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Database of State Incentives for Renewable Energy

 

 
 

The Economics of Being a Cheap-o

- How to retire without a huge pension and enjoy it

 

by Jan R. Cooke   

   

 

It got me thinking after I had been to one of the “Retire Wealthy” meetings, and had listened to speaker after speaker telling us we had to have X-hundreds of thousands of dollars in Savings, Investments and Retirement plans.

The ”experts” tell us that if you are currently earning $50,000.00 a year then you need to have something like half a million dollars in investments and retirement funds so that you can maintain your life style (some experts suggest as much as $1.3 million when future inflation is taken into consideration).  The benchmark they use is that your investments have to generate at least 80% of your pre-retirement income.

As I was listening to all this I was thinking to myself:

#1 That isn't going to happen, because at age 53 I don't have enough working years left, and even if I contributed every penny I made, I would still fall short, and what would we live on in the mean time?

#2 There has to be a lot of people that have never worked for a company or business that has a pension plan or, for whatever reason, have no retirement savings (75 million Americans work for companies with no retirement plan.  50% of American adults over 50 years of age do not have any retirement savings, with only 33% actively planning their retirement.  An astonishing 25% of all Americans have ZERO savings of any kind).

#3 There has to be a Plan B or C, or D, or something, that is actually workable.

The first thing I had to do was to see where their logic broke down.  It's right there - “maintain your lifestyle” - that is where it all comes apart.

I don't want that lifestyle.

What I want is my place in the country where I can strive to live in a sustainable manner and move toward being as self-sufficient as possible.  To have as few as possible living expenses and no debt.  NO Mortgage, NO Car Payment, NO Credit Card bills or Credit Card debt, and not having to work unless I want to or if it is too cold in the winter to do anything else so might as well earn a few extra bucks.


So, I sat down and started working out the numbers and putting together examples to show that, NO, you do not need a half million dollars, not even a quarter of a million, not even a hundred thousand bucks.  I set out to prove to myself and my wife, that if we kept doing the things we were doing, with some effort we could, over the next few years, rid ourselves of all debt, mortgage, power and natural gas bills, as well as a large part of the grocery bill. That I could, in fact, retire comfortably with only a small pension and without having to be a greeter at Wal-mart until I am 90.

So, now the question is, “What steps do we have to take to get to that point, and how is it all going to play out as we plan our retirement?”

What I discovered is really very simple.  For every $100 you cut your retirement monthly cost of living, that is $15,000 less (yes, fifteen thousand dollars less!) you have to have in your retirement savings plan.  I think this is significant enough to be repeated - For every $100 you cut your retirement monthly cost of living, that is $15,000 less you have to have in your retirement savings plan!

The math is this: if your investments earn 8% annually then $15,000 will generate $1200 a year, or $100 a month.  So if you don't have to have that $100 a month then you save yourself having to put away that $15,000.

Now, for me, this was revolutionary.  I could now stop looking at how much I had to save, and could look at ways to reduce my cost of living.  Some things are easy.  Buy a used car instead of a new one, so you don't have a car payment.  Get your home paid off so you no longer have monthly mortgage payments.  Lower your utility cost.

Let's see how that works in real life.

Car..... well, a new $25,000 car, even with zero percent interest, will cost $416 a month (we won't even count the extra cost of insurance on new cars).  Our great running 1992 Dodge mini-van was purchased 18 months ago for $3,000 cash.  We have saved a lot by not making payments and on the reduced insurance cost. 

The house mortgage or rent...... with average housing prices going up and up, housing is a major expense.  If mortgage interest rates go up only 2%, for a lot of people that alone would be an increase of $200 - 400 a month.  Before we moved to the acreage, we rented in town for $730 a month, but now are in a position to have our housing cost reduced to zero before we retire. 

What else can be reduced beyond these major expenses? Now that we are out on the acreage / homestead we rarely watch TV, so no more cable or satellite TV bill... that saves between 70 and 100 bucks a month (still have broadcast TV, get the news and “Hockey Night in Canada”, so all is well, plus the library has free DVDs and more books than I will ever be able to read).  We can only get dial-up internet on the acreage ($19 a month) vs. high speed when we were in the city ($45 month)... that is another $25.  Don't need the gym membership anymore as I have acres of grass to mow, and can do so much more outside in order to get my exercise... that is another $50.

Now, quickly add up the total... hmmmm, that is... WOW! $1,129. 

Now, do the math stuff.  But wait...... I am getting some solar panels and a wind generator, also adding a wood heater, to cut down my utility bills.  So I will be cutting my utility bill to almost nothing.  Say a savings of $150 a month.  Now the total is $1,441 and the amount needed in retirement savings for that?  The math is $1,441 times 12 months = $17,280 and with an 8% return on investment you would need a whopping $216,000 in your retirement savings plan just to pay those expenses.

Now, to my mind, its much, much better to invest in myself and reduce my cost of living anyway I can.  Get the land and home paid off as fast as possible (save a ton of interest too).  Pay off credit cards and quit using them (except for emergencies).  Conserve energy by using compact fluorescent lights inside and out, as well as timers and motion detectors for exterior lights; power bars to totally turn off TV, VCR, DVD and microwave when not in use; install better windows and improve the insulation in your house.  Learn what you need to do to start generating your own power, then start to design and build a power system for your home that will use solar panels and wind generators.  Add wood heat or a grain burning stove to your home.

 

 

 

 

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