Savings! How much is enough?

[winterwanderer]

Say you were a twenty-something single full timer, sleeping in a jalopy SUV, virtually no possessions of value. Completely self-reliant, no fixed income. You can work hard, but despise the "grind" to the core of your being. Alternative lifestyles provide meaning and purpose to life, but no income. You're highly frugal and despise materialism, but don't want to be "locked out" of normalcy.

Say you are a financial pessimist and believe that the economy will collapse in a few years, flooding the job market with desperate people and making it damn near impossible to find a decent job. 

How many dollars would you have in the bank before you can feel comfortable quitting wage labor altogether and pursuing your dreams?

 

[B and C]

I would sack back every cent I could and when the collapse happened, I would be sitting pretty while everyone else living paycheck to paycheck would have a very hard time. That is if you really believe the economy is going to collapse like that and somewhat soon. In any event, not a bad idea to sack back every cent you can anyway. Rainy days do happen.

You also have to think about your later years and what you will need when no longer able or want to work. Not having a good income for enough years will severely impact your social security income too when the time comes. A good nest egg invested today would be large for retirement given the time you have for it to grow.

Nothing in life is guaranteed and you can only go with the information you believe to be correct today. I really wish I could connect the dots into the future.

 

[mpruet]

It all depends on how much you spend in a year.  This is an issue that retired people face - how to ensure that they don’t spend all of their savings before death.  It’s possible to do but it always takes more money than you expect.  

If you are young when you want to retire, then you have an issue because you will not have enough SS credits to ever get social security benefits, so you would have to provide for all of your expenses.  

In addition to having enough in savings to last say 30 years, you also have to plan on how to deal with inflation.  Randy Vining has been quoted as saying that he built up a Nest Egg of about $100K, but that was a few decades ago and the $100K would be more equivalent to $250K in today’s dollars.  I’m retired now, but when I first started working you were considered doing well at $20K a year.  Now that would be considered poverty level. 

This means that you have to make your nest egg grow and that generally means investing.  

You also have to protect yourself from downturns in the market.  You want to ensure that you have cash or near-cash for the next few years.  That means t-bills and/or muni-bonds.  

As a general guideline you can take your annual expenses plus 25% and multiply by 25.  You need to add the 25% because you will have some larger expenses every few years - maybe a new van for instance.  

So let’s suppose that your expenses run about $1000/month - including insurance. That would be $12K per year.  Add an additional 25% and that becomes $15K.  Multiply by 25 and you get $375K in your nest egg.  

But - and this is very important -  That would only work if that $375K can grow over time AND you can protect that savings by always have a non-risk cash for at least three years so that you never have to pull money out of the growth part of your nest egg during a recessionary period.

 

[mpruet]

By the way.  If the economy really collapses then your savings would be worthless.  I’m assuming that you really mean have a recession instead of collapses.

 

[highdesertranger]

you can never have to much, there is no such thing. highdesertranger

 

[swlands]

I think this is an extremely personal issue. Some people freak out if their check account dips under $25,000 while their entire annual expense is not much more than half that (I have a couple elderly people in mind) while others will look over their finances and realize they are $5 in the black today and go to sleep happy. Then of course there are those who simply live with too much month at the end of the money. Everyone is unique.

I would figure have at least 3 months living? That is just me. I have heard 6 months. When you are old you need 30 years.

I would suggest you won't like yourself if you get old and you don't have any way to pay your bills. So put a little away for later. That is not capitalism or the economy or the grind - that is just reality.

 

[maki2]

you can get free financial planning at any credit union. the best approach is to set it up as a lifelong plan. Remember that young people today will not be able to collect social security at age 62 or even at age 65. It is going to be 70 years old. So you have to keep that in mind and get the money earned and socked away during your prime earning years so you are taking advantage of accumulated interest.
Also ageism is alive and well. Many people in their late 40s are finding it difficult to change careers and get paid as much as they were getting in their previous job.

While you are young and employed with a good salary part of the financial plan will be to put some money into more risky but higher return investments which might mean investing in yourself by stating your own business where you don't have to worry about hating your boss or your job. Plus make it one where you can work while on the road. Then you don't have to worry so much about if you run out of savings in an emergency. But you might want to have some insurance that pays an income if you are injured and can't work for a while.

 

[LoupGarou]

Have enough to keep the wheels turning. If things go pear shaped, just start up a Go Fund Me account.

