We talk about our retirement like it’s a set date in the future, yet almost nobody can point to a calendar and say exactly when that will be. It’s just some idea residing “a few years from now.” Surprisingly, calculating our retirement year isn’t really that difficult. This post will advocate for a sustainable retirement and provide a free calculator which you can use to learn exactly when you can kick back on a beach in Cancun without ever worrying again about returning to the office!
First, let’s look at your three basic financial options for retirement:
(1) For some people who haven’t saved any money, retirement comes the day they start withdrawing from Social Security or an employer pension plan, assuming that their expenses are equal to or below what these plans pay out each month. Depending on your exact plan this is usually between your 62nd and 70th birthdays. Given the American life expectancy is 79 years (source: World Bank), this means you’ll only enjoy 9-17 years of retirement before the US government thinks you’re ready to bite the dust. However, since you’re taking enough interest in your retirement to make it this far into a blog post I’m sure you’ve got the stuff to make out a little better than that.
(2) You work really hard and save a lot of money under your mattress, or maybe even throw it in a savings account, until you’ve accumulated enough to pay all the expenses you’ll have after you retire (and don’t forget to adjust for inflation). To keep the example simple, we’ll assume Social Security is bankrupt and you don’t have an employer pension plan. In other words…nobody is giving you any money once you retire—it’s completely upon your younger self to fund your expenses in retirement. In this scenario, since you are using your savings to pay for expenses, your overall amount in your account is constantly decreasing. If you live longer than expected, or your expenses increase, you run the risk of going broke at the tail end of your life. Although better than option (1) we do not recommend this method as it is not a sustainable retirement.
(3) Congrats! You’ve arrived to the only sensible option: a sustainable retirement; meaning you can retire forever and never worry about running out of money. The concept is similar to option (2), except instead of just stashing away all that cash and slowly watching your expenses and inflation erode it away, you invest your retirement with the intent of growing your bankroll. I’m using the term “invest” generally here—there are way too many investment vehicles (stocks, mutual funds, bonds, real estate, etc) to discuss in one blog post. The key that makes it a “sustainable retirement” is that you only withdraw money from the earnings on your investments; you never actually touch the original investment. This means you’ll never run out of money–ever; hence the “sustainable” piece. You reach the sustainable retirement threshold when your expenses are less than the return on your investment.
A few notes on sustainable retirement: (a) the power of reducing expenses now and throughout your future life is much more effective than the power of making more money, and (b) you will need to make several key assumptions, including your expected rate of return, expected inflation rate, and your expected change in expenses from working to retirement. Lucky for you, the calculator we’ve made already has the historical average numbers built into it, and you can modify them if you think you can make out better than the average Joe.
Sustainable retirement is hands down the best way to retire without stressing about money. You will never go bankrupt regardless of how long you live, you will never have to rely on government or employer retirement plans (those are just a bonus!), and you’ll be able to devote all the time, energy, and stress that most people spend planning and worrying about retirement money to other life pursuits (like natural health and positive energy!).
To spare you all the nitty-gritty mathematical details, we’ve created a super-easy sustainable retirement calculator for you. Open the Excel document at the red link below and simply input your data in the yellow cells. Your retirement age will magically appear in the green cells!
We encourage you to play around with different numbers. We’ve included a few examples to get your mind in the game. Focus on reducing your expenses and see how many working years of your life suddenly get converted to years of sustainable retirement.
The calculator is best when viewed on a computer. I’m still working on the mobile-friendly version!
Bottom Line: Sustainable retirement is achieved when your return on investments pays for your life expenses.
Did you find this post interesting? If so, check out our website at www.minmylife.org. If the subject material of this blog post caught your attention, I recommend starting with our sustainable finances page.