As you heard two weeks ago in Save for Retirement (Baby Step 4) I didn’t start taking retirement savings seriously until about 2015. At the age of 45 it seemed like it was too late but when you look at the numbers and the calculator tool in that article, I/we still have a chance to retire. I’ve got 20 years until I’m 65 and investing $1,700.00 per month for 20 years at 8% compounding interest will give us $1,000,000.00. But how much retirement savings do we need?
Big Pop’s Retirement Savings
One of my favorite speakers and authors on this matter is Big Pop. If you ever hear him speak, it is almost like my thought of God speaking. He booms in the deepest powerful voice I’ve ever heard. I mean deeper than you’re thinking. He tells the story of his future as a grandparent and how the grand kids are going to call him Big Pop. He is saving on a plan with a reason why. He is going to take all of them to Disneyland. The key to all of it is “Why?” The key to everything I write about and making the changes I suggest is “Why?” Why change? Why think differently? Why be different? Why save for retirement? For Big Pop, also known as Chris Hogan, his “why” forms a picture in his mind of taking all the grand kids to Disneyland. There’s a dozen other smaller “whys” and results that will become fruit of his retirement savings plan.
The world is changing today. It is becoming less and less common to stay at the same company and job from 18 to 65 like our grandparents did. 9-5 no longer serves our community and families. Jobs thought to be permanent and secure exist as a temporary illusion. . . but I get off topic and will revisit this topic in the future.
The second big take away quote from Big Pop came when he boomed, “Retirement is a number!” And you know me, the know it all, I’m thinking yeah that is 65. The US is filled with financial legislation strengthening and establishing this mind set. Then he blew me away by saying not an age number but a financial number. Talk about paradigm shift time! I’m not normal and I don’t intend to be normal. If you take 65 as an age as your number you are setting yourself to be less than you are capable of. Listen to Big Pop and figure out what your number is.
If you want to hear more about it from Chris and help out my blog at the same time purchase his book here: Retire Inspired: It’s Not an Age, It’s a Financial Number with my affiliate link.
In addition to his book and speaking, he has a free online calculator he calls the Retirement IQ or R:IQ. You can check it out here: Retirement IQ at the end they try to get you set up with some planning help and if you’re ready for that go for it. If not, you need to at least know your number. Big Pop’s numbers run a little high on the conservative side but it tries to account for inflation and some other factors.
What Do I Need (Want)?
The hardest part for me was figuring out how much I wanted for retirement per month. I never plan on quitting working. I love what I do and I do it well. BUT…the grand kids, injury, illness…there is a boatload of reasons to have an effective retirement. You’ll find that you need less than you need to survive so we must consider how to give, thrive, and leave a legacy. Lets start with the basics. Back in Baby Steps to Debt Freedom from Dave Ramsey look down the list to Baby Step 3 and find the F.R.U.I.T. use that formula to figure out your basic costs. Keep in mind that when planning for retirement, your “R” for Residence in the F.R.U.I.T. should be minimally insurance and taxes because your residence should be paid off.
Long story short, if you have more than 20 years left working and you are comfortable with you living now, use your current annual salary. If you’re not comfortable, decide what your realistic comfortable current salary should be. Take that number and multiply it by 10 (12.5 if you want to be conservative). That will be your retirement number. My assumption is that you can invest that money at 10%; drawing that 10% as your living, giving, and budgeting fund and leave the principal alone continuing to fund your retirement (the conservative multiplier reflects an interest rate of 8%). Dave Ramsey states the “average annual return from 1926, the year of the S&P’s inception, through 2011 is 11.69%.”
Lets take a live example. Say you are comfortable earning $4,000.00 per month. That is $48,000.00 per year. Multiply that by 10 and you get $480,000.00 or by 12.5 to get $600,000.00. You may not need a million dollars. Can you get here? Yes! but you need to use the steps along the way while thinking like a millionaire. Following the steps and investing 15% of your income (your income is not going to stay where it is today so keep adjusting) and using the extra money to pay off the house, pay for the kids college, give and make other investments. Everyone can be a millionaire but it starts by thinking like a millionaire.
Reaching Your Number
Now that you know your number isn’t 65 years old but rather $450,000.00 in the conservative example above, you know that when you start acting like a millionaire and reach that number you can now do the things on your bucket list. You don’t have to wait until 65. You could do this at 30, 40, 50 . . . anytime. Remember your why. Figure out your number. Be frugal and wise with money and you too could be a millionaire. It’s up to you!