Save a Million? Yeah, Right.

Aug 28, 2014 by

I’ve got good news for you today. You’ve probably seen, and been discouraged by, a headline or two like these:

“Experts Now Say a Million May Not Be Enough to Retire”
“You Need AT LEAST a Million Saved to Retire Comfortably”
“Get Ready to Retire on a Cat Food Diet If You Haven’t Saved a Million”

Here’s my good news: THESE WARNINGS ARE B.S.!

Rules of Thumb Apply to No One

thumbs down on rules of thumbDo you know why rules of thumb exist? Mainly because most of us are too 1) lazy (guilty), 2) busy watching Duck Dynasty, Wheel of Fortune, and The Bachelor, 3) obsessed with hyper-managing our kids’ lives, and 4) tuning our personal brand through social media to take the time to do a little research and plan our lives, based on our individual ambitions and desires. So we have no choice but to rely on rules of thumb. Rule-of-thumb makers are happy to oblige.

Rules of thumb work well only for an “average,” or typical, situation. Underlying the statement “you need a million dollars to retire” are hundreds of assumptions about “you.” How many of these assumptions, if spelled out, would fit your individual circumstances and goals? Probably only a few—or more likely none.

And the circumstances of how many people on the planet would you guess fit well with the assumptions underlying just about any rule of thumb you can name, but particularly one as complex as how much money you need to retire? My answer is zero, nada, none. So rules of thumb apply to no one!

That’s why I don’t pay attention to or suggest rules of thumb on Money Counselor.

How to Retire WITHOUT a Million

I’d venture a guess that 90+% of Money Counselor’s readers won’t have saved a million dollars by age 65 and have no prospect of saving a million dollars, ever. Should they despair? Heck, no! Here’s the Money Counselor formula for retiring without a million.

1. Make a Rough Income Plan

Do you know how much income you would have if you retired at any particular age? Find out!

First, if you’re an American, register with SSA.gov and learn what the monthly Social Security benefit for you and your spouse will be. Take note that your benefit will go up a lot if you delay taking Social Security. For example, here are my projected monthly benefits if I begin taking my Social Security at different ages:

  • Age 62: $1,427
  • Age 66-1/2: $1,957
  • Age 70: $2,505

That’s a 75% ($13,000 per year) increase in my benefit if I postpone taking Social Security for 8 years until age 70. Of course I may not live to age 70 or much beyond—that’s all part of the game! 🙂 If I take Social Security at age 70 instead of 62, I’ll have missed out on nearly $140,000 in benefits I’d have received from age 62 to 70. Then I’d have to live at least until age 80-1/2 to come out ahead. Yikes! I’m not sure I feel that healthy…

Next, will you have any other sources of income? Retirement account withdrawals? Other investment income? Side hustles? Add up all these to get a rough estimate of your monthly income in retirement.

2. How Much Are You Spending?

If you don’t know how much you spend annually, now’s the time to change that. Track your spending for a month or two, take into account annual or other periodic expenses like insurance premiums, subtract big items like tuition that you may be paying now but won’t be when you retire, and make a guesstimate of your average monthly spending. Get a rough idea of your monthly Medicare premium (again, if you’re an American) and add that to your spending if your employer covers your health insurance cost today.

3. Compare Projected Retirement Income and Current Spending

So how do your expected income in retirement and current spending match up? Not so well? Don’t worry, you’re typical. Now you’ve got a project to work on—let’s call it Operation Freedom–between now and the date you want to retire. The aim of Operation Freedom is to close any gap between your expected retirement income and spending. You can do many things to close the gap; here are a few ideas to get you started.

Operation Freedom: Closing the Income / Spending Gap in Retirement

Retire later, postpone Social Security: If you’re healthy and have good longevity genes, you can bump up your retirement income by several hundred dollars per month by taking Social Security later rather than sooner and still come out ahead in the long run. Plus you can continue to add to your savings while you work a few more years.