 

[SLB_SA]

You also have to think about your later years and what you will need when no longer able or want to work.  Not having a good income for enough years will severely impact your social security income too when the time comes.  A good nest egg invested today would be large for retirement given the time you have for it to grow.

I agree with this advice but with a caveat.  To quote the book Get What's Yours (on page 48), "The PIA benefit formula is highly progressive.  The formula that determines your full retirement benefit, or PIA, based on your lifetime earnings base, or AIME, is progressive.  This means it gives lower-wage workers - those with low earnings bases - a disproportionately better deal."  Thus, even if you don't earn a lot, the years you work will still add to your social security benefit.

As an example, a person born in 1952 (and so whose full retirement age is 66), receives the same benefit ($1017/month) if her/his AIME is $856 and s/he takes SS at age 70 or her/his AIME is $2686 and s/he takes SS at age 62.  (This example is not adjusted for inflation.)  The person making $32,232 per year and the person making $10,272 per year receive the same SS benefit at age 70 when the first starts SS at 62 and the second starts SS at 70.

 

[VanForNow]

Another factor is your ability to repair your own vehicle. Repairs are inevitable, but a person with mechanical skills doesn't need as large of a nestegg as a person who needs to pay large repair bills to a professional mechanic.

 

[RoamerRV428]

It's a catch 22 no matter how you look at it.

One who despises working mostly for that dreaded money....now must think about working A TON to bank sufficient money for the future, a safety net.

What amt of money that is will be so personal to each one.

Cause no 2 people truly ever agree on money matters, from making it to spending it to saving it and investing it LOL
Money is a big fight issue for many HAHA

Thing is only the 20 something asking that question knows the answer because I am older and have my OWN philosophy on how to make money, bank it, spend it etc.

Now if you ask me what would I personally do when I was 20.....well that would be my personal outlook on life and how I needed to live it to fit my life plan...…...so for me at 20 it was work like a demon. Bank the heck out of everything I made. Luckily I am a very frugal/minimalist type so I would spend big on what I wanted, say a boat or ?? that I loved to do in life and enjoy my life exactly how I wanted all the while being frugal in a ton of other areas to bank for older age.

Cause one thing I knew was I didn't mind getting older, I just never wanted to be older and poor. I would do the best of my ability to make sure that didn't happen but as we know, no one can totally control life so....

I did not want to be free on the road when younger. I camped all the time. I went camping with our boat truck camper and pull the boat and enjoyed the heck out of water sports, fishing and more and it was our fab down time after working hard and paying bills to live in a decent home etc.

But my mind was on later down the road also. Bank for true freedom when the time came and we desired just that. Pay off a nice home and when the time was right, sell it. Cash in hand, just like a bank account truly, assets in my mitts when sold. Put most of it away for another home down the line if wanted to get off the road when very old, or find that perfect location we would love to live when out and about wandering thru different locations. Options, money gives you options. Take some of that money and use it to pay for bills on the road etc.

So what I did at 20 and my own life plan won't usually fit others. It is very personal.

So my answer is work. Bank like a demon. When I hit about $250K in the bank I would feel a lot safer.


plus remember what dreams you do want to pursue could cost money to do just that so....

No one will fund your life. It is up to the person to fund their own life and it is all based on what ya want, how you want to do it, how you want to live. What sacrifices you are willing to make for what you desire. Those things won't ever change. Responsibility of it all sits at your doorstep.

eh. just some thoughts

 

[HalfShadows]

Ditto Roamer!

 

[MG1912]

I’ll play.  I’m going to strictly answer the question you asked.  Assuming I was in my twenties – say, 25 – the amount of dollars I would have in my bank (or, more accurately, in my entire portfolio, which might include bank products) in order to feel comfortable quitting wage labor altogether would be the smallest amount which had an 80% chance of success, based on Monte Carlo simulations, of sustaining the high end of what I might need for income for 60 years (when withdrawn from a moderately-risky stock and bond -- say, 83% stocks and 17% bonds -- portfolio at reasonable withdrawal rates). 

Now then, if I am "frugal and despise materialism," then the high end of what I think I would need would probably be $1,500 per month.  Because you can be as frugal as you want and despise materialism, but even a frugal person might want to travel (which costs gas or diesel) and try nice or exotic foods every once in a while.  So some of the low figures I’ve seen here ($250 - $500 per month) feel too low to me.

