees clearly have self employment or freelance activities that they happily do.

Not everyone will have an appetite to work in their early retirement. It is something that needs to be calculated into an early retirement funding strategy. It has been some time since I last engaged in a paying pursuit. I will say that working in retirement is a lot more fun than working was before retirement. When something interesting comes up I will definitely consider it. Keeping an open mind to the possibility goes a long way to realizing you probably won’t need a million dollars before you can retire early.

With my first early retirement I took 5 months off to decompress and celebrate. Then I did just as I always believed and planned on doing. I started my first opportunity of interest and passion, followed by an encore career, and a couple of early retirement side hustle gigs before retiring again. I used my earned income to pay off my mortgage which lowered my lifestyle cost and increased my net worth. Then everything I earned went right back into my portfolio. This again helped reduce my overall withdrawal rate from what started as my non-million dollar portfolio.

Reducing Your Portfolio Target Amount

A million dollar or more portfolio may be needed depending on your lifestyle cost. That may be more dictated by where you live than by your frugality skills. I live in a high-cost/high-income county of Colorado. It is close to our children and their families. Had we bought a more expensive home we wouldn’t have been able to pay it down low enough to still retire early. I didn’t have to make the decision about moving to a lower cost house or location to reduce my lifestyle cost. However, that is something that is on the table if reducing cost is necessary in the future.

I have also found that we have trimmed even more costs from our budget since retiring early. We constantly reassess our happiness focused lifestyle. That and we have the time to look for better deals.

Last Words

By all means, if you can do it, go ahead and set a million dollar goal. I obviously have different views regarding early retirement and bypassing the million dollar barrier. It has worked for me but I am sure that some will question my reasoning.

  • Risky? I suppose, but so is early retirement. Traditionalist and early retirement naysayers will say so, but it was all calculated.
  • Worth it? No question about it, YES!

Obviously it goes without saying – What worked for me isn’t guaranteed to work for everyone else. We are all bound to the economy and market volatility so a wise investment strategy is paramount.

Hopefully describing the way I approached conquering the million dollar barrier will give you ideas of how you can craft your own successful early retirement strategy.

As to my portfolio health today – Overall up about 25% since my first early retirement and now at a 3.8% withdrawal rate. I’m still 7 years away from my Social Security. Maybe I gambled going against the million dollar consensus, but it sure has paid off. I have enjoyed my time in employment liberation and time is something that we can spend and invest but can’t get back once passed.

Money Worries When It Comes To Retirement? Essential Steps To Ease The Stress

For many, the dream of an early retirement is what keeps us getting through the daily grind and the routine of work. When an end is in sight, it can make things seem much easier to deal with while still enduring the rat race. But when on the long road toward retirement for an unknown amount of time, it can be a long process and each day can drag on. If you are reaching a certain age then you’re likely to be checking out your pension and/or retirement savings pot to see when you might be able to retire. This can cause money worries when it comes to retirement.

If your dream is retiring and enjoying plenty of vacations on cruise ships and other travels, then you’ll want to retire with a good amount of money in the pot. But if that all seems a little far off because you haven’t seriously started to prepare financially and you won’t be able to retire for a while, let alone on any cruise ships, then don’t stress and despair. With some good planning, it can still happen. Making your personal finances and eventual retirement a priority in your life will help make a big difference in your retirement stress level.

Money Worries When It Comes To Retirement

Photo Credit www.aag.com

Easing Stress About Money Worries When It Comes To Retirement – What To Do

Use Your Employer To Save

It isn’t surprising to hear that those that enjoy their retirement and have less money worries, are those that have earned a good pension and/or contributed to retirement accounts with their employers. So if you are already contributing to your employer’s pension scheme, then that is a really good way to go. When they match what you are paying in, then it can make a big difference, much like the fed retirement scheme that government employees pay into.

