How to Save Enough for Retirement

Welcome

Saving enough for your retirement shouldn't be a big, scary, seemingly-impossible thing to do.

It should actually be a very simple process and it is largely up to you to determine how long it takes until you reach the goal of having enough assets to rely upon in your retirement.

The first thing you need to know, of course, is how much do I need to retire?  After all, you have to know what your target is if you're going to be able to hit it.



How much you need is a number that I like to call your Freedom Figure.
Once you know what that amount is, we can advance to the next step - how to get there from where you are now.

How to save enough for retirement

First, you have to get your head above water and that means following the steps to getting out of debt.  (Steps 1-9)

Second, you need to have enough money in your emergency fund to give you a nice cash cushion.  (Step 10)

Third, you need to save, save, save.  Saving is the name of the game when it comes to retirement, especially if you would like to retire early!  (Step 11)

The more aggressively you can save for retirement, the better.  At a minimum you should save 20% of your pre-tax income.  That will allow you to save enough over the course of a 37 year working career to retire on.  You take the cash and invest it.

If your employer says they pay you $50,000 per year, you need to save $10,000 per year, minimum.

• That's $833 per month or, if you get paid every two weeks, its $385 per paycheck.

As you save even more, your retirement accounts will grow even faster, and the number of years that you will have to work and save is shortened.

If you save 25% it drops to 32 years.  5 years less than a 20% savings rate!

If you save 30% it drops to 28 years.  4 years less than a 25% savings rate!

If you save 35% it drops to 25 years.  3 years less than a 30% savings rate!

If you save 40% it drops to 22 years.  It keeps dropping in a non-linear fashion the more you save!

If you save 45% it drops to 19 years.

If you save 50% it drops to 17 years.

If you save 55% it drops to 14.5 years.

If you save 60% it drops to 12.5 years.

If you save 65% it drops to 10.5 years.

If you save 70% it drops to 8.5 years.

If you save 75% it drops to 7 years.

If you save 80% it drops to 5.5 years.

If you save 85% it drops to 4 years.

If you save 90% it drops to under 3 years.

If you save 95% it drops to less than 2 years.

Check out Networthify for a tool to let you calculate this for yourself, using your own numbers!

As you can see, the most important factor in determining both how much you need and how long you will have to work in order to save that amount is your savings versus spending ratio.  

If you spend less and save the rest, you can retire earlier on less money.

Every time you choose to spend money, think about that!  

Do you really want to finance that new car?

Is it really worth working a longer career to wait in line at Starbucks for your morning coffee?
You're allowed to brew your own!  

Check my numbers:

If you make $50,000 per year and save the minimum (20%) of your gross ($10,000) you will have a working career that is 36.7 years in order to save up enough.

If you cut out the Starbucks and save and invest the difference (just $500 per year, $9.62 per week),
YOU CUT A YEAR OFF YOUR WORKING CAREER!

How good does that coffee taste now?

Whoa!?

Is that sound I hear the sound of you slashing your cable bill?  Good!

How to save enough for retirement?  

Simple.  

Cut out unnecessary expenses and petty luxuries until you can afford to pay for them out of your passive income from your investment account(s).  Until you have enough, you save, save, save.

Once you have stuffed enough money into your investment account(s) that you have reached your Freedom Figure, you can do whatever you want!

Want to keep working 'cause you love your job?  Cool!  (This is me!)

Want to reduce your hours?  That's great!

Want to volunteer?  You can!

Want to work part-time at the store that serves your hobby?  Go!

Once you reach that point you can save the extra, or spend it on the luxuries that you want, or whatever!  You're totally free to do whatever you want!

You're in control for the rest of your life!

Add Assets - Limit Liabilities

Welcome

People get all mixed up about what is an asset and what is a liability.  


Here at Advancing to Greater we're going to set you straight so you can move forward in your life - confidently, and with a simple definition that just makes sense.

Assets put money into your accounts on a regular basis

Your house doesn't meet this qualification.

Neither does your car or that signed jersey from your favorite athlete.

Stocks and bonds are assets.

Businesses you own are assets.

Cash earning interest at a bank is an asset.

Liabilities pull money out of your accounts on a regular basis

Your mortgage, your house, and your credit cards are liabilities.

Your car is a liability.

Consider adding this A2G maxim to your life: "Add Assets, Limit Liabilities."

