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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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