Retirement Percentages

OK, last post in this series...I think.

So what's the magic number. 40% of your last years income, 70%, 100%, or some other number? I don't think there is a magic number, but here are my thoughts anyhow.

The argument for 40% of your income is that you spend 30% on investing and 30% on your mortgage. So with 40% you cover all your expenses. But really, I could live with a lot less than that too. In fact, my salary is above average, so I could live on someone else's 40%. Or, if I become a CFO, I could make over 250,000 a year (hard to imagine, but I can dream). So 40% of that might be more than enough.

For me though, I don't want to settle with that minimum. After all, I don't have to go to school to be a junior accountant, but I am so that I can make more money. I'm not all about the money, but it only makes sense to me to get paid as much as I can doing what I love to do. I think it's just smart. So, if I'm not settling for a lower salary now, why would I want to settle for one later.

I plan to pay my home off well before I retire. When I do so, I'll then be able to spend at 70% of my income (using the same numbers previously discussed). I suppose I could save it all, or invest it all, but I'm looking forward to the increased standard of living. More vacation time at that point and I'd like to use it.

Assuming I put the last 30% towards retirement, it makes sense that financial planners tell you you need to make 70% of your last years income. After all, you've been living off of 40-70% most of your working life. You're retired so you no longer need to put money aside for it, so 70% make sense.

However, just like when I've paid off my home I don't want to save the rest I want to spend it. The same logic applies to my retirement. Once it's funded, why wouldn't I increase my spending to 100%?

OK, admittedly I don't need 100% or even 70%. But I don't need to earn 250,000 a year either. If I do earn that much though, I don't want to think of retirement as taking a pay cut. I want to look forward to it and look forward to spending the time and money with my wife as we do whatever we decide to do with our time. If we have any extra we can give it away. I plan to anyhow, but that's another topic.

I plan to enjoy life and my work as I work towards retirement as you never know what will happen in your life. At the same time I plan to enjoy my retirement for as long as possible.

Love to hear your thoughts and any numbers you think will work for you. If you haven't given retirement much thought I highly recommend it!

Planning My Retirement

Too all my loyal reader, I'm sorry I missed last week. I was in Mexico and while planning to post, didn't quite find the time to pull myself away from the sunshine. Learned some interesting things there and I'll have to gather my thoughts before posting about it. In the meantime, let's carry on...

Seeing as I asked the question about what you plan to do in your retirement, I figure I should try and answer the question myself.

My answer has always been travel. Well it has, since I've been married anyhow, as my wife loves to travel. Have to admit, that it didn't take me long to get on board though! :)

But what does it mean exactly to travel in your retirement? How often will we travel and for how long will we be gone? Where do you go? I have to admit after about two weeks anywhere, I can't wait to get back home. We do live in the most beautiful place in the world after all! Also, my family and friends are here and if I can't take them with me, I'd at least want to run home to see them again.

I think the answer for me, is to go whenever and wherever I want. Probably every few months or so.

I also have plenty to do in between trips. Big assumption here, but I'm sure I'll have my hands full with children and grand children for one. When I'm not traveling or spending time with the family I'm sure you'll find me fishing a lake or more likely playing in a poker tournament somewhere.

On top of all that, I don't actually think I'll ever stop working entirely. I'm planning on having some businesses to over-see as well as a few rental/investment properties. I'm also thinking of working as a financial planner at this point for a few select customers. If they'll have me. ;)

I want to work without having to work. I want it to be my choice. So obviously to make that work I'll need to make sure my investments are capable of taking care of themselves while I'm out playing.

I'll eventually be talking about how I plan to get there, but I think it's helped me at least to get it written down. Let me know what you think.

One last thing....before anyone suggests golf, I'd rather get all my teeth extracted!

Retiring at 45?

I've stumbled across a very interesting blog that I've been following. Tim has decided he's going to retire at 45. That really intrigued me and got me thinking about my retirement plans again.

At first the idea of retiring at 45 seemed just crazy to me. So I was intrigued and had to read on. I thought maybe he was just a little bit crazy and/or naive. I decided to read his blog starting from the beginning and I've only just now gotten to 2007, but already I can tell that Tim has given it some thought and has a viable plan.

The "conventional wisdom" or the notorious "they", recommend 70% of your last years income. The Wealthy Barber recommends 100% and I thought he had some good reasons for it. Tim figures all he needs is 40% and again he has some good reasons for it.

I was already planning on writing about retirement and advocating for the 100%. However, I was falling into that same old trap again. There are no magic numbers and no one should give you a number without knowing what it is you want and plan to accomplish. That number is going to vary for everyone based on the answers to a number of questions.

• Why do you want to retire?
• What does retirement mean to you?
• What do you plan to do in your retirement?
• When do you plan to retire?
• How much money do I need realistically to make that happen?

I know its hard to plan for something so far in advance, but I also think it's necessary. Especially if you have high hopes for your retirement. The younger you are the more options you have. Compound interest is amazing and the younger you start investing the more impressive the results will be. However, deciding you want to retire at 55 when you're 53, might be a tad too late.

I have a hard time forcing myself to go in to work, so retiring at 45 does sound kind of appealing. Tim wants to write full-time and by having enough to pay his expenses through his retirement savings. Allowing him to focus on his writing career without worrying about having to make a living from doing so.

For me, that's the key issue. Why do you want to retire? If you're happy doing what you love to do, why would you want to stop? 45 is still 13 years away for me and I don't think I could handle the software industry for that much longer. Heck 6 more months, is feeling quite painful. That's why I'm studying to be a CGA and at least right now I can see myself working as an accountant that long past the age of 65. Doing what you love has to be the most important thing and I don't think you'd want to put that off any longer than you have to.

I'm not sure how the retiring at 45 plan would work here in the lower mainland though. Tim's home and mine have about the same value. However, he plans to retire in that home. I figure I have at least 2 upgrades to go before I'll have a home to retire in. He's in Saskatchewan by the way.

I think 70% is probably a safe number to throw out to the masses. Especially if you don't take time to determine what you want to do when you retire. I still recommend sitting down and figuring that out. Hmmmm... I suppose I should do that myself too. Maybe something else to blog about. :)

I'm still leaning towards supplying 100% for a few reasons, but I'll get to that on a future post. The point here is to think about what you want to do in your retirement and when you want it to start. Also, I really encourage you find your passion and find a way to make a living at it.

If you want to share your retirement plans, I'd love to hear them!