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.
Create a Pension for the Average Joe
He's 65 years old and has
as little as $200K Savings
Billy and Akaisha Kaderli
Chart of average retirement savings by
I know many of our readers are not
“average.” However, if average Joe can support his retirement on as little
as $200,000 savings, imagine what you can do with the amount you have!
By reading the chart below,
you can see that the
average spending for retirement households age 65 - 74 is $46,000.
Chart, Average annual household
spending by age group
It is tough to make that $46k amount with only
Joe’s savings, so what should he do?
The average recipient
today collects $1,461 a month, or $17,532 a year. Joe’s SS check is average and
he has a wife who also collects the average
Social Security amount.
$17,532 times 2(people) = $35,000
Not quite the $46,000
that they need, but getting closer.
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.
withdrawing $12,000 per year
Return Calculator 1950 to 2019
Here you can see that since the
1950’s - about when Joe was born - the S&P 500 has had an annualized
return of over 11%, dividends reinvested, but let’s use 10% as a
more conservative projection.
Remember, Joe has to make up
$11,000 to match his average spending ($46,000). But let’s give Joe an extra
one thousand dollars per year so that he can pamper Mrs. Joe with
occasional gifts and dinners out.
So, he needs $12,000 out of
the $200,000 in savings per year to make up the difference in
spending. That's an extra $1000 per month.
Invested in the S&P 500 - based on
69 years of returns and using 10% as the annual return - after his
first year he would have $220,000 minus $12,000 withdrawal = $208,000.
Now Joe has $47,000 in
annual income: $35,000 from Social Security and $12,000 from investments.
Plus his $200,000 has
grown to $208,000, a 4% gain outpacing inflation at the current rate of less
than 2% per year.
Their Social Security payment is also indexed to inflation so as inflation rises, so
will their Social Security.
If Joe and his wife live
to be 90 years old, after twenty-five years of this illustration (see above
left chart), his savings
will have grown to $986,776 and perhaps he could treat Mrs. Joe to a
But what if the
markets turn south and Joe's investment starts declining? Certainly he
cannot continue to pull out a $1000 per month to maintain his lifestyle.
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
their retirement is certainly a net positive. On the other hand, what
if the markets over this timespan 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.
Run your own numbers.
You just might find you are closer to Financial Freedom than you think.
For more articles on Retirement Issues,
About the Authors
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.
Retire Early Lifestyle Blog
About Billy & Akaisha