Not a day paycheck goes by that I don’t think about my retirement planning. Well, my financial retirement planning that is, while the rest of the daydreaming is consumed with how and where will I spend my time (read: travel, travel, travel).
Here are my quick, personal rules on how I have planned for what I hope will be an early retirement with comfort and financial freedom.
Please note, I am by no means a financial advisor or have the qualifications to back up these rules as being THE way to reach such a goal. I am just sharing with you MY rules and what I hope will work for ME. Talk to the real, qualified advisors about how you should develop a retirement plan and goal appropriate for your income, lifestyle, etc.
- Take it to the Max – I contribute the maximum allowed under IRS rules to the investment tools I use, such as capping my and my wife’s Roth IRAs and our applicable 401(k) and 457(b) accounts. This further ensures that any employer matches will be utilized in full. I started doing this even before I was out of college and still make sure that at least 15 percent of my income goes right to retirement. I treat these annual investment allocations as “untouchable” money, unless a serious need should arise such as a medical emergency.
- Emergency Fund – Speaking of emergencies, I keep a dedicated (primarily liquid in a savings account due to such low interest rates) emergency fund on hand. This fund of a few thousand dollars protects me from having to carry over a higher than expected credit card balance should an unexpected and unusual expense creep up, e.g. broken furnace, major car repair, medical bill, etc.
- Paid In Full – I could talk about credit cards and their benefits all day long (just ask my wife). But none of that matters unless you can and will pay off every credit card balance in full every month. Period. You’ve got to pay (in full) to play.
- Set a Soft Goal – To live comfortably in retirement, I figure one needs at least 10x their final salary in retirement investments. Maybe even 15x depending on your age, career type, history of savings, and future plans. In an ideal world (and market), we hope to live off of the interest income earned from a large enough investment pot doing the work for us. Sure this will wax and wane with market changes, but in the end we will have a “remainder” to pass along to our heirs. Or so we hope!
There are worse ways to spend your retirement days than walking the beach in Thailand to start your day.
I’m a self-admitted workaholic, so who knows when my real retirement will come. Retirement for me will be far more about flexibility than it will be flipping a switch to turn the lights off at the office. I know the lights will continue to burn through my entire retirement — be it consulting, teaching, writing, or more — because that is how I will enjoy living life. Yet, if we want to jet off to Paris or visit friends in Thailand, I want to be able to have that flexibility.
While Einstein likely did not say this, it makes for a great quote on “the most powerful force in the universe” or “the greatest invention in human history”
So, there they are, my rules. What did I forget? What rules do you follow in managing your fiscal life and planning for your early retirement?
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How much is a “few thousand dollars” for an emergency fund?
Good question for which I’d say the answer is subjective to the person/family. A good rule I keep hearing is 3-6 months worth of your living expenses. I like to have at least $5,000, but no more than $10,000.
Here’s a good discussion of it from Vanguard.
Thanks for reading!
I would love to hear how retirement affects the ability to get credit card bonuses, etc. Do the issuers just do lower limits (assuming lower income here) or is the overall effort hampered? I have never seen this topic covered anywhere.
I noticed in your #4 you go by final salary, as opposed to estimated needs. Interesting. Of course the obvious guiding principal is live below your means. Otherwise you’ll never achieve one through four.
To your first Q, I have never seen or heard of a significant change, if any, in CC bonus targeting or offers for retirees. In fact, one could argue they are even better, regardless of a lower gross income, as their debt-income ratio is likely improved at that point in their lives. In my profession I have seen a lot of individuals living outside their means and only for the financial present, not the future. You’re correct. It may start with building up that emergency fund, then focusing on reducing debt with the largest interest rate, and so on. Thanks… Read more »
The financial wherewithal to be able to retire early is something everyone should try for. I retired while in my 50s, with solid savings and a healthy pension. What most retirees learn is that you need something to do AR (after retirement). Some plan to golf, or fish, or travel. Those are good, but lose much of their pleasure after a few years. Being in a healthy social network, and plenty of outdoor and mental activity, will help carry you through the next 25 years of your life. Many retirees, including myself, start small businesses AR…not so much for the… Read more »
All great points! Keep enjoying it!