When to Retire

Welcome

If you google when to retire, you're likely to get bad information.

When you can retire has nothing to do with age!

When you can retire has nothing to do with anyone's laws or benefit amounts - it is all up to you!

You get to choose when you retire and I will show you how to know, for sure, when you are ready to join the ranks of the free.

First though, if you still have debt - stop reading this blog and get back to work on solving that!  I believe that the piece of mind that you gain from being debt-free far outweighs the benefits of reading this blog (as awesome as I think it might be).  So get to work!  Debt is a challenge that you must overcome for yourself.  

Your past self borrowed money that your current and future self is now working hard to pay off.  Every single dollar that was not spent on paying down your debts in the past was likely wasted.  

Was that $4 coffee really worth it?  Could've put that $4 to work against your debts....multiplied by how many forgettable coffees?  That adds up.

How about that videogame?  Still as happy about it as you thought you'd be?  You could've been that much closer to being debt-free.

G.et

O.ut

O.f

D.ebt

Your choices.  Your results.

Nagging over.

OK  - You're debt free?  GOOD.

Look back at my post on Slavery:

In it, one of the first things you had to do was write out your expenses.  This is a vital step both for crafting a Spending Plan, as I described in that post, and for knowing when you can retire in this exercise.

Step one: List all your monthly expenses.  Include ones that come quarterly, biannually, or yearly like water bills, insurance, and real estate taxes (you can break those less-frequent bills up into their monthly components; so a $2400 yearly real estate tax bill would be $200 per month).

There should not be any debt payments in here!  If there are, kick yourself in the shins for me and get back to Getting Out Of Debt!

Also, leave out any recurring payments/debits/transfers you make to investment accounts, or savings out of this.  We only want to count money that leaves your ownership.  

You can choose whether you plan to keep charitable giving in your expenses, and plan on continuing to give in retirement, or you can choose to exclude it - just know that if you exclude it, it won't get factored into this calculation.

Step two:  Find out how much medical care insurance is going to cost you in retirement, when it is not subsidized by your employer.  Try EHealthInsurance or Obamacare.

Once you have that monthly figure (its probably a lower cost than you first feared) add it to the list you got from step one.

Step three: Add the monthly expenses up.  This should be a surprisingly small number.  

Step four:  Multiply that total by 12.  

We want to know with some certainty what your yearly expenses are.  

Step five: Multiply that total by 25.

This new grand total is your Freedom Figure.  

Once you have that much saved up in your investment accounts, you can retire.  

Simple.

The reason this works is that with a multiplier of 25, it assumes that with a 4% yearly withdrawal rate, that you'll never run out of money.  This has been historically back-tested and confirmed.

Some people like the feeling of a little more conservative 'padding' in their retirement accounts.  Some people like to use a multiplier of 30 times their total annual expenses to feel safer.

On average, most average Americans total monthly spending should be around $2,000 to $2,500 per month.  (If you're spending a lot more than that, there's likely plenty of fat in your budget that can be trimmed.  Re-read step 5 and step 8 in the Slavery post.)

That's $24,000 to $30,000 per year.

Multiplied by 25 that's a Freedom Figure of $600,000 to $750,000.

Multiplied by the even safer 30, that's a Freedom Figure of $720,000 to $900,000.

You can do that.

That's not some big, scary, pile of multiples of millions of dollars.

You can do that in a few years if you have a lot of excess income!

It will take longer, if your current income is lower and therefore closer to your level of expenses.  Most people can still do it within a decade if they focus on this goal.

This also assumes that you have no other income in retirement.

I strongly encourage you to keep some form of active income coming in, even just a few hours a week.  It keeps you sharp, active, engaged with other people, and even just a little extra income has the effect of making your retirement accounts seem even larger than they actually are.  

The extra income lets you withdraw less from your investments, allowing them to keep working hard for you for longer.

• Work at that comic shop you always liked.
• Start that business you've always dreamed about - the one where you get paid for doing your hobby.
• Volunteer at Habitat for Humanity until you have enough skill to work occasional construction jobs.  Building something real with your hands always provides a satisfying feeling of accomplishment.  Coupled with a little extra cash in your pocket - very cool!
• Do what you want...

Every dollar over and above your Freedom Figure just adds to your retirement lifestyle possibilities.

Larger retirement accounts mean more options.