Retire Early
Lifestyle
Retirement; like your parents, but way cooler
In 1991 Billy and Akaisha Kaderli retired at the age
of 38. Now, into their 4th decade of this
financially independent lifestyle, they invite you
to take advantage of their wisdom and experience. |
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How to
Create a Pension for the Average Joe
He's 65 years old and has
as little as $600K Savings Billy and Akaisha Kaderli
I know many of our readers are not
“average.” However, if average Joe can support his retirement on as little
as $600,000 savings, imagine what you can do with the amount you have!
Ok, that's savings, but what about
spending? The average spending for
retirement households age 65 - 74 is $56,435,
according to the Bureau
of Labor Statistics (BLS). This is higher than the average spending for
households headed by people 75 and older, which is $45,820.
Ed note: This is why we are spending up more now. It seems that as people age
they have fewer needs, wants and desires, thus spending less, even though they
probably have more.
It is tough to make that $56,435 amount with only
Joe’s savings, so what should he do?
Social Security
The average recipient
today collects $1,784 a month, or $21,408 a year. Joe’s SS check is average and
he has a wife who also collects the average
Social Security amount.
$21,408 times 2(people) =
$42,816
per year.
Not quite the $56,435
that they need, but getting closer. He needs to make up $13,619 to
mach his average spending. Hopefully Joe has his
retirement money invested in VTI (Vanguard Total Stock Market ) or SPY ( S&P
500 Index ) and is making market gains equaling around 10% annually which is
the return over the last 100 years.
A 10.440% return since Joe was born. Here you can see that since
1959 - when Joe was born - the S&P 500 has had an annualized
return of over 10%, dividends reinvested, but let’s use 10% as a
more conservative projection.
Remember, Joe has to make
up $13,619 to match his average spending ($56,435). But let’s
give Joe an extra $3565.00 dollars per year so that he can pamper Mrs. Joe with
occasional gifts and dinners out, making his spending an even
$60,000.
$60,000 minus their
joint Social Security of $42,816 =
$17,184.
So, he needs $17,184 out of
the $600,000 in savings per year to make up the difference in
spending 60K, less than a 3% withdrawal rate, which is very
sustainable.
With Joe's investments into the VTI or
SPY, he's easily there.
But what if Joe is not average and has
less saved?
The math would still work if Joe only had
$429,600 invested. Back to Joe, his $600,000 invested at a 10% market return = $660,000
or, 60K more than he started with and enough to cover his deficit and have money reinvested for future
inflation and growth.
Now Joe has $60,000 in
annual income: $42,816 from Social Security and $17,184 from investments.
Plus his $600,000 will
grow annually allowing for higher withdrawals.
Their Social Security payment is also indexed to inflation so as inflation rises, so
will their Social Security.
But what if the
markets turn south and Joe's investment starts declining? Certainly he
cannot continue to pull out a $17,184 per month to maintain his lifestyle.
Actually he could with his conservative withdrawal rate, but
he may want to
make some changes.
Adaptability is the key
and - as in life - investing has
no guarantees. He might consider withdrawing less and reduce his
spending or he and Mrs. Joe could pick up a side gig or
any number of
other options.
Being
flexible in
their retirement is certainly a net positive. On the other hand, what
if the markets over this time span outperform the norms? His spending
could increase and they could go on that cruise sooner.
No one can predict the
future. It's to our advantage to develop confidence in our ability to adapt
to what Life throws our way.
So, if you are the average Joe, I want to
congratulate you for a fine job of managing your financial health. Run your own numbers.
You just might find you are closer to Financial Freedom than you think.
Retire
Early Lifestyle appeals to a different
kind of person – the person who prizes their
independence, values their time, and who doesn’t
want to mindlessly follow the crowd.
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