In my previous post, I shared my experience with Betterment’s new RetireGuide. Running those numbers was an eye-opener that I need to get a more specific plan as to what retirement looks like for me. In pondering this, I’ve come up with an interesting idea of how my remaining working years could play out.
Step #1 – Define my retirement
This is a ridiculously huge task that I won’t be able to fully answer here (or perhaps ever). Over the past year, I’ve wondered how I can avoid the traditional concept of retirement and opt for something different. I could work my ass off at a job I may or may not really care about for the next 25 years and stockpile money to live on when I’m old. Or, can I take lots of mini-retirements (let’s call them my MR’s) over those years so I can slow down to enjoy life in the present and not just when I’m an awesome old lady? How about working on a big, challenging project for two years, followed by a six-month break to take a cycling trip abroad and catch up on my reading? Or taking a two-month break to nest in my home, rekindling the relationship between my cats and my lap? I think this could be done, but is trickier to handle than continuous employment. Some fears that arise:
- Will my employer let me take an unpaid leave of absence and then return to my job?
- If I have to quit my job for an MR, what if they decide to not hire me back or it takes me several months to find a new job?
- How will this choice impact my long-term finances in the “prime earning years” of my 40’s and 50’s?
- If I am out of the workforce for too long, will that reflect poorly on my employability?
Hmm. Valid concerns that could potentially be managed with lots of preparation, networking, and a little good fortune.
Step #2 – Determine my savings plan
Traditional retirement seems a lot more straightforward; I set an age goal for when to stop working and plan everything towards that date. With this new plan, I still need a goal for leaving the workforce completely, but also need to ensure that my MR’s are funded along the way.
According to RetireGuide, if I save $17,800 per year until age 65, I should be able to spend $55,000 annual in retirement. My two issues with this are:
- I’m not sure if that will be enough to live on in retirement. My mortgage will be paid off in 27 years if I don’t sell or refi, so $55k could be realistic with that payment gone (but property tax and HOA fees will remain).
- I need to account for months/years I will be out of the workforce on MR’s and not contributing.
My current 401k contribution and employer match puts me at $15,200 annually; add another $260 per month to my Roth-IRA and I’m on track for that goal.
Now the harder part is assuming I’ll take a 4-month MR every two years and that I’ll need $20,000 for each one ($5,000 to spend each month). This would require savings of $625 per month (each 32 months leading up to the next MR) to hit that goal. This could be conservatively invested in Betterment with a potential return of 3-4% to get me there faster.
That makes total annual savings of at least $25,300. That’s a lot, but I think I could do it.
Step #3 – Put savings plan into action