We plan for retirement because we know that we may not want to work forever. An artificial retirement age set by our employer may limit our options. Health issues may also dictate when we decide to retire.
With your input, we can help devise a plan that puts you on the road to financial security. The result is designed to leave you with sufficient assets so you can maintain your current lifestyle or pursue new interests that you may develop in retirement.
We can help you with the numbers. We provide you with the monthly income you’ll need after you depart the workforce. But first, let’s ask some basic open-ended questions.
Your goals are your goals. They are not mine. They are not your family members’ goals and they are not your friends’ goals. Your goals play a big role in how you plan for retirement.
FIRE up your portfolio
The FIRE (Financial Independence Retire Early) crowd puts a hefty premium on financial security. Their goal is to clock out of the workforce well before they reach the age of 65. In some cases, before they turn 40.
How do they do this? They trade today’s luxuries and perks for financial independence.
They may save 50%, 60%, or even 70% of their income. Like a runner training for an ultramarathon, discipline and focus are paramount in this approach.
The FIRE savers max out their 401k plan, going well beyond the company match. They contribute to other tax-deferred vehicles such as an IRA. But they don’t stop there. They sock away cash in taxable brokerage and savings accounts.
But it’s not simply about growing their savings. Minimizing expenses is a part of the equation. They skimp on eating out and on vacations. Cars are simple and usually purchased used. Forget about streaming services, pricey popcorn at the movies, or the latest clothing styles.
It’s matinee prices, dollar theaters, and Goodwill. Simply put, they are always looking to cut corners, increase income, and boost savings.
FIRE devotees typically want to save 25 times their annual expenses before they retire. It’s what they call the rule of 25.
For example, if your monthly outlays run about $5,000 per month, your annual expenses total about $60,000 per year. Multiply 60,000 by 25 and you will need $1.5 million in savings before you retire.
FIRE isn’t for everyone. Few folks can save 50% or more of their income. Do you have kids? Are you saving for college? A spartan lifestyle that focuses too heavily on savings is simply too challenging a path for most folks.
If you decide to embark on this road, be careful that you aren’t unwittingly drawn back into the workforce. Those who retire early don’t always stay retired. Meet Sam Dogen. Sam retired at the age of 34 with $3 million. He’s back in the workforce.
There are several reasons for his ‘unretiring.’ He missed the camaraderie of the workplace, and retirement can be lonely. There is only so much golf or pickleball you can play during the week. While his investments lost ground last year, he’s also figuring out that college for his kids is not cheap.
For the Rest of Us
FIRE is an interesting dinner conversation, but most folks want to save for retirement at a more reasonable pace. Nonetheless, we can learn from the diligence these folks display. Might we be able to modify some of the principles FIRE devotees live by? Absolutely! Here’s a more moderate plan:
There are no easy roads, but a disciplined approach that emphasizes consistent savings, a modest lifestyle based on your income, and minimal debt will serve you well as you travel the road toward financial security and retirement. Meeting annually with your financial advisor will help track your progress and help you implement the financial plan to reach your ultimate goal—retiring comfortably!
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
Salisbury • Ocean City • Lewes
Contact
1-800-274-2564
pksinvestmentadvisors@pkscpa.com