This Takes Work and Planning
You won’t always be young, healthy, and strong. How do I know this? Personal experience is a great teacher.
As I get older, I see each day that my 75-year-old body cannot do the same amount of work for the same number of hours when I was 30, 40, 50, or even 60. Yesterday I taught an option’s training class, mowed the lawn, and took a bike ride with my wife. I also traded some options. All of these were enjoyable, but I was exhausted – even though I got a nap in the early afternoon. Do you have the plans in place and the tool to know if you can “retire?” How much do you need? What should you think about?
One thing that I did not think about yesterday was paying the mortgage. We don’t have one. I also did not think about car payments, because we pay cash for our vehicles, and then we hang on to them. The 2020 Ford Escape is now six years old, and we don’t need a new car. I also did not think about how to pay the bills. How is this even possible? It comes from a lifetime of disciplined saving, investing, and prudent spending habits.
When Did We Get “Independent?”
Before I answer that question, let me acknowledge that no one is ever really “independent” or totally free. You will serve a master or a Master. Jesus said you can only serve one master at a time in Matthew 6:24. He made it clear what the two choices are, and he said, “You cannot serve God and money.” So don’t be deceived into thinking you are never serving some master.
In addition, James had something helpful to say in James chapter 4:13-17. “Come now, you who say, ‘Today or tomorrow we will go into such and such a town and spend a year there and trade and make a profit’—yet you do not know what tomorrow will bring. What is your life? For you are a mist that appears for a little time and then vanishes. Instead you ought to say, ‘If the Lord wills, we will live and do this or that.’ As it is, you boast in your arrogance. All such boasting is evil. So whoever knows the right thing to do and fails to do it, for him it is sin.”
My “financial independence” came gradually, because I worked parttime for a couple of years just to get some exercise and help others at Target and at The Home Depot. However, on March 6, 2014, at the age of 63 I received my first Social Security payment of $2,002. On that day I was “independent.” But it wasn’t really because of a couple of thousand dollars. Rather it was because our investments grew over time.
On December 31, 2013 our total investments reached $1,433,667.72. My ROTH IRA had a relatively small balance of $80,861.85 and my traditional IRA totaled $1,204,401.97. Today my ROTH has a balance of $1,271,388.79 and my traditional IRA is now at $1,810,309.38. What happened? Time and investment growth along with dividends and income from options trading. Today our total portfolio equals $3,636,766.39. That is after significant withdrawals for major purchases, travel, and for charitable giving.
How Much Do You Need?
The answer to that question varies by individual. Part of the equation is your debt and debt payments. Part of the answer lies in your beliefs about charitable giving and about inflation. Your spending habits, medical costs, and the food you eat all pay a part in the total costs in retirement.
One simple and helpful tool to determine what you need is a website calculator. In seconds you can get a sense as to your financial independence status. The site is “ChooseFI.” The “FI” is financial independence, and this is part of the FIRE strategy: Financial Independence, Retire Early.
The site is free to use, and you just have to enter a couple of numbers. 1) How much do you spend each month on average? If you don’t have a budget, your probably don’t know. 2) What are your current savings in all of you accounts? Is it less than $1,000,000? 3) How much are you willing to invest each month? I said $10,000 because we receive an average of $15,000 per month in dividends. This doesn’t include options income or Social Security income. 4) How old are you? That is optional, but you can see my answer in the following image.
I also played with the numbers, adjusting our monthly expenses from $7,000 to $10,000. Bear in mind that this is a simplistic calculation. However it is a starting point for planning purposes. Furthermore, this calculator assumes the standard 4% withdrawal rate from your investment accounts.
Think About Giving and Generosity
If you are 70 years old you can boost your charitable giving from a traditional IRA. Since 2023 we have given just under $300K from my traditional IRA to various charities. This is a very tax efficient way to give and to cover your RMD requirements.
Let me suggest five: Pick the right master. Invest with a plan. Understand your budget and cut costs. Stay debt-free or get there as soon as possible. Be generous. Tomorrow you might not get a chance to do that or anything else.
One final thought. Don’t stop working in retirement. That is not how you were designed. Yes, the work may be different, but you can still make yourself useful in your church, your community, and in your family. I love the work I get to do. But I am not guaranteed tomorrow. Neither are you.
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