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.

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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