Participating in your employer’s retirement scheme is the easiest way to save a large amount of money for your retirement. I can speak from experience because that is exactly the way I was able to retire early. If you are yet to pay into an employer’s pension, 401K, or other retirement scheme, then it is certainly something that is worth looking into and the sooner you do the better. It is never too late to start. That’s because doing it is always going to be better than doing nothing no matter how late you start. If you are already participating in your employer’s retirement scheme, then try to do whatever you can to increase the amount you contribute. Utilizing your employer’s retirement scheme is a great way to save and plan for YOUR future.

Non-Employer Associated Retirement Savings

Not every employer offers a retirement scheme for their employees. Seeking other ways to save for retirement is very important. Even if your employer does offer a retirement scheme, it is still a good idea to also save money for your retirement in non-employer based retirement accounts. It can start by setting money aside in an interest paying savings account. Then strategically use your savings to invest in low-cost funds. Consider using any of the low fee brokerages like Ally, Ameritrade, Vanguard and Fidelity. Use tax-preferential retirement accounts like IRA and Roth IRAs. Once again, saving anything is better than saving nothing for YOUR retirement.

Budget Well

Setting and living on a smart budget packs a one-two punch. The less you spend in your lifestyle will free up more income to put away for retirement. But budgeting doesn’t end once reaching retirement. It also must be part of your retirement planning. The lower your smart budget lifestyle is, the less you will need saved to pay for your retirement. Budgeting-well makes your target retirement savings amount easier to hit.

If you’re nearing retirement, it can be a good idea to look at what income you will have coming in. Think about how it is going to be spread out over your years in retirement. To start with, you are likely to have higher spending needs earlier on. Things like trips, vacations, and family gatherings will likely feature quite high. But as you get older in your retirement, you’re less likely to be spending as much doing those kinds of things. You’ll still be fairly active, but most likely living differently. As you age, money spending activities will most likely decrease. Other areas may remain flat or increase as in the case of health care. So look at what you’ll have and plan accordingly in your long-view retirement budget.

Ease into Retirement

From being someone who has worked for almost all of your life, going from being busy to suddenly not working can be a big step financially, socially, and emotionally. So for many people, it can be a good idea to ease into retirement. Working part-time with your current employer, or even looking for a more relaxed part-time role can be a good way to still be getting paid, staying socially connected, and getting you used to a little more enjoyable leisure time in your life. This kind of phased retirement approach will reduce pressure on your retirement savings and help lessen financial stress.  

Downsize Your Home

If worries about mortgage or renting are going to be bothering you, then why not consider moving to a cheaper property or even to a cheaper part of the country or world? When you don’t have to be stressing about paying a mortgage or high rent, then it can both ease your retirement financial stress and make your money go much further through your retirement.

Tap Your Home Equity

There’s another way to relieve retirement financial stress if you’re at least age 62, have built equity in your home, and are really happy with and to want to stay in your home. That is by putting your equity to work for you by taking out a reverse mortgage on your home. A reverse loan works differently from a traditional mortgage. With a reverse mortgage you will receive money regularly, rather than receiving regular mortgage bills. With no monthly repayment requirements, you also do not have to worry about being evicted for missing payments when the unexpected occurs. However, you cannot borrow the full value of your home. A reverse loan application calculator will use a special formula to determine the percentage to which you are entitled.

The borrowed amount will accrue interest until you leave the home, at which point you must pay the loan balance. Otherwise, the lender will recover some or all the money by having the home sold. Be sure to carefully review and understand the reverse mortgage terms. If married, make certain that terms allow for a spouse to stay in the home and your retirement payments continue if something should happen to one of you.

 

Everyone eventually retires, on their terms or not. A little retirement planning ahead of that time and taking positive action will help reduce retirement worries and stress. Anything you do to improve your retirement finances is a win!

What To Do If Retiring With a Mortgage

It’s hard enough to save for retirement let alone pay off the mortgage too. Most of us end up retiring with a mortgage. I sure did, our parents did, and frankly almost everyone I knew did. At the time of my first early retirement we had been in our home 14 years. The mortgage was paid down 40% from when we bought the home. Here is the strategy I used and considered to help us manage our housing costs in retirement.  

