Retirement Planning

Lifestyle creep: Is it killing your early retirement?

I have recently come to realize a couple of key things about the SSC household finances. First of all, I realized how out of touch with them I really was… Bad Mr. SSC! Secondly, holy crap are we living way below our means! Way to go SSC family! “Why do I bring this up?” you ask, well… let me tell you. I am personally shocked by how little we live on, given the state of our financial comfort and relatively decent salaries. Yet, I don’t feel slighted, I don’t feel broke, and even more importantly, I don’t feel like I’m wanting for anything. We’ve discussed in other posts, where the money goes, and what our budgets are, and how we got to where we are by diligent saving, and yada, yada, yada. I point to something else as a larger reason that we are in the situation we are today – I think it’s that we have mostly avoided lifestyle creep. That’s year to year creep, like my waistline, slowly expanding until one day I wake up and think, “When did I get fat?!”

I started thinking more about lifestyle inflation the other day after a late night of perusing Facebook. I noticed a friend, let’s call her June,  offering up her used clothes dryer for sale for $150 obo. She also offered the washer with it because it was broken, and since her new washer didn’t match her old dryer, well of course she needed a whole new set. June listed the make, model and all that, so being bored I decided to look it up. It was an $1,100 dryer! That got me thinking, “Man, I bet the washer could be repaired for less than $500 even if it was a motherboard replacement or some other circuitry issue.” Another friend pointed out “the steal” and the fact she was giving up an $1,100 dryer for 10% of the original cost. She pointed out that the new wouldn’t match the old, so please someone come get them.

Then, I thought back a few months ago to June lamenting being “car poor” because she had a plumbing issue come up and needed funds to fix it and repair the damage to her ceiling, dining room, etc… This was after she had just bought a new Camaro convertible and her husband bought a new BMW X5 within the same month. Sure, the SSC family could be doing the same thing, but I realized that we have avoided a lot of that buying for buying’s sake. We caught ourselves doing that early on, and realized we could cut the credit card by 20% each month just by asking, “Do I want it or do I need it?” We found out we don’t need a lot of things we had been buying. Also, by being mindful of our eating out, and switching it to allowances, we were able to cut a lot of spending there. So now, it’s pseudo-date like in that if we eat out, one of us pays from our allowance. Unless it’s sushi, when Mr. SSC always pays, or now we’ve decided going dutch works too, mainly because, “I eat 3x as much as Mrs., SSC.” But to the real point, we’re accountable for eating out and that saves a lot of $$.

Here’s where I am going to go on a sidenote rant though. Mrs. SSC was just telling me about having lunch with some co-workers and how they were talking about all the restaurants they go out to eat at, and have you tried, here, there, etc… These are all people a little older than us, but basically single income providers with stay at home counterparts. Let’s call one of them, Ted. Ted was talking about how he buys breakfast and lunch at work. That has to be about $15-20/day! I know, I’ve also eaten there, never for breakfast, but for lunch, and it’s essentially restaurant prices. So ~$100/week for food at work. That’s almost $5200/yr to eat at work. Ok for me to hear it put like that, it doesn’t sound like much, but that’s because I have no good sense about money. BUT, if you think of it in terms of, if you invest half of that, assuming you bring your lunch, and save $2500/yr those investments can add up to way more than a “tasty” lunch and breakfast each day. Back to the “creep” talk.

Another way we avoided creep was technology creep. I just don’t get keeping up with the Joneses in regards to Apple’s latest iPhone, or Samsung’s latest phone or the newest tablet, or anyone remember the days of GPS? When Apple came out with the first iPhone, so many people I knew, broke or not, were suddenly coming up with $300-$400 for a new iPhone, even though their old phone worked great. They were showing off apps and having loads of fun with it and I thought, “But my phone is fine, and doesn’t eat up a lot of pocket space, and works great for me.” Even with subsequent releases I would hear people lament, “Oh woe is me, I have an iPhone 4 and they just released a 5! I knew I should’ve waited, and now I have to wait 6 months to turn this old 4 in for a brand new 5!” And they had just gotten their iPhone 4. My family (blood related not SSC family) is notorious with getting a phone and using it for maybe 6 months or less, and getting another phone, not realizing the crazy costs associated with constant phone upgrades, but they add up! The “free phone” with a 2 yr contract is ridiculously expensive, when you price out buying it like on T-Mobile’s plans. (this is not an endorsement for T-Mobile. I don’t like them, but they’re lower cost, so it’s a concession I made with Mrs. SSC).

The point of how much we’ve avoided lifestyle creep was driven home to me the other day when I got an update on numbers, retirement dates, retirement income possibilities, etc… from Mrs. SSC. She’s constantly running numbers, adjustments, different forecasts and the like and letting me know where we stand and whether or not 2018 or 2019 is doable for retirement, or if it’s as late as 2020! Gah! She sent me a number and pointed out that in our early retirement, we’re going to essentially be living with an extra ~18% of buffer money than we currently are living now. 18%! I was shocked! Not that we’ll be living more comfortably in early retirement, because it’s pretty comfy now, but just that we’ll have that buffer there and it will be more than we live off of now. Ridiculous… When we get to 60 and our 401k kicks in, it will be an even bigger cushion, restaurants here I come! I’m just astounded that by avoiding throwing away money on things like new cars every 3 yrs, or new phones every year or new tablets every year, we have been able to get to early retirement that much sooner.

