Savings required to retire at 40?

[MG1912]

When you retire you need to be focusing on strategy and not so much on how to get ‘x’ growth in a year.  

First of all, you should be investing in broad index funds.  This way you are highly diversified and have very low risk of a large 50% decrease in nest egg size. 

Secondly, it is wise to have ‘x’ amount of your nest egg in cash or near cash such as muni bonds or CDs.  This is the money that will be used to fund your expenses for the next ‘x’ years.  The rest you leave in broad index investments.  Then once a year, you transfer money to your ‘spending bucket’.  

I have three main buckets.  A - investments/Roth/IRA/etc.  B - 4 years of expenses invested in a muni bond ladder.  C - cash in a money market which will be used to fund this years expenses. D - my checking account at the bank.  Each bucket is a separate account with my broker (TDAmeritrade).   At the start of the month I have an automatic transfer from bucket C to my checking account.  At the end of the year I move cash from B to C and then re-fund bucket B from A (RMD and other funds). If in a recession, I might defer refunding B until recovery.

The advantage of having 4 years of expenses in bucket B is that when a recession hits, I have a 4 year buffer before the recession hits me.  Generally a recession only lasts 5 months, so I can easily ride that out. So if the value of bucket A drops significantly, you still have the cash to maintain your current standard of living. 

When you next speak with your advisor ask him about the ‘bucket’ strategy and bond ladders.

Thanks for the observations. I agree also with your above point about credit cards. I use them for everything and pay them off in full each month. My portfolio is 100% index funds (either TSP or Vanguard institutional funds). I went from 80/20 to 40/60 for assets, so skewed much more conservatively. My current strategy isn't a bucket strategy, although I am pulling from different "buckets" at different times. I actually thought about including this info in my first post on this thread, but I decided it wasn't germane to the discussion. I'm living on severance this year. The next two years will be Roth IRA contribution withdrawals. Then my TSP (via 72t) and taxable will provide income to 59, at which point I take control of my Roth and TSP. At 62, my federal pension and SS kick in. I should be sitting pretty at that point, but who knows what the market intends to do. Time is on my side, as I will have liquidity in savings and at least 6 months of living expenses on tap.

 

[SLB_SA]

I wonder if Bob had enough savings to retire when he did. He seems to have survived.

 

[bullfrog]

Sadly many pass away sooner than we think we will. If your number one priority is to do something, do it now and deal with the consequences as you will never know whether you can possibly find happiness if you don’t.

 

[Zmann]

Like the man said it's either too much ...
or you're not impressed...

 

[Freelander]

Yep I wanted to retire and enjoy what is left to my life.

 

[MG1912]

I wonder if Bob had enough savings to retire when he did.  He seems to have survived.

Bob's situation is pretty unique.  He worked for a single company for a long time, and so he got a pension when he retired.  So he was a normal retiree.  And now, of course, there is a website and video site with millions of views, books, etc.  Most people do not get a pension, and most people do not have a large social media following.


I got back and forth on this thing, as I am retired very young.  On the one hand, I think of the happy "dirty kids" (their term) I met in the desert, living on $190 of food stamps and whatever they got in handouts to survive, and I think to myself, "Surely, I've got too much!"



On the other hand, I talk to my financial advisor or other older, wiser, more successful people, and they bring up sober topics that just don't gel with the #YOLO attitude.  Those "dirty kids" don't worry about the vagaries of 401k withdrawal strategies because they have no 401k's.



I remember when I was 25 and fresh out of grad school, and I only had $1,000 to my name.  Once I had a job offer in hand, I blew that $1,000 on a trip to Montreal, Canada.  I remember sitting in my room and thinking, "Man, imagine if I had $2,000!  I could take a trip to Montreal, and I'd still have $1,000 left!  I'd be rich."

 

[SLB_SA]

On the other hand, I talk to my financial advisor or other older, wiser, more successful people, and they bring up sober topics that just don't gel with the #YOLO attitude.  Those "dirty kids" don't worry about the vagaries of 401k withdrawal strategies because they have no 401k's.
I remember when I was 25 and fresh out of grad school, and I only had $1,000 to my name.  Once I had a job offer in hand, I blew that $1,000 on a trip to Montreal, Canada.  I remember sitting in my room and thinking, "Man, imagine if I had $2,000!  I could take a trip to Montreal, and I'd still have $1,000 left!  I'd be rich."

