I can describe my ideal retirement in three words.
Long and healthy.
If my retirement is long and healthy, I’ll have very little to complain about.
Beyond that, everything else is icing on top of the cupcake.
But like my four-year-old sugar-crazed daughter, I spend a lot of time thinking about the icing.
A Healthy Exercise
Have you thought about what you’ll do in retirement? Even if you’re young, it’s a healthy exercise to consider well before your exit date.
Visualizing your ideal retirement will drive you to achieve it sooner and may impact how you save for it.
Reverse engineer it. Start with the outcome and work backward to devise a plan.
The youthful tend to be the most optimistic. I certainly had a clear vision of what my retirement would look like when I was in my 20’s. I dreamt of it at the tail end of my backpacking adventure.
The idea was to go from being broke and living with my parents, to creating the perfect life with a loving wife and family and a lucrative career. We’d live in our dream house. Then after twenty-some years of masterful parenting, Mrs. Perfect and I would travel the globe for the remainder of our days.
This was in the head of 27-year-old without a responsibility in the world.
What I didn’t realize was building a career, finding a life partner, and creating a “perfect” life is not achieved with a pen and checklist.
It doesn’t happen in a straight line. And it’s never perfect.
But through it all, my vision of an ideal retirement has changed.
My Ideal Retirement – Then vs. Now
Besides a long and healthy retirement, I think about the specifics a lot.
Marrying, becoming a parent, and watching my parents, coworkers, and neighbors have changed my perception of retirement.
Here’s how I saw my ideal retirement about 15 years ago:
- Retire early (by age 55)
- No work in retirement
- Extensive travel (6+ months per year)
- Focus on healthy living and leisure
Today, it’s more like this:
- Retire early (by age 55, perhaps earlier)
- No work in retirement
- Travel (varying year-to-year depending on our kids)
- Focus on healthy living and leisure
- Spend time with kids, wherever they are
- Be supportive of aging parents
- Involvement with the local community
- Active social life
- Be damn sure I have health insurance
- Pursue passion projects (that might earn money)
- Contribute to the greater good
Most retirees I know never drastically changed their lifestyle after retirement.
I recently asked a coworker who is retiring this summer if he had any special plans.
He said no… just going to keep living the same way but without the commute or work.
Same for a neighbor of mine. The first thing she did was remodel her kitchen. She’s not going anywhere.
My Dad and his golfing buddies talk about winning the lottery. All of them agree they’d probably just keep golfing the same $20 courses twice a week with each other if they won.
Perhaps because as people age and refine their priorities, they build an ideal life they don’t want to retire from. They just want to retire from the constraints of a full-time career and enjoy the extra time.
But a former coworker of mine retired about a decade ago and returned to work within a year.
She didn’t need the money. She was bored.
The decades of specialized knowledge she acquired during her career was useless on the outside. She knew she was still valuable to the organization. So she was compelled to return to work part-time.
RAND and various news outlets are now calling this phenomenon unretirement and it’s happening a lot.
Money and longevity both play a role in the unretirement trend. But a bigger factor is the desire to do meaningful work.
Some people really do enjoy what they do. Once they leave, they miss the work and struggle to find another purpose.
Despite the trend, I’m pretty confident this won’t happen to me.
Like many others with an interest in early retirement, I was drawn to the idea of escaping my career because of lack of interest.
Many of us realize, mid-career, that our current work is the path of least resistance to early retirement, even if it’s not the best career fit.
This realization can arise in the form of a midlife career crisis. As in, oh shit I chose this career and now I’m stuck. How can I escape?
We do the math and realize there’s an accelerated path to retirement that doesn’t require a career 180.
Then there are the people who love their chosen careers and don’t understand early retirement. One person I met through this blog asked me why do you want to retire?
He was a Dad, in his 50’s, and loved what he did for a living. Has no desire to retire at all.
My quick answer to him was travel. But the full answer is more complicated.
My goal to retire at age 55 is 12 years away. When I reach that age, I’m optimistic our family will have enough investment income and savings to leave full-time work and still pay for college without borrowing.
I’m unlikely to “retire” and start a new business or come back as a consultant as long as we prepare for that date.
That said, I enjoy earning money and might want to keep earning. I anticipate that being a more active investor in retirement will satiate that need.
But I could be wrong.
Writing is fun. Helping others make smarter decisions with their money is rewarding. So maybe I’ll keep writing or find another way to earn doing something I enjoy.
I also acknowledge that today’s rosy economy may not continue. Our family could experience some kind of hardship. Shit can happen and I may need to work beyond 55. I hope not.
Retirement plans can change leading up to the big date and in the years to follow. And since retirements can last thirty or forty years or more, priorities will certainly change throughout that time.
What I thought was my ideal retirement at age 27 is different than my ideal retirement today, which is different than what it will be at age 55, 65, 85, or hopefully, 105.
Which brings me to the topic that intrigues me the most. How do I save for a retirement that could potentially last 40 years?
How to Reverse Engineer your Retirement Savings
As I mentioned at the top, to reverse engineer your retirement savings, start with the outcome and work backward to devise a plan. There’s a common method to this and a more flexible method that takes longer but gives you more options.
The 4% Rule
The most common method for determining how much you need to retire is to project your annual expenses. Then use the 4% Rule to determine your retirement number. Roughly.
The 4% Rule says that if you spend about 4% of your savings every year, your savings will last for about 30 years.
For example, if you expect to spend $60,000 per year in retirement, you’ll need to save $1.5 million before retiring.
Variations of this rule have been exhaustively modeled and back-tested hundreds of ways accounting for inflation and different investment portfolios. It basically holds true when applied to historical data over various periods of time.
So you can rely on it as a rule of thumb for estimating your retirement savings goal.
A More Flexible Method
However, I am not basing my retirement planning the 4% rule. Instead, I’m pursuing a strategy whereby I create enough investment income in taxable accounts to cover essential living expenses perpetually.
I track the taxable investment income I receive in my quarterly income updates. At last check, my annual income earned from taxable investments (stocks, real estate etc.) is about $9,000. This income helped our family when I lost my job, and I intend for it to be an income baseline during my retirement.
As I make fresh investments, brick by brick, that number will grow. Since I’m still working, I currently reinvest any payouts I receive back into more income producing assets creating a compounding effect. And since many of the investments are in dividend growth stocks, the payouts grow naturally every time a company announces a dividend increase.
Eventually, the money in retirement accounts (the icing) can be used for travel, comfortable living, healthcare or assistance needs, and occasional luxuries.
Pursuing this more flexible strategy, combined with using the 4% Rule estimate our wealth and ability to retire, is a more realistic approach to saving for the type of retirement I want to have.
Because having the sustainable taxable income streams frees more money for unexpected needs, to help others, or even to pass on to our kids.
The downsides are two-fold. Building reliable income streams take more research and effort than simply putting all your money into index funds. And it takes longer to retire.
But this strategy allows for a more dynamic retirement. One that is less constrained by a fixed income, giving the retiree more flexibility to live their ideal retirement.
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