$1,500 per month equals $18,000 per year.  No one knows how long he is going to live, of course, but life expectancy for males is around 85, so that’s why I said the portfolio would have to last 60 years – or, more accurately put, the portfolio would have to have a Monte Carlo simulation chance of success (of lasting 60 years) of 80% for me to be comfortable.  That is incorporating the condition you stated that we need to “feel comfortable quitting wage labor altogether.”  Assuming flexibility in withdrawal rates (2.5% to 3.7%), the simulation I ran said a portfolio of $480,000 would stand an 80% chance of success.

I would also want an emergency fund in a savings account.  I think $5,000 would cover most eventualities.  So my answer is $485,000.

 

[Elbear1]

Its a pipe dream to never have to worry about money. The american BS that suckers fools into the lottery or carrots dopes into working hard for a meager retirement. 

We all hate the grind. Most here are retired but a few of us are societal (socio-economic) dropouts. The reality is even hopping trains requires money. Its much easier to work a few months once in a while than it is to grow your own food due to gov subsidies.

Take temps jobs, take snap, do what you can and find a balance that works for you.

 

[swlands]

What I did was do what I loved. Didn't make a lot of money, but I had a good time doing it. I am a landscape gardener. I have clients who are personal friends - we have supported each other losing spouses, watched each others children grow up. I used to laugh as most of my clients headed into offices to work at a grind I hated while I worked in beautiful multimillion dollar properties making them even better places to hang out. They were busting their balls on a grind so they could pay me to spend 5 days in a space they could only afford to spend 2. I also laughed as I could not afford myself. But seriously - what is wealth? They had the money, still do, but I got to enjoy it and play with it.

A little self knowledge goes a very long way.

 

[bullfrog]

I am getting older now at 68 and worked hard to raise a family and get a state pension with health benefits and now social security. I semi-retired at 53 and had about $35,000 in the bank when we started traveling and didn't worry about money as we had little in the past. We traveled about 2 years carefree doing a little campground hosting and depleted our bank account in about 2 years. We took minimum wage jobs at Lowes and Walmart as they were easy to get and worked 6 months to get an emergency traveling fund of about $5,000 saved up and started traveling again. We found jobs working in national parks as we enjoyed living in them and you can only do that if you work there. Most of what we made went to travel for supplies as we like very remote locations. I am finding that the older I get the larger the emergency fund has to be as it is difficult for me to do many of the repairs I used to do. For example I built our last two campers and last year we bought a manufactured camper as I just didn't enjoy the last build as it required a lot of ladder time. Reaching social security age / Medicare age and putting those funds into savings while still doing seasonal jobs that are not physically demanding and living on the money from them has worked well for us. It allows us to travel 4 months or so of the year. $2,000 a month would be difficult for the 2 of us to live on in the remote locations we like and as reliable transportation is a must I would say costs would be an additional $500 a month for that so at a minimum of 6 months (the time it takes to get to the next seasonal job) $15,000 in the bank with all debts paid and a good credit rating would make me worry free. Anything below $10,000 and I start to worry and below $5,000 I start to look for better paying jobs to build it back up.

 

[MG1912]

OP, as you've noticed from the posts here, the sum of money you will need is rather large because of two factors in your conditions:  1) your extreme young age, which requires the amount to last for many decades and 2) your goal to quit wage labor entirely and live on the sum of money in question.

Now then, this is doable fairly quickly, and people do it all the time, but it requires extreme frugality (which you already possess), but also a very high income.  Look up Mr. Money Mustache.  Basically, his wife and he were IT professionals with a very high income (well into six figures).  They saved like demons for a number of years and retired very young with something like $600,000, which they then lived off and never worked again.  In your case, for example, if you had a job that paid $150,000 per year (yes, I realize that is very high and not attainable for most people), and you lived on only $18,000 per year, then you would be able to save $132,000 per year.  With that income, it would take you less than 4 years to save the $485,000 in my example above.

How do you get a job that pays $150,000 per year?  There aren't that many, that's for sure.  The surest bets are probably in IT in major population centers if you have those skills.

Now let's say you do not have skills or education that will allow you to make that kind of money.  Well, then maybe you have skills that can get you a job that pays half that, which is still a high income ($75,000 per year).  Now it will take almost 9 years to save up the $485,000, so you'll be financially independent in your 30's at some point.

But what if you can't get a job that pays that much?  Well, then it probably isn't possible to do.  You will have to do what some have mentioned in this thread:  supplement savings with seasonal work.  But you will always have to work.

