Wednesday, March 21, 2012
Establishing Priorities to Achieve Early Retirement
In conversations over the years with friends and acquaintances that are feeling squeezed, I can often identify spending behaviors that don't appear to correlate with their not-enough-money-to-ever-retire-early complaints. As an example, I recently had an exchange with an acquaintance that was considering leaving the profession of teaching because it left them feeling too financially stretched to ever retire early. However, this friend has such an over-accumulation of stuff purchased over the years they have to rent storage space at the cost of $75 a month. Which is $9,000 over the ten years they've been doing it, plus the loss of interest had this money been invested, plus, of course, the purchase cost of the unused items themselves. This friend also enjoys dining out on a very frequent basis, and watches for all new computer gadget releases with baited breath, buying each latest-and-greatest as soon as it hits the stores. And has the hefty credit card charges and monthly service contract fees that go along with chasing technology.
I also have a 50'ish friend lamenting about retirement that drives a late model luxury car, owns an iPhone and and iPad (plus the monthly service fees that go along with) and just purchased and remodeled an enormous new home.
And another that doesn't believe that vacations should ever involve cooking, but rather should always be spent in expensive hotels that necessitate eating every meal out. And as a result doesn't feel they will be able to afford to retire ahead of age 65.
From my perspective, all of these folk have a good amount of additional money to sock away monthly toward an earlier-than-65 retirement objective . . . they are just choosing to direct it elsewhere. Which is totally their prerogative by the way, but which would seem to indicate that early retirement really isn't their priority after all.
In our case, we knew early retirement was a priority, and tried hard to align our spending decisions accordingly. First and foremost, we lived below our means for many, many years. We also had to repeatedly resist the temptation to ratchet up our standard of living each time our paychecks increased, because as tempting as it was to do so, it was directly counter to our stated objective of early retirement.
We followed a 90/10 rule with our salary increases, company bonuses, tax refunds and other monetary windfalls - we saved 90% of the net, and spent the other 10% on something we both wanted, generally travel. We refinanced our home twice in order to lock in a lower rate of interest on our mortgage, and then worked to pay it off as fast as we could, ultimately in 17 years rather than 30. We primarily purchased used vehicles, and kept them for a really long time.
We also tried to be very careful about what we got used if it wasn't congruent with our projected early retirement budget. We kicked around the idea of getting involved with golfing or scuba diving, but ultimately decided we weren't willing to work the extra years necessary to include either in our retirement budget. It did, however, make both financial and physical sense to build our early retirement life around activities like hiking, running and bicycling. Aside from them being things we enjoy tremendously, they had the advantage of being good for us, and virtually free no matter where we were.
Each dollar saved put us closer to the point when we could retire - the point at which 3% of our amassed portfolio could cover our projected annual retirement income needs.
I guess the point I'm trying to make is that achieving early retirement is not impossible. It's a combination of living beneath your means and working to increase your savings % each year, paying off your home as quickly as possible, resisting the urge to spend "found" money, resisting recreational shopping or eating, looking for inexpensive ways to build regular fun and satisfaction into your life and never taking your eye off the ball.
I am tired of defending our leaving the regular work force. We are willing to live with less. We are not complaining of "not having". Still, it drives me crazy to hear, "I don't think you are fully thinking what you really need." I am 54 and hubby is 60. We are not slugs, but we both enjoy the freedom to be ourselves. Our grandparents did it all, well into their 90's, with much less.
ReplyYou have done an excellent job explaining what we understand for ourselves.
Thanks
I really enjoyed your post. It's nice to read that someone else has the same general ideas of "living beneath our means".
ReplyThanks for the post!