Four Strategies To Consider When Retiring With a Mortgage

#1- Refinance to Lower Your Monthly Payments

Obviously if someone is considering retiring with a mortgage the numbers have got to line up.  Simply running our budget numbers including the monthly mortgage payment through a retirement calculator like FIRECalc can provide some assurance.  I retired early and certainly made sure that I could afford to retire with my mortgage payment.

My strategy was to reduce my monthly mortgage payment to allow for more cushion in my retirement budget. I prefer 30 year mortgage loans with a lower monthly obligation and then making extra payments when I can.

We bought our home in 1995 with an 8% interest rate and a $1185 monthly payment. We did refinance a couple of times to take advantage of lower rates over the years. Each refinance was for the existing mortgage balance and pushing it out again for 30 years with the lower interest rate. This always resulted in a reduced monthly payment.

I used this same strategy the month before I retired to lower the payment again. With our last mortgage refinance our interest rate was 3.75% with a monthly payment of $744. This made retiring with a mortgage much easier on my retirement budget.

By refinancing your mortgage before retiring the refinancing process is smoother. The bank was able to easily perform my employment verification and verify my income. I did not mention my intention to soon retire, nor did they ask.

#2- Downsize to Reduce Housing Costs

Retiring With a MortgageOur plan was that we stay in our existing 2 story empty nest for several years and then later sell and downsize. Retiring with a mortgage doesn’t mean it has to be with us the rest of our lives. The plan was to later buy something with our equity for a mortgage free or almost mortgage free final home. A smaller home should also provide lower utility costs, taxes, insurance, etc., to give even more retirement budget cushion.

For some with a large mortgage payment, completing this move would be highly considered before retiring. In our case we still enjoyed where we lived and could manage the mortgage payment in retirement. That is why this is part of our delayed strategic moves and I am glad we waited.

We have recognized that our views on housing have changed. I believe they will change even more as time goes by with our aging. When I retired the only thing we considered was buying a smaller ranch home. Now we are opening up to RV, Condo, and even just renting. It is important to have a long term view and plan. But recognize that things may change over time. I keep our options open.

#3- Move to a Less Costly State, City, or Town

This strategic step is also part of our delayed retiring with a mortgage housing strategy. We will consider relocating somewhere less expensive if and when the time comes to sell our existing home. The town we live in is beautiful and with lots to do. Because of that it is sought after and has become a higher cost area.

Not knowing the future, we keep this as a strategic consideration. A lot will depend on the cost of living and our budget at the time. We keep an open mind to moving  to a State that has no or lower income tax, a different town, or even a different retiree welcoming country.

#4- Pay Off the Mortgage with Retirement Job Income

I had always planned on retiring early and often.  Meaning I would always remain open to opportunities that I had passion for or was interested in learning and doing in my retirement. My retiring with a mortgage allowed for my retirement funding to cover it in my budget. That means that any income I earn is extra. With this strategy I am able to divert all my retirement job income to the mortgage.

I did put this strategy into action after landing a sweet retirement gig. I paid off the mortgage within 18 months. Even if a retirement job didn’t pay enough to clear the mortgage, all money paid towards the mortgage would be like an investment. Where it enhances the benefits provided in our delayed retirement housing strategy moves of downsizing and/or relocation later on.

Last Words

Now that I am in my 2nd early retirement it is nice to be mortgage free. However, our strategies for downsizing and relocation are still fully in play.

The strategic goal is having a plan that manages our retirement housing by offering us financial flexibility. It’s all about looking for ways to stretch our retirement dollars in the best way possible in a place we WANT to call home.

A Happy Retirement: Making the Biggest Purchase of Your Life

Is Your Motivation Challenged When It Comes To Saving for Retirement?

I think everyone deep down hopes to one day have a happy retirement. But it seems that people have a problem saving for it. After all, it is a consumer driven society with lots to spend money on. To get started saving and stay motivated it’s time to rethink how we look at our retirement. Think of it as our life’s biggest purchase and just like any other purchase it will be limited by our available cash.

