In this post:
A way to look at planning for retirement.
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It’s impossible to perfectly and accurately predict the future, but in the event that you successfully survive until you are eligible to retire, here is something to consider NOW so you’ll be better prepared THEN.
To really simplify this article, my purpose is to share the concept of Targeting.
What: Target your Savings Goal. In other words: Estimate your life expenses.
How: Use information about your current lifestyle to inform an estimate.
Why: To inform your decisions now to bridge the gap between the present and your retirement.
Regardless of your current age, it would probably be nice to retire. Even if you continue to work in some form, you have reached a particular point and the intensity of your day-to-day is a notable fraction from what it once was.
Barring preventative conditions, if we examine current financial circumstances, we should be able to identify various paths to reach a viable retirement result.
How to Target Your Savings Goal:
- Step 1: Identify your Monthly Lifestyle Cost
- Step 2: Select your Life Expectancy
- Step 3: Calculate your Estimated Required Money.
- Step 4: Identify Your Target Retirement Date
- Step 5: Plan your Professional Life
- Step 6: Reevaluate
Step 1: Identify your Monthly Lifestyle Cost
Collect information about your current expenses.
Note: While your income matters in reality, performing this exercise disregards your current income with the express purpose of understanding your current financial lifestyle.
I’m making up numbers in the below example, but the categories below are likely useful as a starting place for your own consideration.
| Item | Monthly Cost |
| Housing | 1000 |
| Electrical | 100 |
| Water/ Utilities | 100 |
| Phone / Service | 50 |
| Internet | 50 |
| Entertainment | 50 |
| Groceries | 250 |
| Insurance | 200 |
| Total | 1800 |
Regardless of your current age, your current lifestyle cost is $1800/ month.
Step 2: Select your Life Expectancy
Do you intend to live forever?
Do you expect to live to be 100?
Perhaps this seems a morbid task, but consider your lifestyle, your genetics, or whatever factors you may wish. Or, you can just pick an age without a reason.
Example: You are currently 25 and based on your family’s lifestyle expectancy, assume you will live until 75.
75 is your Life Expectancy. That’s the end of this step.
Step 3: Calculate your Estimated Required Money.
Whatever the difference between your life expectancy age and your current age, multiply it by your monthly lifestyle cost. You expect to live for 50 years, so your total costs from now until death = 50 (years) x 12 (months/ year) x $1800 (dollars/ month) = $1,080,000.
Over a million dollars!
Step 4: Identify Your Target Retirement Date
It may seem odd to select this prior to speaking to income, but we’ll get there.
Now that you know that you need to account for $1,080,000 to retire, you have some flexibility in your choices. What you will be choosing is the level of pressure you want to apply to yourself.
Example 1:
If you want to retire at a maybe standard age, you might say “I want to retire by 55.”
What this statement means in this consideration is “I want to stop actively participating in the generation of my income by age 55.”
This means that you have 30 years to generate income. (55 [Target Age] – 25 [Current Age])
Since you have to generate $1,080,000 over 30 years, that means your annual income needs to be, at minimum, a mere $36,000.
You will spend $21,600 a year at your current lifestyle cost, so $14,400 will be otherwise available to fund your post-55 years.
Example 2:
Say you are comfortable with the idea of working forever, so your target date is actually 75. You’ll work until you die.
You will now spread your $1,080,000 requirement over 50 years instead of 30, now requiring only $21,600 in income a year. You are red-lining your finances, but what better way to guarantee that you exit this world the same as you entered it?
Example 3:
Let’s say you hate the idea of working and actually want to retire early, so once you hit 35, you’re done.
$1,080,000 / 10 years = $108,000 a year.
You still only spend $21,600 each year to sustain your lifestyle, so you’re now securing the money for the current and four additional years of your current lifestyle with a single year of work.
Step 5: Plan your Professional Life
Now that you have a solid sense of your financial floor to get to your Future Self, you should measure your current situation.
For sake of argument, let’s say you did four years of military service, separated from the military with a fully loaded GI Bill, and just earned your debt-free degree at the age of 25.
At $21,600 a year, your average full time hourly income is… $11.25/ hour.
At $11.25, you are only hitting your “Work Until I Die” stride.
If you wanted to retire at age 55, you would need to bump up your annual income to $36,000, or at least $18.75/ hour.
If you wanted to retire at age 35, you’re looking at $108,000, or $56.25/hour.
This does assume you don’t have a car or spend gas, but it’s easy enough to adjust the math for transportation or really any other expenses you want to throw into the mix.
Maybe you would want to throw one-time events into your calculator:
New Car @ ~$40k
Wedding @ ~$25k
Raising 1 Child to Age 18 @ $240k (A guess)
Regardless, once you understand your annual or hourly requirements, you can now make better plans to acquire the necessary education and/or training to reach those gates.
Some of these may demand very specific windows of time, but you will know where they fit and therefore the financial demand you’re putting on yourself.
“I need a bit more than my current income if I want X by age Y, so I need to position myself (via education, new job, entirely new career field, nepotism, whatever it may be) for a change.”
You may even feel “I can intentionally refuse to progress up the income ladder or otherwise relax because I’m good with my current circumstances.”
Maybe I should try to make a basic calculator for this…
Step 6: Reevaluate
Try to take the time to reevaluate your plans every now and then.
72 Airman's Writings 