Do you live for the weekend? Every Friday is TGIF and each Monday is a dread?
I love weekends, don’t get me wrong – but I also enjoy the heck out of my work.
The idea of retirement has changed and shifted for me in the last few years and I want to dig into this conversation all about retirement. It’s definitely a financial topic that we all need to be more knowledgeable in, but also curious about why we think the way we do.
Let’s first tackle the dread.
If you’re hating on your job…and just counting the days until the weekend, the months until your vacation and the years until you retire – you need a new job.
I repeat. You need a new job.
I get that it’s easier for me to type that, than for you to actually implement it. But I’m going to challenge you to find fulfilling work. Work that not only helps pay the bills, but something with mission and purpose that puts some pep in your step. Life is too short to be spending 40+ hours doing something that you don’t even enjoy.
Maybe that’s not you – you don’t dislike your job but you’re still aching to retire early or not work.
- Why is that?
- Why do you want to retire early?
- What will you do differently? Sit with that for a minute.
- Would you travel more?
- Could you dive into reading and learning?
- Want to volunteer regularly?
- Will you spend more time with your family?
I want to challenge you. Why not live the life you want now?
If you’re aching for more of one of the above, how can you fit more margin or balance in your work life to do more of these activities on a regular basis? Can you create a budget that supports those goals too?
Travel: Could you fit more regular travel into your annual planning?
Growth: Can you start a book club and commit to X books a month?
Volunteer: Could you start dedicating one afternoon or evening a month to an organization you love?
Time: How can you make more quality time with those that you love now? I get that you can’t create more time – but could you double down on your focus and presence during the time that you do have?
What’s holding you back?
Maybe it sounds hard.
It’s change, and you’re not great with change.
You’re not sure how to start.
You don’t have the money. I didn’t say you had to travel abroad annually, but I am here to tell you that if you have a dream and a plan – anything is possible.
Don’t use your job as an excuse to not live the life that you want now.
Now, I’m not suggesting that you flip your boss the bird and only commit to 2 days a week so that you can go live your best life. What I am suggesting is that you can prioritize the goals that you have for your life – and start taking active steps towards living it the way you want to now.
Okay, off of the philosophical soap box and move on to a bit more tangible next steps and a history lesson.
What does this have to do with retirement?
If we start living the life that we want now, our “need” to retire changes.
Retirement is a relatively new concept. I had never really considered this, as we’ve all grown up knowing that “retiring” was a thing. We attended parties for our grandparents, parents and colleagues as we congratulated their hard work and transition to the “good life.”
If you want a brief history lesson on retirement, check out this Wikipedia entry.
Alright, let’s talk logistics.
- How much do you need in retirement?
- Well, it depends. Some questions to consider.
- What do you want to do in retirement? How different is it from your current lifestyle?
- How much do you expect to get in social security? I believe that we WILL have some social security benefits – but I don’t necessarily think that you should be counting on this.
- How long do you expect to live? Morbid – I know. Are you aiming for 100? Are all of your family members out by 85?
The rule of thumb is that you’ll need to have 75% of your salary to live on annually in retirement.
Here are some simple examples:
You make $100k the year that you retire.
You’ll need $75k to live on annually in retirement.
You retire at 65 and you plan to live until 90.
That’s 25 years at $75k.
Total you will need to retire is $1.8 million.
You make $200k the year that you retire.
You’ll need $150k to live on annually in retirement.
You retire at 55 and you plan to live until you’re 100. Bold.
That’s 45 years at $150k.
Total you will need to retire is $6.7 million.
Okay, so you don’t have $6.7 mil yet.
There are multiple ways to achieve that necessary income needed in retirement. That annual salary could come in a variety of ways.
- Social Security – as previously discussed, we’re not going to put all of our eggs in this basket. But if you’d like to check out your projected amount at ssa.gov
- Home Equity – cash out on your home with the yard and move to something with lower maintenance? You can use the equity in your hopefully paid off home to help fund your retirement years.
- Passive Income – if you have income properties, book royalties, business dividends, etc. you can bring in regular and recurring income to add to your retirement salary.
- Pension Plans – very few employers have pension plans anymore. Essentially these are small monthly payments made to you after retirement, originally put into practice by the railroads in the early 1900’s.
- Contribution Plans – this is what we typically think of when we talk retirement. It’s contributing to your employer or individual retirement account like a 401k, 403b, or SEP to invest and let it grow for future use. Many contribution plans also have matching programs as an employee benefit.
Nothing you can do to change this number. Hope for the best. Plan for the worst.
Well, let’s make sure you own a home first – and get that puppy paid off. That means you’ve got your debt paid off, and you’re going to pay the home off long before retirement kicks in.
Love this category! We have an apartment that we rent out, and I’d love to have more investment real estate in the future. This is certainly something to consider investing in as you grow your wealth.
You either have one or you don’t. It’s unlikely that you can go find a job these days that has one for new hires.
We all have control over this one. You likely are, or could be contributing to a plan now. Let’s dive deeper into this category.
When should you start contributing to a retirement plan?
The short answer is as soon as possible. The longer your money has to grow, the better.
The longer answer – it depends.
First you need to have a few other things taken care of.
- Emergency Fund
You need to cover your own emergencies. Make sure you have a healthy amount set aside for when *&%$ hits the fan. Because it will, inevitably happen. The rule of thumb is 3-6 months worth of expenses.
- Debt Free
You’ve got to tidy up your past before you plan for the future. So, get on it! The faster you do this, the more you can put towards your retirement planning.
- Home Sweet Home
Purchase a home to call your own! This is part of your investment ‘package’ and will provide equity for you in the future.
Now, how much are you contributing?
I’ve got a couple of things to say about that.
If you just want to say that you’ve started contributing to your retirement, but you still have a few steps to work on above – so be it. Make a small per paycheck contribution to get that party started.
If you are overwhelmingly compelled to get the “free money” matched by your employer – by all means. I love matching plans but I don’t always recommend contributing just for the money. Those first 3 priorities need to be well under way, or I recommend a brief pause on retirement to get that caught up and then roll into that matching plan.
Why say no to free money?
Frankly, it diverts your focus. If you’re putting $400 into retirement and you have very little discretionary income and $4k in debt – it may take you YEARS to pay off that $4k but only 10 months to pay off if you pause on retirement. A 10 month pause could be impactful with a missed match of ~ $1,000. Bummer. But the tenacity that you can get back to it less than a year later is HUGE!
The go-to contribution amount is 15%. Invest 15% of your household (you and the mister/missus) income into retirement savings. Notice that this is a percentage, it’s not a flat amount. And, it’s not necessarily dependent on the type of retirement that you’d like to have.
Want to dive into the numbers a bit more? Here is a simple calculator to start getting your head geared toward retirement.
Are you nearing retirement and want to get support by going deeper with those numbers? Reach out to me so that we can talk more with a retirement projection plan.
Okay, let’s get ready to retire…and in the meantime, live the life that we truly want – that doesn’t have to wait for a magical age or amount of money in the bank.
Thank you for joining me on my my journey to influence.
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