You will hear a lot about how much money you need to retire.  It’s kind of a Zen thing.  What is the sound of one hand clapping?  It causes you to think.  Contemplating the amount you need to retire, like these Buddhist koans, should “shock the mind into awareness”.  If you really consider the question, you will likely realize that the numbers thrown around by financial advisers are more likely to ensure they continue to receive fees from you in perpetuity than make you happy in retirement.

Most will advise you that you need to generate through investments 65 – 80% of your pre-retirement income.  That, my friends, is a lot of money!  Probably millions of dollars.  I have seen some advise as much as 105% of your pre-retirement income!  Whoa!  Now, if your retirement will involve a lifestyle that is far more extravagant than your present lifestyle, then they may be right.  However, reality is that even 65% may be too much.  How can I say that?  Read on!

Most of us are married, have a couple of kids, have a mortgage on a nice home near an urban center where we work for a living and make payments on a couple of newer cars.  That’s the average anyway.  Hidden in that typical American lifestyle are costs that will probably disappear in retirement.  I’m not talking about chucking it all and living in a commune, but costs that just go away.  There are at least four major expense categories that most of us will shed upon retirement.  They are:

  1. Job Related Expenses – Suits and shoes, fuel for commuting, lunches, lattes, tools, professional licenses, etc.  These things just go away.  You might be surprised to find out how much you can save by not working.
  2. Kids – Food, clothing,  iPods, college saving, dentists, etc.  Kids cost a lot of money and when they are gone, so is most of, if not all, of those expenses.
  3. Housing Expenses – 2500 sqft homes with mortgages to match in prime real estate markets.  Whether downsizing, full-time RVing, or paying off the mortgage you can realize significant savings.
  4. Investments – Your 401k, IRA, pension contributions, etc.  If you have enough to live on for the rest of you life, why would you continue to invest?  In retirement you can pocket the money you invested while you worked and concentrate on managing (and spending) your small fortune.

Lose those and what could you live on?  Half your pre-retirement income?  Less?  Who knows?  The point isn’t to come up with a specific number, but to consider the possibilities.  You may be able to retire sooner than you thought.  Hell, you might be able to retire now.  Especially, if you drastically change your lifestyle.  What’s more important?  Waiting 5, 10, 20 years to save “enough” money to retire “in style” or simplifying your life style and being retired now?

Those questions turned my ideas of retirement on its head.  I went from taking my pension in 2010, planning to work 6-8 more years as a consultant, buying all kinds of toys and such I really wouldn’t have time to enjoy till I was in my mid 50’s, to deciding to retire now.  Sure, I won’t get a new boat, a fancy car or a remodeled kitchen, but I will be enjoying myself and if I decide I want a new boat, for instance, I can work on my terms to save enough to buy it without the rat race lifestyle.

Let’s face it, life is short.  Every year you work, you’re another year closer to dying.  If you knew when that would be, you could make an educated decision, but you don’t know.  When you choose to work for a few more dollars or for a little more security, you don’t know if that extra year or two will be your last.  So, when is enough, enough?  That’s up to you, but you need to go beyond the financial and consider the rest.  Lifestyle, genetics, health, quality of life, other pursuits, dreams, etc.  Life is about choices and few of us can have our cake and eat it too.  You most likely can’t work till you’re 70 and expect many years of active retirement.  You most likely can’t retire at 25 and expect to survive on your saving for 60 or 70 more years.  Somewhere in there lies the sweet spot.  You need to find it.