The following is a guest post from someone who has learned how to retire the hard way – by already doing it! Thanks for your post:
My wife and I retired 6 years ago, at age 59. Here are a few guidelines that helped us achieve our goals.
- Pay yourself first.
- Start saving early.
- Live within your means.
- Retire as debt-free as possible.
- Have a realistic plan that fits your situation.
While raising a family of 4 children, we struggled financially and it was easy to rationalize that we could start saving after the children grew up and left home and when we could better afford it. We decided to pay ourselves first by budgeting a small amount for savings each paycheck, before we spent it all on bills. As we started saving early, it provided a small emergency savings fund and eventually grew into savings for retirement. When my employer first offered a 401K program with matching contributions, our first thought was that we could not afford to put money into a 401K account now. But I insisted that we could not afford not to take advantage of the matching “free” savings. We are now very glad we did.
We learned to live within our means and did not live extravegantly. We had a modest home and modest vehicles. We limited our spending on travel/vacations, etc. If we could not afford it, we usually went without it. We did not use more credit than absolutely necessary. We even managed to save a tiny bit for our children’s college; although they had to rely on employment and financial aid/loans after their first year.
I was nervous about retiring early because we would have to make it 3 years into retirement before we would be eligible for social security benefits at age 62. We were almost debt-free, with a paid-up mortgage and no current car payment. We were also fortunate to have a pension to help us through that period. I had the option to rollover my pension, take a lump sum or a fixed annuity. I chose the annuity, with survivor benefits for my wife. Now, six years later, we are living comfortably on our pension and social security and have not withdrawn any of our IRA (401K rollover)savings. I think we might have beaten the “4% Rule”.
I spent several years before we retired, researching many articles about retirement planning. Most articles stated that a person would need at least 75% of their current working income to live comfortably during retirement. It was never clear to me whether they were talking about Gross vs Net income. It could make a big difference. I based my plan on Net income because that was what we were currently living on and should be able to live on during retirement. Also, your net living requirements should decrease after retirement; with no more work-related expenses like commuting, work lunches, 401K contributions, etc. Plus, you should be in a lower tax bracket after retirement.
“One size fits all” does not apply to a retirement plan. For my plan, I considered some of the “experts” advice, but mostly relied on my own personal data and our anticipated needs. There were many web sites that offered retirement planning tools, but I used my own customized spreadsheet as my retirement planning tool. It factored in variables like: age of retirement, sources of retirement income, anticipated living expenses, inflation rates, growth rates (for investments), etc. I created many different models, until I felt comfortable with one.
The decision to retire is very personal and can be a very difficult one. We do not know “how much is enough?”. We cannot predict our health and other life affecting events. So far, retirement is the best job I have ever had!