Today's post is directly driven from this initial post about retirement HERE. It 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)