Talking to financial advisors can do that to you.  I'm lucky not to have a 401k (but I have a 403b that I live on until I turn 70 in 3 years).  I was 26 when I got out of grad school with my PhD and I got an academic job at a place where all other applicants turned them down because their pay was so low.  Back then, $1000 would have been amazing.

 

[SLB_SA]

If you can make me 40 again, I'll retire immediately.
If a person wants financial advice, then talking with a financial professional rather than a social media site would be a better choice.  However a financial professional will give you probabilities and not promises; s/he cannot promise tht you won't get sick and lose everything due to medical bills.
To me, this is a "philosophical" topic.  Should a person wait until there are no financial risks (i.e. "forever") to become a nomad or take a chance and become a nomad immediately?  Neither choice promises you financial security.  Maybe your work kills you 20 years earlier than if you became a nomad?  Maybe the opposite happens?  
Knowing what I know now, I would have quit my job when I turned 60 and become a nomad.

 

[WanderingRose]

Sadly many pass away sooner than we think we will. If your number one priority is to do something, do it now and deal with the consequences as you will never know whether you can possibly find happiness if you don’t.

I agree with this in principle, but my experience is that it takes planning and saving so that you don’t end up in old age eking out a bare subsistence existence off SS, only.

I am not sure what the minimum SS draw is, but know older people living in subsidized housing who are just barely hanging on by their fingernails.

Work, live beneath your means, save your money, do some of what you want now but be prepared if you want to retire early and do the remainder.

It’s no fun being broke all the time, living hand to mouth and crisis to crisis.

My two cents.

 

[RoamerRV428]

every human on the planet is flawed in some way, especially thru just life experiences and more like unforseen situations like bad medical diagnosis etc.

But if one that the hutza-pa to rise above at all times? Your own actions can help yourself obviously, but we all will never have those same circumstances to deal with or need to overcome.

Just do your damn best ya can for what you want and move forward and grow and improve and be kind.
hell what else is there? Find the positive in the negative and most times you live a better life anyway just thru that thinking

 

[mpruet]

Sadly many pass away sooner than we think we will. If your number one priority is to do something, do it now and deal with the consequences as you will never know whether you can possibly find happiness if you don’t.

or find happiness in what you do...

 

[SLB_SA]

I am not sure what the minimum SS draw is, but know older people living in subsidized housing who are just barely hanging on by their fingernails.

According to this 2019 article the minimum social security benefit for someone who worked 30 or more years is (was in 2019) $872.50.  This is why I previously suggested that some people who are nomads because of necessity rather than desire might consider moving to a lower cost-of-living country (like Ecuador) with high quality, inexpensive healthcare and where a person could live on $500 per month.

 

[SLB_SA]

I have no idea of how difficult it would be to be a nomad in South America. Since the cost of rent seems to be low in Columbia, Ecuador and (some) other countries in South America, the idea of having a "home base" (e.g. rental property, possible shared by several nomads) and travelling throughout South America sounds appealing. Maybe a group of nomads could "time share" a house or apartment, splitting the cost and travelling when not the "occupant"? Say, rent a two bedroom house that four couples share and have two couples on the road while the other two couples are at the house? Mutual help with solar, van repairs, etc.?

 

[SLB_SA]

In this Can you Retire on Social Security Alone? video, the speakers point out that a person who is suffering at work (e.g. illness, broken down body, hate the job) should, at a minimum, consider retirement.  For many people, the income earned in the last few years of employment might be below the lowest of your 35 top (indexed for inflation) earning years and therefore might not increase your social security benefit.  You could work longer for other reasons (health insurance, avoid depleting savings or retirement accounts) but doing so solely to increase your social security benefit might not accomplish this goal.  Imagine quitting work at 62, for 8 years moving to a low cost country and finding odd jobs or becoming a nomad and finding odd jobs, and then at age 70 beginning to take your social security benefit when it is at its maximum.  Your benefit might not suffer at all by missing 8 years of working and just waiting until age 70.

 

[Sofisintown]

Your benefit might not suffer at all by missing 8 years of working and just waiting until age 70.

