âWell, itâs not really fine, but itâs not why Iâm here. Hell, man, you know me. Moneyâs not my issue. I couldâve retired straight out of MIT, off to some island, let the business run itself. Nobody told me to try and save the planet. I wanted to.â â Kingsman, The Secret Service
Downtown Houston, reflected off a building at dawn. No, I wasnât there at dawn to catch the picture â I was working as hard as Jean-Claude Van Damme at a splits contest.
At some point, Iâm going to retire.
No, not change the low-tread tires on the Wildermobile â I generally like to wait until the tires are completely showing steel before I change them out.
Silly, Iâm talking about working all the time. For money. So this blog is safe.
Some people suck at retiring. I work with one guy who retired six years ago, Ted. About six months after Ted retired, he came back and asked, âHey, have need for me to consult?â
Although Ted decided he wanted to retire (and got the cake, party, and everything), Ted wasnât really ready. He keeps coming in to work even now after six years. Thankfully Ted has a unique perspective and awesome experience on technical systems that can help train some younger workers, so itâs a win-win. But heâs not ready to retire. That switch that says, âhey, Iâm done,â or âhey, if I have to go to hell itâs worth it to never see you people again,â or, âI never, ever, ever want to live in this soul-sucking environment again,â never flipped for him. And I donât think it ever will.
Work for him is still a big part of who Ted is, the definition of himself when he gets up in the morning.
For a long time I was with Ted. I could no more see retiring than I could see Kim Jong Un and President Trump forming a âGuys Onlyâ fort in the Oval Office and sending the secretaries out for chocolate milk while they watched Loony Tunes® cartoons on a Saturday morning before Mom picked them up to take them to the skating rink and the movies after.
But recently? Yeah. Iâve started to think that Iâll retire one day, and thatâs what this is about. (The decision to decide to retire is a different post.)
Iâve discussed retirement before in the best and most comprehensive article ever written on early retirement strategies (LINK). But that article was focused on people who retire young. Which would be less than 1%.
Letâs see when people really retire, based on 2015 Census data, as analyzed by LIMRA SRI and as I found on Financial Samurai (LINK).
This excludes people like Abraham Lincoln who exit the labor force for other reasons, of course.
Most (68%) of people retire at age 65 or earlier. This makes sense, but first Iâll have to introduce a self-serving concept and graphic.
Letâs talk about John Wilderâs Iron Triangle of Retirement Fate (JWITORF).
I made this graphic at great expense, after paying Freddyâs Advertising, Kites, Etc. $2,300 and waiting six weeks for delivery as it came on a container from Shanghai. Oh, wait, I threw it together in 5 minutes.
Regardless of the cheese factor of the graphic, John Wilderâs Iron Triangle of Retirement Fate does explain pretty neatly how retirement works, and why people wait so long to do it. So, why 65? Statistically speaking, youâre at or near your maximum wealth as you near age 65. Additionally, you have a reasonably long life ahead of you (statistically speaking) but not an unreasonably long life. Presumably, youâve also reached the age of wisdom where youâre smart enough not to blow through your retirement cash on cruises, vacations, PEZ®, pantyhose, and chocolates.
But letâs look closer at the Quantum Entangled Boxes at the Vertices of John Wilderâs Iron Triangle of Retirement Fate (QEBATVOJWITORF). Or, just the boxes with words.
The first one weâll tackle is:
- Lifestyle
You can upsize lifestyle to spend virtually any amount of money including a fortune the size of Johnny Deppâs $650,000,000. The world entrusted $650,000,000 to Johnny Depp over the course of 31 years. . Heâs kinda broke now, since he buys mansions at the drop of a hat, and his personal expenses run to about $2,000,000 a month. His security alone costs $300,000/ a month. And hair gel? Thankfully he saves on soap and shampoo.
My needs are a bit more modest. Most planners say you should expect to spend between 70% to 80% of your take home pay when you retire. But others say you only need to plan for 50%. Or 100%. Or . . . more!
Part of the problem is that their guidelines assume you spend everything you make. If you have the ability to save (like in the earlier retirement article LINK) a very large proportion of what you earn, these metrics donât make sense â you might only need to replace much less than half of your present income, since youâve radically reduced your lifestyle and eliminated many items . . . like security for $300,000 a month.
Lifestyle is a retirement variable that you mainly control. Get a budget and live by it.
Biggest risk? Healthcare. Who knows what thatâs going to cost â might be $60,000 per aspirin by 2019. You donât want to guess what calf implants will cost . . . .
- Longevity
If youâre dying tomorrow, like Abe Lincoln, you already saved too much for retirement. If youâre going to live another 80 years, you donât have nearly enough.
When I first started looking at retirement with a spreadsheet and projected assets and lifespans, one fact popped out at me: the earlier you retire, the less you earn, so your retirement savings will be less. And you will pull money out sooner since you donât have a salary anymore. Sure, it sounds like a âduhâ conclusion, but once I put my numbers in and played with it, it began to make perfect sense.
So, if you retire early, it helps if you die early, too. And donât forget your spouse! If theyâre much younger than you, you might want to try to convince them to pick up smoking, skydiving, BASE jumping, and prison boxing so they donât outlive you by too much. Youâll thank me for it later.
Outside of shortening life, you donât control tons about your longevity, either. Biggest risk? You outlive your money and so does your spouse and you get a never ending stream of âI told you soâ when youâre 90 but she just uses a crutch and can beat you and your walker. Thankfully you can be a burden to the state and your children at that age.
- Amount of Money You Have
This is (mostly/kinda) in your control, too. Bill Gates has billions of dollars saved for his retirement, and I know some people who work a whole year and donât make a billion dollars. Okay, I kid. But I am certain that you could save more money than you are saving right now. Part of the value is adding additional money to your savings, but the other value is in reducing your lifestyle and knowing what you really need.
A second portion of your money will come from your 401K. Most of these are a really good deal, since you company will give you free money to add to your savings. They do this to encourage you to contribute, since a portion of their bonus is based on how much you contribute.
Pensions are awesome if youâre part of the 0.0001% of private sector jobs that still have them. If youâre working for the government? Yeah, I guess you can count on* that.
Social Security is a real thing â and one that you probably can count on*.
*Bigger risks?
- Inflation (hereâs a LINK to my commentary on how thatâs inevitable in our current monetary system).
- Budget deficits (hereâs a LINK to my commentary on what the likely impact of our deficits is).
- Economic dislocation (hereâs a to a discussion on Bitcoin and how it can disrupt economic systems).
Best idea now? Max out your 401K and savings. Understand what lifestyle is really necessary and what you have to do to pay for it, both in dollars today, and in years of your life in the future.
John Wilderâs Iron Triangle of Retirement Fate© . . . ignore it at your own risk. Assuming youâre not going to be like Ted (and 10% of Americans) and work past 75 . . . heck, I might have new tires on my car by then . . . .
John Wilder is not a professional financial dude. Consult your attorney, financial planner, or shamen for real advice. Â
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