When can I retire? This might be one of the most important questions or considerations in the land of managing your monies. Most of us want to retire one day, and when is certainly a very personal consideration. Some may want to retire early, some of us (hi Mr. Buffett) may not want to retire at all. Some folks love their work, some hate their work. Many others may have the goal to semi-retire, or semi FIRE.
Of course FIRE is getting a lot of digital ink these days. FIRE is an acronym for Financial Independence Retire Early. And FIRE is certainly embraced by the younger generations. And they often embrace a radical or draconian approach with respect to the whole early retirement concept. They want to save with a minimalist mindset. Pain now. Retire later. They’ll cut their bed sheets in half, they’ll eat ramen noodles night after night. Many will preach that you save 70% or more of your earned income. That saving may also include not buying traditional cleaning products, it may include making your own clothes and wearing them until they turn to dust, and again, making your own meals, not owning a vehicle, it’s long list.
And nothing wrong with that minimalist approach that may be embraced by some FIRE proponents. I really like this video blog and video blogger, Conni Bielaski. She finds that there is incredible freedom by having very few personal possessions.
I am with Conni on much of this. I would have done more, but the kids got in the way of the minimalist thing. But fortunately neither my wife nor myself are shoppers. We have no desire to acquire ‘stuff’. That sensible spending went a long way to enable us to pay down off our mortgage and other debts and to save and invest on a regular schedule (in most periods).
Where’s your money ‘going’?
And certainly cutting back on a few items or categories can make a huge difference in your financial picture. How much Conni we put into our daily lives is up to each individual, but we can find the monies in everyday spending situations.
You first have to find the monies to have monies to invest. And make no mistake I do think that a generous and fruitful retirement is possible for most everyone. On Seeking Alpha I wrote Yes, most of us should retire rich. This is not rocket surgery. We just need to do some of the big things right.
I was recently interviewed on myownadvisor for this post that looks at the journey to financial independence. Mark and I will agree on the the simple steps and processes. It comes down to living beneath your means to some degree.
Budget. Save. Invest.
And how hard you might want to go at those areas is up to you, and your level of commitment will determine your level of success. Your might reach FIRE, you might retire somewhat early, you might simply have a generous and fruitful retirement (right on traditional schedule) that is well funded.
I am all for giving an audience to the FIRE community on Cut The Crap Investing. I’m hoping that perhaps we’ll meet somewhere in the middle. Perhaps we’ll all rub off on each other. While I certainly have my issues with some of the FIRE principles and FIRE proponents (selling the dream sales persons), at the core is saving and investing in a sensible and low-fee manner. From there we can debate the ‘nuances’.
You’ll see some guest post contributions from Caleb, and we’ll check in on his blog and personal financial journey.
So what does it take to retire?
Oh ya, back to the headline. Fortunately there is no need for me to re-write that post, it’s already been penned in beautiful fashion thanks to Enoch Emololu of the savvynewcanadians blog. Here, he answers the big question of how much money will you need in retirement?
There are many rules of thumb that get applied to the required savings rate, the rate of return you might estimate from your investments, and how much annual income your big pots of money might deliver. Those rules of thumb are very useful for benchmarking and planning, but keep in mind that if you have a real retirement plan and life plan, you’ll likely be breaking those thumbs in a hurry.
Here is THE money chart from that savvy post …
You can read Enoch’s post that details how those rules of thumb connect to deliver that wonderful chart. Typically we will read that you will need a portfolio that is at least 25x your annual income. And then the 4% rule suggests that your portfolio (if invested in a sensible mix of stocks and bonds) might enable you to be able to spend 4 to 4.5% of the portfolio value each year, indexed to inflation. Of course the stock and bond markets have to cooperate. On Boomer and Echo I had asked if there is a new normal for the 4% rule.
Here’s why we should be hopeful.
Let’s say you max your TFSA for 20 years, with those inflation adjustments. The money weighted returns thanks to that dollar cost averaging are over 8% annual (no guarantee of that of course) to produce a chart that looks like this, with an end value over $300,000.
This is TFSA only, there may be company pensions, RRSP amounts with matched employer contributions, taxable accounts, real estate holdings or income, inheritance and so many other potential items or income streams in the mix. That chart shows you how you might do a considerable amount of the heavy lifting with just one weapon. Max out your TFSA for 25 years (with those inflation adjustments) and you might see a portfolio in the $450,000 – 500,000 range. Increase your savings rate beyond the TFSA levels and you might imagine the possibilities. Rejoice right?
Get a retirement plan.
Do your own extensive research or seek the help of a retirement specialist. As Financial Planner Graeme Hughes had pointed out on this site, we can make some costly and simple mistakes.
Please share this post with your FIRE friends, and with those who might need a little inspiration that can help them discover that a fruitful retirement or an early retirement might easily be within reach. And please share your experience in the comment section. Planning to retire early? Already enjoying the fruits of your labour? All FIRE’d up?
Happy retirement planning,