The bummer when buying your retirement is that unlike other big lifetime purchases like our education, home, car, etc., a decent and happy retirement can’t be financed. We simply cannot wait to the last-minute and plop down a 10% to 20% down payment and borrow the rest to get what we need or want. It takes assets.

The other happy retirement equation that needs answered is knowing the retirement basics, features and options we REALLY want to have. Our retirement features and options has costs associated to them just like any other large purchase we make. We have to complete some product (retirement lifestyle) research and save as much as we can to buy the retirement we want. If we don’t it’s simply settling for the retirement we end up with.

A Decent and Happy Retirement is Years in the Making – So is a Bad One

Surprisingly, although 80% of Americans work for employers offering some kind of retirement program, only 32% of these employees are saving for retirement

What are they waiting for?

A Happy Retirement: Making the Biggest Purchase of Your Life
Nope! Retirement money won’t come from heaven

OK I get it. Life happens, wages are stagnant, there are student loans, too many cool things to buy and do, etc. There are just too many reasons to ignore saving for retirement and put it off for later. Retirement is too far into the future to think about now. WRONG!

When it comes to saving for retirement, procrastination is our worst enemy. Saving something, even if it starts out as a small amount will be better than not saving anything. Especially when done earlier instead of later when time is on our side. It is a personal win-win with no downside. On the other hand not saving anything guarantees a worse retirement outcome.

Saving For Retirement is Putting Aside Money For YOUR Life’s Biggest Purchase.

You Do Want to Buy Something Nicer?

Nobody intentionally goes out to buy a bad education, house, car, or you name it. Who in their right mind would roll up to the grocery store cashier with only $25 to their name and $200 of needed groceries in the shopping cart. But when our money is short we do end up settling for what we can afford.

We have all had to settle a time or two for something either less than wanted, less than needed, or on the crappy side of things. Try doing that every day for the rest of your life.

There should be Social Security to help us with our retirement purchase. But it was never meant to be our retirement’s only source of funding. It would be very challenging to have a nice happy retirement purchased by Social Security alone. So ask yourself. Do you want to buy a crappy retirement? Are you OK with settling for a low quality of life over what might be decades?

Retirement is YOUR life that inevitably awaits you. Ignore or delay planning and saving for retirement all you want. It only hurts and limits you when it becomes your time to buy it. We can put retirement off for only so long.

We must rethink of it as our life’s biggest purchase and prioritize it as such. At some point everyone alive will have to buy a retirement. Either on their terms or not.

The Goal Should Be a Happy Retirement

Buying A Retirement You Will Want

Setting Your Retirement Base

Don’t let the numbers get in your way. We all hear the financial industry claims that we need to have enough to provide 80% (give or take) of our final income for retirement. Taking that number to get a retirement savings estimate would intimidate and demotivate any positive action for most folks. The big objective is to start saving something. You don’t have to set a savings goal to start. But eventually it is necessary to understand where you are and how you are doing.

Here’s what I did.

When buying something big there is always the base price. Then the cost rises when features or options are added. The same goes with our retirement.

The happy retirement base price is having our basic lifestyle costs covered. That being food, shelter, utilities, insurance, taxes, etc. The way I look at it is that not being able to cover these basics lifestyle needs is certainly a bad and unhappy retirement.

That base price can vary depending on where we live and other basic retirement lifestyle choices. Just like a big automotive purchase. Choosing a base Ford or Chevy will have a base cost or price before adding any features or options to it. We have to make sound retirement choices.

Setting Base Happy Retirement Goals

Figure out what your monthly budget will be to cover your basic needs. Use your current monthly basic costs. Then look at it for areas you will probably see reductions or increases and make adjustments. For example:

  • Staying put or moving somewhere cheaper.
  • Health Insurance. This is hard to figure given today’s political climate but assume it will be higher until Medicare kicks in.
  • Taxes. Probably lower than paying while working.
  • Transportation costs. No more commute may reduce the amount you will pay for fuel, maintenance, and insurance. More vacation road trips may cause this amount to break even or add to it.
  • What we are retiring to. Must-have activities of passion and interests that have costs associated to them. For example, hobbies and travel.

