Your retirement number is the amount of money you have were you can live forever, and not have to worry about working anymore. AKA Retirement! Most people use outrageous numbers like $1 to $10 million dollars to retire from age 65 and live for 20 years until age 85. That would make sense if you lived an extravagant lifestyle with lots of bills, but here at MFM we hate bills and are constantly eliminating them. We try to have our houses paid off, our cars paid for; we never use layaway or rent to own. We pay for everything up front in cash and only have the minimum bills.
You should have electricity (unless you go off grid), water (unless you have a well), internet (optional) cell phone (minimum plan), insurances (home, vehicle, medical), food, gasoline, taxes, and some maintenance costs. When I add up my expenses for just my wife and me, if we retired (we are pretending our kids are grown and gone), our total expenses are $1,547 per month or $18,564 per year to live our lifestyle with no downsizing at all. That means to live for 20 years of retirement with no interest we would need $371,280 to cover that. Of course, I will be getting at least 4% on my money through investments, so it would last far longer and give us more travel and spending money. If I want to play it safe I could save for 25 years of retirement and save $464,100, or for 30 years $556,920. Again, this is with no interest and I’m just using straight cash to pay for retirement. I will loose some money to inflation, but my money will be gaining interest, and I could retire on numbers that are much smaller than those reported by most financial institutions. They only want you to save more so they can make more on fees for your larger accounts.
So in summary, you want to save about 20 to 30 times your expenses, and then you can retire if you want, as long as you have done the math. Remember the numbers tell you what you can and can’t do. This is a basic explanation of this and with interest and withdraw rates it can be trickier, but I’m just letting you know not to be discouraged by those large retirement numbers and start saving early and with every pay check. Always pay your self first 20% or more, and max out any accounts you can for retirement. Build confidence with a plan and see where you are going. You can at least know you have a real retirement number to look at instead of some crazy number that making $50,000 a year won’t get you too.
*On a personal note after writing this and checking my accounts I am about a third of the way to that 20-year mark on a teacher salary after working 12 years. I feel that monkey getting off my back faster than I thought! Keep saving and hating those bills.