Haha, even better work until you die, or die at work (the ultimate futility exercise).

Many people don't live that long dear, and there are no guarantees that you will make it long enough to get any of the money you paid in, back.

 

[bullfrog]

I thought there was no way I would make it to 30! I’m almost 70! For me my body started slowing down at 65 and my wife even earlier so consider your options as soon as possible!

 

[SLB_SA]

Haha, even better work until you die, or die at work (the ultimate futility exercise).

Many people don't live that long dear, and there are no guarantees that you will make it long enough to get any of the money you paid in, back.

Good point but, if you live to 62, you are expected to live to be over 80.  Of course, it is different for each person and some may not live to be 70.  My dad died at 62 (cancer because he smoked all of his life) but my mom is 87 and doing fine, running a retail business (managed by my sister).  Her daughter and multiple sons, including me, are all doing fine; we are in our 50s or 60s.

 

[SLB_SA]

I thought there was no way I would make it to 30! I’m almost 70! For me my body started slowing down at 65 and my wife even earlier so consider your options as soon as possible!

Actually it is a dream and you are really 29.   :angel:

 

[jacqueg]

Haha, even better work until you die, or die at work (the ultimate futility exercise).

Many people don't live that long dear, and there are no guarantees that you will make it long enough to get any of the money you paid in, back.

Well, life is a crapshoot, no matter what you do. You can study your odds, but in the end, you roll your dice and take your chances.

I quit working at 60, and left thousands of dollars on the table. Lived on the money from the sale of my house until I could get SS at 62. 

Why did I quit? I couldn't stand working anymore - nothing in particular wrong with the job itself, nor my co-workers, so it wasn't like I could improve my situation by finding another job. I just couldn't take the demand on my precious time anymore, and I could see I was becoming a person I swore I'd never become - the person in your office who hates working, but won't quit because of money, and takes her misery out on everyone around her.  I was basically working to pay for the Prozac so I could keep on working.

I was just DONE. So I went with what I had. I've done several interesting lives since then. Been in my bare bones van full-time for a year now. No, van life is not perfect. But for whatever reason, the problems I encounter seem manageable, I'm not living in a state of gritted-teeth endurance, and I'm not driving other people and myself nuts with my sour attitude.

So I'm good with my life. I'd SOOOO much rather wake up looking at a desert or mountain sunrise than the four walls of an apartment.

When you're old, you don't only need money - you need good memories too.

 

[MG1912]

Retiring overseas is just like the Robinhood app discussed on the Money subforum: if it sounds too good to be true, it probably is. There is no such thing as free lunch. As we have learned recently, you absolutely do pay for every trade, just in a roundabout way. Does retiring in a developing country sound too good to be true? That’s because it probably is. I think about it like I think about going to the doctor or dentist in a developing country. It usually works out great for the people who do it. But sometimes… it very doesn’t. It’s cheap because they don’t have the same standards, and doctors don’t have to carry the same insurance. The doctor might speak perfect English and have a degree from a U.S. school, but do his nurses and assistants? If you end up with a bad abscess that nearly kills you from a botched dental procedure in Tijuana, you have zero recourse once you’re 1,000 miles away again unless you want to hire a Mexican lawyer.

There are indeed beautiful places in picture-perfect settings where you can rent a luxury villa and even have maids and delicious seafood every day for less than $1,000 a month. These are places where they welcome American retirees, even those of lesser means, and where they have hospitals that cater to the expat community. That’s all great until the reality of life in that country encroaches on your retiree bubble community: political problems, corrupt or unresponsive police, unclear laws on property ownership, inheritance issues, tax issues, plus the fact that you are in an alien culture and likely don’t speak the language, don’t know the customs, etc. You can find yourself in a real pickle when you find out you can’t sell the home you just bought, or you angered the local mayor for some reason, etc.

Of course, if you’re rich, you can buy yourself out of problems like the above. Heck, for the most part, rich people can buy themselves out of problems here, but they can do it much easier in a developing country. If being rich in America is great, being rich in Costa Rica is even better. But if you are not rich, and you think the solution to having the good life with little money is moving to a developing country, I’ve got some options trades on Robinhood I’d like to discuss with you…