Downsize your spending: The cost of living varies dramatically in different parts of the U.S. and I suspect across other countries as well. Maybe you live now, or your ambition is to retire to, a sunny, warm climate in beautiful surroundings. Those characteristics usually translate to a higher cost of living, especially for housing. That’s why most of the retirees in such places will have saved a million or more! But thousands of lovely smaller cities and communities offer low costs of living and great lifestyles. And don’t forget to consider overseas. If you live in the U.S. you can move almost anywhere and save tons of money on health insurance and quality care!


Why not consider renting! Selling your home will put a wad of cash in your pocket, and renters aren’t slammed regularly by planned and unplanned home maintenance costs and ever rising property taxes and insurance premiums. If you want to stay in your home, research a reverse mortgage to add income.

In retirement, maybe you can get by with one vehicle? Carsharing is available almost everywhere now and is a great, low cost (compared to owning a second car) option for supplementing a single vehicle.

The kids are long gone. Liquidate like mad and downsize your home. When we moved to Canada, we went from about 2300 square feet of living space to 1200. We were careful to get the functionality we wanted in those 1200 square feet (three bedrooms—we use one for sleeping, and the other two are offices / guest rooms—and two full baths).

Something to consider if you relocate: When we moved here we made a point of buying a house with a “rental suite,” or mother-in-law apartment for you Yanks. Such houses are common in our area. We rent our suite on a temporary basis—one week to two months at a time—for $350 per week or $1100 per month. It’s rented about half the time, and adds around $7,000 annually to our income. If we decide one day to rent it full-time, we could get about $11,000 per year rental income. Also, renting a suite in our home means a part of our home maintenance, utility, insurance, and property tax expenses are tax deductible—more ka-ching!

You’ll notice that these ideas for downsizing your spending translate to relatively big money. Forget about the little stuff, and I’m not going to suggest that you cut out spending on fun when you retire—you might as well keep working! But fun doesn’t have to be expensive, and take care to socialize with folks who agree with that concept!

Work part-time: Retirement doesn’t have to mean you’ll never earn another nickel from your labor. Working at something you enjoy just a day or two a week can make a huge difference in closing the income / spending gap. Working a bit will keep your brain and body in better shape too!

Get creative: If you’re a Baby Boomer, you remember hippies. Maybe you were one. Think what you want about hippies, this much you can’t deny: they lived cheaply. Communal living, growing their own food, eschewing material goods, infrequent bathing (okay, just kidding),  sharing property—it’s not all bad, my friend! What’s wrong with two or three retired couples renting a big house together and sharing common space like a kitchen and living room? The group might even share a vehicle and a couple of bicycles! The savings on rent and utilities would be huge.

Your Ideas

Are you convinced you’ll need a million dollars—or more—to retire the way you’d like?

Can you add more ideas to those above to help people retire on less than a million?

 

Image courtesy of hobvias sudoneighm

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  • These are some unique and interesting ideas. My wife and I wouldn’t need a million to retire, but we will have well over a million if we keep investing at the same rate. We are both very aware that we never want to officially retire. Our retirement investments are really just a backup plan. We will always be doing work we love, so it won’t really be work.

    • “Retirement,” if it means engaging only in leisure activity, isn’t on my radar either. Staying productive, seeing a little money coming in, doing something fun and interesting–it’s all good!

  • I think one has to consider what they want to do after they retire to find out how much money they actually need — which I believe is actually less than $1 million for most people. I also like your ideas — retirement doesn’t mean you can’t have regular source of income other than your retirement fund.

    • Right on Daisy. So much depends on how one wants to live, throughout a lifetime, not just in retirement.

  • I’d agree with Daisy here. It is about one’s dream(s)for when they retire. It’s a good idea to come up with different scenarios though. I, for instance, have five different scenarios from do nothing to make a lot of money by the time you want to bail out of work. You know what? The ‘do nothing’ scenario is actually not that bad. It takes the pressure off the whole thing: we are still going for the ‘programme maximum’ but we are not neurotic about it :).

    • I like your multi-scenario strategy Maria. Makes it easier to draw a connection like “if I want to live like X in retirement, then I must do Y between now and then.”

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