The First Simple Step to Retire





Hi folks

Today's post is directly driven from this initial post about retirement HEREIt is a short post but gives the context to today's topic.

The first simple step to retire is ..... (drum roll) ..... how much yearly income do I need to not have to go to paid work anymore and live a simple but  interesting life?


This is worth some serious thought and reflection as often we do not even know what a simple yet interesting life actually even looks like. We are so busy going to work and being what society expects us to be that thinking about how we actually would like to live and spend our time is just a silly pipe dream - so we don't.  However, in retirement, knowing exactly what is important to us, stripping away all the non-important factors of our life and doing things that truly interest us is EXACTLY what retirement is all about.

For some folk, travel is a huge factor for retirement and for others it is grey nomading. For some it is living by the beach and for others it is a life of social activism ..... or painting. For some it is turning their back on the corporate world and losing themselves in their vegetable patch and for others it is still working 2 days a week in a job they always utterly loved. My point is, that retirement needs to be exactly what we want not what others say we should want. Just because Mary and Bob upgraded the house, bought 2 new cars and go to Europe twice a year does not mean that has any relevance to us. We might decide to downsize to a cottage or unit, volunteer for St John Ambulance and do two cruises every year. Conversely, we may also decide to sell up all our belongings, buy a secondhand motor home, hit the road and travel Australia for the next 30 years. Be VERY clear on what it is we want. That "knowing" then makes our life simple and interesting.


Once we know what type of life we want - only then can we decide how much income we will need. Never be tempted to work out an income $ figure and try and create a life around that - what a waste of retirement.


Critically, being debt free is 100% necessary to retiring. Don't be fooled into thinking we can still hold consumer debt inside retirement. 


Not critical but VERY important, is owning a place to live - this can be our family home, or downsizing to a unit or living in a transportable home in a nice residential park or  living in a 25 foot caravan as a travelling grey nomad - whatever it it is, we must own it debt free and it must be in good functional repair.





Now it is time to work out what income we need.


1. Start with how much the truly interesting and important things will cost. Travel or cruising or grey nomading or gardening or sewing or writing or whatever our reason and passion for retiring is, needs to have a clear realistic cost allocated against it. Work this out first because this is the whole reason we are retiring and the delightful core of our retirement. Funding this comes first.


2. Next comes quality food and health.  Without quality food (medicine in its own right) and attending to our health in the best way we can, then what's the point of retiring? Working this cost out usually is never considered when retiring and catches so many folk on the hop - especially early retirees who feel pretty immortal when they first retire.


3. Replacement of vehicles comes next. Cars wear out - who knew?!  This is the most ignored factor in budgets (retired or not) and absolutely needs to be factored in.  Factor in a new car every 15 years as a minimum or a good quality second hand car every 10 years or a very nice $5K car every five years. Either have the money put aside or allocate it from retirement earnings. Do not ignore this one as it can singularly stuff up a retirement income budget if ignored. However, perhaps not get carried away with cars in retirement (though it may be tempting) ..... by this time in our lives, status symbols and raw horsepower should be of little meaning to us and reliability, safety and value for money should mean much more. Besides, the more we save here the more we can spend on 1 and 2.


4. Everything else. The rest of our expenses are as per normal - we've been paying our bills all our life and will know exactly what these costs are. However be critical about how we are spending and look for realistic ways to reduce these costs - the more we save here the more we can spend on 1 and 2.


Add up what 1,2,3 and 4 will cost  per year, then add on an amount for gifts and a personal spending allowance and that is our basic yearly costs figured. Then, (this is important) add a 10% buffer to the total amount and then that is our actual retirement income that we will need.  If we need to trim off some fat then always take it off 3 and 4 not 1 and 2.





So, pencils out and wine glass topped up folks and start calculating - have some fun with it too for goodness sake.

Take care and stay nice

Mr HM (Phil)















Comments

  1. We retired early due to work pressures. We looked at our monthly ‘wage’ after paying off the mortgage and that was what we had to live on. We cut our cloth according to what was coming in. After the first 5 years of forecast hardship (see our war diary), things got better. As it is, I still don’t get my pension for a few years and we still manage to save for future spending, holiday etc. Each year we add up all last years bills, savings for another car etc and add 10% on, then divide by 12. That is the figure that must be put aside plus a set figure into savings. Anything left at the end of the month also goes to savings. We are still paying into a life insurance and guess some of our savings would go not healthcare if we lived in Australia.

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    1. You sound VERY sorted Dc. Many retirees I speak to who do this have found the same as you - they do not spend as much as they think they will. The beauty of being on the ball and prepared I suppose.

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  2. This is a fabulous post Phil! thanks as always for sharing your knowledge and ideas...you give us a lot to think about...and drool over with your wonderful food photos...here in the USA medical costs are so staggering even with insurance planning for retirement on an average income is a chore...

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    1. Hi kelley - each country has its fors and againsts. The cost of housing is terrible in Australia and can lock people into mortgages which renders their retirement impossible. It sound like yours is healthcare costs.

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  3. Nicely put, Phil. Can I also add that you are fortunate enough to live in a city with good public transport options and shops nearby, you can even forgo the beloved car? It’s a hard choice for some, I know, who just can’t imagine life without one but we’ve been car free since November and haven’t missed it. You still need to factor in transport costs into your Number 3 but this will only be a fraction of what you need to keep a car on the road. We are very lucky to have car-sharing cars all around our area which are way cheaper than renting a car (we have only used it once so far, which even we were surprised at as we’d anticipated using it every month or so) plus plenty of public transport within easy reach.

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    1. Oh my goodness - doing without a car would be bliss and a massive saving. Not possible in our situation, but I have staff in Sydney who do not own a car and they take full advantage of the great rail system there. It certainly can be done. Mr Money Mustache would approve of your efforts!

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    2. Oh, haha, I didn't mean to sound so pushy! I thought I had written "if you are fortunate enough".

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    3. Hee hee - Although it got me thinking!!

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  4. Good ideas! We are working on being debt free as well. House paid off next year. Credit cards getting paid off. No car loans. Not set down and figured it all out yet. But are working on a living trust for the end of our lives. Not fun to do but best way to get things done and no probate needed done through the state. Thanks for the ideas and have always wanted to travel but doubt we will very much. Hubby is a home body and thinks he'll be working for years while I will cut back a day or two next year after house paid off. More time for me to do things I'd like to get done! take care!

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    1. House paid off next year! Excellent - you can then funnel those funds into investing for your future selves. Also, please do travel if you want to, it is not all about hubby (said very respectfully). Travel has never been cheaper than it is nowadays and you can travel with girlfriends and groups for company....just a thought.

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