 

[IGBT]

While Mr. Money Mustache did retire early with a modest sum of $600,000 or so, his blog now makes him around $400,000 a year so we really can't tell if it would have worked out long term for him since he is a many multi millionaire now.

 

[winterwanderer]

Thank you everyone for your input!

My ideal lifestyle would be zero-net: no money spent, no money earned. Trade labor directly for the essentials of a healthy life. As an example, there are many organic farms across the nation willing to accommodate such an arrangement. Of course, travel between farms would cost money, but even that can be minimized through ridesharing.

My truck has been amazingly reliable, but sooner or later, it will break down. I hope to turn this from a disaster into an opportunity. For me, vehicle dwelling is a sort of "halfway house" between sticks-n-bricks living and total freedom.

 

[winterwanderer]

Thank you everyone for your input!

@B and C: Definitely agree with hardcore saving. Over 90% of my net income this summer is now in the bank. You are also right in that an economic collapse would make the dollar worthless. Hopefully, I will be able to see that coming and buy a share in a farm commune. 

@mpruet: My numbers are a bit smaller than yours  Current expenditures are in the range of $5000/year, including costly cross-country jaunts.  Slashing that figure in half is highly feasible, by living communally, trading work for essentials, ridesharing...keep the principal untouched in some safe & low-yield investment account. Yes, there is a chance that I will become infected with materialistic ambitions in a couple decades...but I simply cannot stomach the thought of selling the next 10+ years of my life to a corporation on that chance.
As far as Social Security, suffice it to say that the concept is totally incompatible with my political views.

@highdesertranger: I beg to disagree. This summer of work has been like a big heavy meal for a snake. I need a few months before I can even think of eating again.

@swlands: Good advice there. I started this year with an aging vehicle and a year's worth of savings. Felt like the edge of the abyss.

@maki2: Seventy years old!!! Fortunately, we have the Baby Boomers as a living example of how NOT to spend one's life...give everything you've got to a faceless corporation, then retire rich, grumpy, and broken in body and spirit, another useful drone put out to pasture to grow plump and wobbly. I'd much rather be one of those dreamy old gray-haired hippies talking to their plants in the community greenhouse.

@LoupGarou: The parasite mentality is pure anathema to me.

@VanForNow: Small repairs are "learn as you go." Big problems? NPR likes vehicle donations. Car-free living is a gateway to exploring the world.

@Sofisintown: Yes, trades can provide a reliable income and freedom from the grind, but only after a couple years of training experience, requiring complete focus. Endless repetition of a task turns a greenhorn into a master, but it also drives me batsh*t crazy after four or five months.

@RoamerRV428: But if I can slash my expenses to some absurdly small amount, say a tenth of the median household, my savings will go ten times farther. The trick to being rich, IMO, is to keep your desires well short of your ability to fulfill them. 
The dream of home ownership seems to have been lost on my generation, with the wildly inflated prices and looming real estate market crash. At least those bloated wooden boxes cluttering suburbs across the nation. A self-built tiny house, though? Hell yeah!

@MG1912: Thanks for doing the math. Living on a low figure like $250/month can be very enjoyable if work is traded for fresh organic produce, for example. But investing my hard-earned savings in the stock market is just not an option.

@Elbear1: Yes, that statement about "quitting wage labor altogether" was a definite product of a bad day at work. Far more realistic is to put all but $1000 of my savings into an untouchable reserve, then replenish the $1000 whenever I deplete it. Temp jobs, like you suggested. But a person has to be a real worry-wart to worry about money when you have enough to tide you over for a decade.
I hold no illusions about an easy lazy life on a farm. Right now, I work about 3 hours a week for everything I eat. On a farm, that number will be around 30...even higher with a completely self-sufficient operation. Sure, I will be eating much better. But it is far easier to buy at the grocery store.

@swlands: Sounds like those housesitting gigs! Rich people are too busy to live in their dream homes, so they let trusted wanderers stay in them for free, keep them clean and in order...

@bullfrog: We have a similar lifestyle, though $2000/month is far above what I spend, even road tripping through Mexico.

@MG1912: Making that kind of money was feasible in the past, but I lost interest in college and dropped out. It does appear that seasonal work will be part of my future, which is not too bad, because I enjoy the community found at such jobs.

I'll come back to this when my current job ends and I recover from five months of overwork...