You wake up. Go to work. Get home. Rinse and Repeat. For many, it feels like being stuck in a hamster wheel. What if you decided to call it quits and retire early? How much money do you need to quit and sail away? If you’ve ever wondered what it’d be like to walk away from the rat race… this article is for you.
Whether you want to retire and sail away, or you just want to retire and pursue hobbies — that part is up to you. But let’s explore what it takes to make an early retirement (or any retirement) a reality. And since the idea of sailing away has a certain ring to it, we’ll use that as our goal.
Will you work part-time?
The first big question is, will you earn an income in retirement? Some people continue to work in a limited capacity with freelance writing, graphic design, or consulting, etc. Others just live off their investments. Let’s assume you’re going to quit everything and just live off investments. It’s more fun that way.
Save, save, save
Before you cut the cord, you’ll need to earn as much as possible for as long as possible. At the same time, you’ll need to cut your expenses. Cutting expenses is a quick win, while trying to earn more money can be difficult and take longer to achieve. For example, a $1,000 cut in expenses is like a $1,330 raise (assuming a 25% tax bracket). So, gym memberships, fancy cars, eating out, expensive phones, lawn service—goodbye.
The 4% rule
Saving enough money so you never have to work again is a tall order, especially if you’re in your 50s with a long life ahead of you. To figure out how much you’ll need to save, we look to the 4% rule. It’s a rule of thumb used to determine how much to withdraw from a retirement account each year. The 4% rate is considered a “safe” rate, with the withdrawals consisting primarily of interest and dividends, leaving your principal intact. Obviously, it all depends on how big your nest egg is and whether you have other income from rental properties, Social Security, a pension or part-time work. The more you have of the latter, the less you’ll need to rely on your next egg withdrawals.
What will you spend each month?
You’ll need to figure out your monthly living costs. The good news about a boat is, you have limited expenses. Sure, you’ll have to buy the boat. But you can get a used 40-foot sailboat for about $60K. Much cheaper than a house. (And if you’re committed to not being a landlubber, you can sell your terrestrial home, use some of the proceeds to buy the boat and save the rest.)
It seems like tiny home living is all the rage these days. Living on a boat is sort of the original ‘tiny house’. Even though you’re living in 150 square feet, you’ll still have to pony up cash each month for marina fees/docking, boat insurance, food, health insurance, and more. Based on sailing blogs, the monthly cost for a couple living on their boat in the Caribbean is about $2,000-$3,500 a month all-in.
OK, gimme a number
There are a lot of variables when it comes to determining how much cash you’ll need to save in order retire. They include your age, any health issues you may have, Social Security savings, etc. So, it’s very hard to provide an accurate number without having more details especially about your planned lifestyle and goals. But for rough back-of-the-napkin-math, a couple will need to sock away at least $800K into investments in order to live off $3,000 a month. Again, this is very rough math. You’ll need to work these numbers out carefully on your own—or better yet, with a financial planner who can help crunch the numbers and stress-test the results.
Whether you want to leave it all behind and hit the high seas, or retire early and make model train sets, you’ll need to go through a rigorous retirement-income planning process first. But the good news is, if you’re feeling like a hamster, there are ways of getting off of that wheel forever.
It just requires applying that old Boy Scout adage: Be Prepared. Then you can crunch some numbers and dream big.
With a little bit of planning – and help navigating – you’ll be better prepared for traveling the high seas and better equipped for any rough seas that may lie ahead as well.
Steve Stanganelli is a Fee-Only Certified Financial Planner™ Professional, NAPFA-Registered Financial Advisor, and Accredited Estate Planner ® at Clear View Wealth Advisors, LLC. He has been providing financial, tax, retirement, and college funding advice for more than 20 years. For more information or to get your retirement questions answered, email: Steve@ClearViewWealthAdvisors.com
This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions. Or reach out to me, I’d be glad to help you explore your future goals.
Courtesy: LeDoux Brands