My Plan to Retire at 50

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Judging from the response I got to my post “How Much Should You Save for Retirement?“, people are really interested in the subject of my retirement.  In that post I mentioned my desire to retire at 50 and that I had some ideas on how to do that.  I do need to make a plan in order to reach this goal.

When I was in my early 20’s I read a book titled How to Retire at 35.  I decided that would be a good goal.  I didn’t make much money then so my plan was to start saving big money as soon as I had a good-paying job. Of course, once I had a good-paying job I forgot all about my idea of retiring at 35 and spent money like crazy. When I turned 30 I made a goal of retiring at 40. That goal obviously didn’t happen either. The problem was I didn’t really have a plan and I kept getting sidetracked and putting other things ahead of saving for retirement. Whenever I saved a little money I’d go off on some adventure and then be broke again. I did have fun on my adventures but if I had just been disciplined I could be having adventures all the time now.

This time I’m going to do things differently. I’m already better off than before because I’ve already gotten in the habit of saving for retirement. This time I’m going to keep retirement as a priority. My goal is to have $1000 a month to live on at age 50. If I retired today I’d only have $34.87 a month to live on. That is a very large gap but it isn’t as bad as it looks. That is based on just living off the interest from my savings. Based on just living on the interest, at 6% I would need to have $200,000 saved. Since I have about $6000 saved now I’d need to save about $1200 a month to meet that goal if my savings had an 8% return. That seems like a large amount considering I don’t make that much total right now. After I finish school though that should be a reasonable amount and in the meantime I’m saving all I can afford.

My goal of living on $1000 a month might seem far-fetched to some but I’m confident that it is reasonable. I’ve lived long enough to see the effects of inflation but unless we have really high inflation the next nine years I don’t think it will be much of a factor. I live on about a $1000 a month now and I could live on considerably less. One way I could cut my cost of living would be to live in a van. I’ve already posted about that and I believe it is a feasible option and one that I would enjoy. Another way to cut my living expenses would be to live in a foreign country. I lived in Guatemala for 3 months on $450 and had a great time. The cost would be a little more now but it would still be dirt cheap. A third option would be to spend half the year hiking a long trail such as the Appalachian Trail. I’ve hiked about half the AT and I think with some planning I could hike the trail on a budget of $200-$300 a month. Those are just the ways I came up with off the top of my head on how to drastically cut my living expenses, I’m sure there are many more.

That is my plan for now. It might undergo some changes before I turn 50 but I’m going to keep my focus on the goal.

August Goals Update

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Made some progress on my goals last month.  Listed below are the goals I set at the beginning of the year and the progress I’ve made on them.

  1. Don’t acquire any debt other than student loan debt.  I’ve met this goal but I have accumulated more student loan debt.
  2. Lose 20 pounds.  I haven’t done well on this one.  Earlier in the year I gained eight pounds and didn’t get back to my starting weight until July.  I only lost one pound in August.  I’ll have to lose nineteen pounds in the last four months of the year to meet this goal.
  3. Improve my blog.  This is somewhat subjective but I feel I’ve met this goal.  My readership has greatly increased since the beginning of the year.  Last month I installed a new theme and readership went up.  There will always be room to improve more though.

Overall, I’m doing okay on my goals but I need to keep working on them to avoid any setbacks.

How Much Should You Save for Retirement?

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The standard used to be 10-15% of your income should be saved for retirement. That still might be a reasonable standard if you start early enough, your investments perform well, and you’re confident that Social Security will provide a healthy boost to your retirement income.  There isn’t really a one size fits all standard on how much you should save for retirement. Many different factors come in to play such as how early you start saving, how much you plan on spending in retirement, what returns you’ll get on your investment, how long you’ll be retired, and so on.  Since I didn’t start saving until age 39 and don’t have much confidence that I’ll receive a full benefit from Social Security I need to save more than 10-15% of my income.

I made approximately $12,000 last year and invested $4,000 in my Roth IRA.  That is a savings percentage of 33% of my income.  That isn’t bad but I still need to increase my income or savings percentage or both if I want to retire.  I’d like to retire before I’m 50.  I’ll be 41 this month which only gives me nine years to save enough money.  That makes my goal a longshot but I have some ideas how to make it more probable that I’ll share in another post.  My total invested in my IRA will most likely be smaller this year but my savings percentage will likely be about the same.

I see some people that save much larger percentages of their income.  These are usually people with much larger incomes than me.  I’ve developed another way of measuring percentage of income saved that levels the playing field somewhat between large and modest incomes.  I look at what percentage of income above the federal poverty level was saved for retirement.  The federal poverty level for 2008 for one person is $10,400.  My income was $12,000 and I saved $4,000 so my savings percentage was over 100% of my income above the federal poverty level.  I don’t think there are a lot of people matching that although I’m sure there are some.

In summary how much you should save depends on your circumstances.  In my opinion you should save at least 20% of your income and if you want to retire early you should save much more than that.

I Made A Stupid Money Mistake

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I was rather surprised recently when I received an email stating that I still owed $1,000 in tuition.  I didn’t pay my tuition for my Summer class because I expected it to be paid from my Fall financial aid. When the surplus from my Fall financial aid was deposited in my bank account I noticed it was less than I was expecting and assumed that my previous balance had been paid from the surplus.  That assumption was a big mistake.  If I had even done a ballpark estimate in my head I would have figured out that was wrong.

For some reason my school applied about $500 from the surplus to my previous balance but left a remaining balance of about $1000.  I’m now going to have to pay that out of the surplus amount.  This is kind of a pain since the school only accepts checks or cash for payment and I don’t have checks.  I’m not actually out any money because I owed the money either way.  I still feel like I’m poorer though.  This should serve as a reminder to me to not be so lazy when accounting for my student loan money.  I keep track of every penny I spend outside of financial aid so I should be more diligent when tracking my financial aid as well.