Set a realistic base model retirement estimate. Then do the math. Hopefully it is much less than the 80% of current salary. This will help set your base retirement purchase price and be used to set your base happy retirement savings goals.

Keep in mind that at some point social security will also be there to help pay those happy retirement basics. Get your Social Security estimate and plug that into your equation to reduce savings needs. Also subtract out any expected pension coming your way. ( I had to mention it even though unlikely today)

Based on the 4% retirement withdrawal model  you can simply take the yearly amount you estimate your savings will have to cover and multiply it by 25 to reach a retirement savings goal to shoot for. Remember that even if you don’t make your goal you are far better off than if you did nothing. Beat it and you have options. The future price of our happy retirement that we save for may vary as time goes on just like anything else. Make necessary adjustments.

Happy Retirement Features and Options

I love features and options but some are worth a lot more than others to me. I separated these out from my retirement savings calculations because I really don’t have to have costly add ons. Especially those that don’t really add anything to my happiness value. I would enjoy having some but I don’t need them to meet my basic happy retirement requirements. They are my wish list items that I used to set my highly optioned happy retirement savings goals. For example:

  • Travel. World travel wasn’t part of my base retirement but would be a nice-to-have if finances allowed.
  • Hobbies. For instance I have an active automotive hobby and would love to increase my participation which would mean more travel costs than my base happy retirement allows for.  
  • Sports. I always wanted to learn how to play golf but it does have costs to play.

Everyone’s valued options and features list is different. Just do a self assessment of things you enjoy doing now and wish to do in retirement. Figure out what the cost is. Then add it to your base retirement to calculate your highly optioned happy retirement estimate.

Consider Living Your Retirement Lifestyle Now

We decided to live our retirement lifestyle years before we retired early. We didn’t waste money on anything that didn’t meet our happiness values. This allowed us to reduce our monthly costs, pay off all debt, left more money to save, and gave us time to create a sustainable and enjoyable lifestyle.

In my case, our base retirement purchase number was more like 30% of our last salary. A lower base retirement lifestyle cost means needing less assets to pay for it.

When it Comes Time To Purchase Your Retirement

When the time comes to buy your retirement you will definitely get what you can pay for. Some get to choose when retirement is. For others it comes when they least expect it, ready or not. Hopefully there is enough assets to buy a happy retirement that covers all the required basics.

Having a successful retirement savings outcome increases the possibility of buying a retirement with valued features and options. As long as the base retirement is covered then being able to add from the wish list becomes an option. Limited only by what you can afford. Just like any other big purchase.

If a little short then anything saved will allow you to possibly fill the gap through cutting lifestyle costs or landing a part-time gig. That beats being far short with no money and few alternatives.

In Closing

It’s a consumerist world and culture that we live in. Buy this, buy that. This article is all about ending the procrastination and seriously getting started with saving for your life’s biggest purchase – YOUR retirement.

  • Motivate yourself by looking at retirement as something you want to buy for yourself, not just settle for.
  • Figure out how much you can dedicate to retirement saving.
  • Increase your retirement savings rate over time as conditions allow.

Never stop saving for the biggest purchase of your life. Saving anything is better than nothing. When the consumerist world calls your name and tempts you to stray from your retirement savings, remember that nobody else is going to buy you a happy retirement. Having a happy retirement is all on us to figure out and pay for ourselves.

On FIRE but Afraid to Retire Early? The Unspoken Fear Erasing Asset That You Own

Anxiety appears for many who are nearing or at their Financial Independence Retire Early target. Being a little afraid to retire early is normal. I certainly felt something hidden behind all of my excitement. But anyone reaching this FIRE milestone has an incredible asset.  It is an asset that grows regardless of market conditions. Once it’s recognized it should ease any sleepless nights about pulling the early retirement trigger. Yet it is an asset nobody really talks about. The best part is it’s a retirement fear-erasing asset that we already own. I only found out about it after my first early retirement. Having this knowledge gives me a lot of early retirement confidence.

