While there was a little more follow-up to this interview for Michael Foster's Bankrate.com article, Early Retirement Without a Fortune, most of that made it to the final piece, so this is the final part I will publish here:
How much did you save to retire? (If you don't want to use actual figures: What is the ratio of your savings to your annual income the year before you retired.)
I've never believed in calculating your retirement nest egg based on a percentage of your annual income, so I won't quote it that way. I projected what I thought my retirement expenses would be (item by item). That exercise worked out to be about 65% of my pre-retirement spending level (not pre-retirement income--I didn't spend all of my income when I was working, so that measure isn't very relevant.) That's turned out to be very accurate, although, we've even spent a little less than that.
My nest egg (both retirement and non-retirement savings) totaled 33 times my projected annual retirement budget. This was my target before I retired, as it would mean that I could withdraw 3% of my nest egg each year and most likely not run out of money before I die. (For those retiring at a more "traditional age", the safest rate could be as high as 4%, requiring a nest egg of 25 times annual expenses.) Those multiples are based on the work of William Bengen and produce a pretty conservative approach. I'm not saying it's the perfect approach but it gives you a ballpark number. I think there are ways to do it on less, but this was just my starting point.
How much do you live on a year? (Again, if you prefer, what percentage of your total net worth do you use to retire?)
I didn't consider my primary residence in the calculations above. Again, I figured at some point I could tap into my equity (either downsizing or a reverse mortgage) but didn't want to count on that. That way I'd have a little extra room for error if things didn't go exactly as planned. So, as a percentage of our net worth, we lived on 3% of our net worth, which excludes the value of our primary residence. That was 3% of our net worth the first year. As you know, the market has gyrated wildly, and is significantly down from when we retired, so as a percentage of our net worth, this figure isn't constant from year to year.
We lived on 3% the first year of retirement, and while we expected to inflate our budget over the last 3 years for inflation, our particular basket of expenses overall has not changed overall, so we're still living on about that same dollar amount so far.
What advice would you give to a would-be retiree?
Retirement is a big adjustment. The first couple years will be surprising as you figure out what you want to be doing with your newfound time. Don't rush it. Try to just see where it takes you rather than forcing a pre-determined idea of what retirement "should be."
As far as financially, I highly recommend having 3 years worth of living expenses available in liquid assets so you don't have to be overly concerned about stock market gyrations. (At least for those of us that will be living on our 401(k)'s rather than a pension.)
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