Being at Least a Little Afraid to Retire Early Is Only Natural

Not afraid to retire early with this asset

Image Source

Here is what I believe based on my own early retirement experience. With all the planning, budgeting, debt elimination, saving and investing, we only really KNOW one thing. That one thing is living our life as a worker bee, living the taught and traditional career-driven, job oriented existence.  We create a frugal lifestyle focused on all the right things but it is alongside needed salary producing work.

Even after running our portfolio numbers through retirement calculators with successful funding results, we can still hesitate making the leap. For me, even though I longed for rat race escape, I still only really knew that one way of living.

I did take into account all of my many vacations from that career oriented way of living. I figured it gave me a taste of rat race freedom which certainly provided excitement about making my escape. Yet with all my positive calculations and retirement lifestyle planning there was still some hesitation to ditch worker bee life.

There are also anti-early retirement advice and articles from so-called retirement experts to feed anyone’s early retirement anxieties. Headlines like: Early retirees regret retiring or    Long Life spans means people should delay retirement are attention grabbers.

All of it is of course great advice for most people. It is certainly something to consider in our early retirement planning by having counter-strategies to avoid regrets. But for those of us on FIRE, the unspoken asset we have provides a retirement advantage over the average consumerist retiree.

People Who Are On FIRE needn’t be Afraid to Retire Early – Our Super Asset

The super asset I am talking about is the knowledge and experience that we gain on our journey to financial independence. Nobody really talks about the value of the skills and knowledge that gets us to FIRE. There isn’t a little box to check-off on retirement calculators either to improve retirement success rates. Yet these are crucial learned and practiced skills that will aid us in our early retirement. It is an advanced early retirement asset.

I didn’t recognize its value until after retiring. Had I given it respectful thought I would have had far less hesitation in pulling the early retirement trigger. It has been over 6 years since my first early retirement. I just wanted to share what I believe to be an unspoken early retirement asset.

This asset grows with experience

Something every early retiree should do is stay curious and always increase their knowledge. We keep learning and grow our early retirement knowledge-asset regardless of market conditions.

Stay actively engaged

Any early retiree who didn’t just fall into a pile of money and quit their job has been actively involved in their portfolio and budget. That doesn’t end when pitching the rat race. Skills learned will continue being used and grown. When anything looks challenged, decisions will be made and actions taken just as learned and done before retiring.

The skills of living below our means

Living below means seems to be a huge problem for a large part of the population. If we skillfully avoided lifestyle inflation while in the rat race, then we are far ahead of retirees who have later said they regret retiring when they did because they overspent. Our brains have been conditioned to change our spending or add to our income stream (see below) if we find our income becomes unable to meet our expenses.

Ability to side hustle or as I call it, retire often 

I know from experience that all of our ambition and abilities don’t just end with early retirement. That drive that gets us to FIRE doesn’t go up in smoke. It just changes its focus. Understanding that the definition of retirement isn’t the absence of work but instead is the absence of needing to work means we have no problem being open to opportunities of passion and interests.

There are no guaranties and we know it

We not only know it but accept it and are able to be successful with it. Risk has always been there on our FIRE journey. We do what we need to do. It separates us from the consumerist debt-ridden hordes. We have learned to take calculated risks to make it to early retirement and that skill continues throughout our lives. We know that things can happen beyond our control. But we won’t crawl under a rock and wither. We will take necessary action just as we did during the years before reaching full FIRE.

In Conclusion

There all kinds of reasons to be cautious about giving our final notice and retiring early. It’s only natural when walking away from the only lifestyle we really know and have known for our adult lives. But we needn’t be afraid and suffer through sleepless nights once our FIRE target comes into full view.

Use all of your FIRE- knowledge to counter any thoughts of early retirement gloom and doom and erase any fear. Celebrate when seeing your retirement funding calculations as positive. Throw in a few worst case scenarios. Then know that YOU are one of your biggest assets in early retirement to add to your early retirement confidence.