And getting back to that lunch Mrs. SSC was having with her colleagues. Besides Ted and his food habits, there was “Mary” who was talking about having a rotating shoe rack in her closet so she could store and view all her shoes. WTF, who does that? Do you do that? Better yet, who needs that? Another one was talking about something else that made Mrs. SSC think, “Are we cheapskates?! Are we living like suckers, “cheaping” it up to retire early?!” Then she realized, by the time we’re their age (~6-8 yrs) we will have been in our retirement home for hopefully 1-2 yrs relaxing fixing it up and spending more time with each other and the kids. So, no, like I’ve said, I don’t feel deprived, or broke, or like I want something and can’t afford it. I am looking forward to being able to house hunt for our retirement place in another 5 yrs, and enjoy sitting on a back porch or deck somewhere soon, just slowly sipping my coffee.

How do you define retirement?

“Retirement isn’t the right word anymore”, is the phrase used by an article that I was reading recently. It was describing how people used to see retirement as, You hit 65, quit work, and sit around and get a pension, living out your golden years, or even more generally, you stop working and life slows down.

Anyone that is reading this blog has probably come across Mr. Money Moustache, and other blogs and heard them referencing the “retirement police”. These are the trolls or just misguided folks who seem to prefer the, “If you are working, then you’re not really retired” type of definition of retired. I say ballyhoo to all that, and I prefer to describe our upcoming change in life as a pre-tirement, stay at home parent type of thing. Real specific huh? I will likely work at some point, but chances are it will because I want to, not because I have to – so bring it on retirement police!!!

The biggest difference I see in those that define retirement as “You don’t work” is that they see work as a financial obligation and not a choice. Simply put, I will see it as a choice I can make and decide whether to participate or not. If it gets to be no fun, I can quit and not stress about bills, getting another job, and how this short stint may affect my resume, or even next job application. I have no doubt that I will work once I quit my corporate job and transition to stay at home dad. I’ll bet even more on the fact Mrs. SSC will also work in some capacity. We’re hoping to move to a place with a small college, so that either one or both of us may be able to teach. Also, we will be in a place with outdoor activities, which means there should be some outdoor stores, possibly even flyshops and I wouldn’t mind spending a few hours a week getting to talk shop about good trails, nice hikes, good fishing spots, what’s biting, what flies are working, etc… Yeah, they’ll come with mundane times of inventory, restocking, setting up displays, yada yada yada, but I’m too social to start sitting around in my recliner watching golf and holing up at the house for weeks on end. 1) I can’t stand watching golf, even for background napping noise; 2) I need a better recliner; and 3) why the hell wouldn’t I spend more time outdoors now that I don’t have a job chaining me to a desk?!?!

Actually just this weekend, I was double checking with Mrs. SSC that our current dream retirement town has a ski resort/big hill with lifts that take me up, so that I can snowboard down. I don’t need anything huge like Vail, or Breckenridge, I prefer the smaller places like Loveland Pass (usually empty and a LOT of fun runs). The point is we were talking about being able to get the kids to school and hit the slopes for a bit when there’s fresh snow on a Monday, or maybe Wednesday, or whenever there’s fresh snow. So working at an outdoor outfitters  and being able to relay that info to tourists looking for nice runs on the slopes, sounds like a fun time for me. If you couldn’t tell from my posts, I can be quite a Chatty Cathy if you catch me on a topic I like. Topics that I’m not knowledgeable about, or don’t find very interesting though, can be a lot harder to discuss. For me, financial management is one of those. I can discuss it very thoroughly, but what I can’t do is explain “good financial management”. Actually, I can regurgitate what everyone else says you should do with your money, but I would have a hard time showing how to apply it in your life. I’m not financially minded, and except for the means to an end aspect of it, I could do well with not ever reading any more finance articles in my life. It just doesn’t do anything for me, so I can assure you, in my retirement, I will NOT be doing any financial advising, seminars, or anything related to that. Come to think of it, it does sound like an easy way to make some coin, “Come to my seminar and find out how you too can retire before 45!! For only $200, I will reveal my “secrets” to early retirement and you too can tell your job to shove it! (individual results may vary: especially if you don’t marry well, invest well, or marry someone that does both, oh and nice incomes to fund the retirement nest egg are also strategic and advised).  Sounds like every other seminar I see ads for on tv, but rest assured, you won’t see Mr. SSC on your television shilling for your hard earned dollar.

Fishing shouldn't only be done on vacations!
Fishing shouldn’t only be done on vacations!

So back to the point of this post, what do you see as “retirement” and why is it that we have retirement defined in our head as “no work, receiving pension, take up gardening/golf/fishing/knitting? My Grandad was scared to death of retirement. In his family, people quit working and then died. I mean literally died within a few months or less of “retiring”. He finally retired at 72, and fortunately made it another eight years, but he could have retired way earlier as he was at FI way before most people. He fit more of the traditional model, doing more gardening, volunteering, and staying active, but not anything that earned money, just satisfaction.

For me, I’m scared to death of 80. Except for the senile and decrepit few in my family that made it to their 90’s, most people in my family die by 80, if not well before. No wonder I need to retire early, I’ve got a clock ticking down people! Actually, we all do but I just don’t want to be one of those people that I see emails about in my office. At my last job and this one, I have gotten emails about so-and-so was diagnosed with “blah” and is terminal and going to spend his last days with family. Then a few weeks later, you hear so-and-so passed away and will be missed, and I read, hit delete and get back to work thinking, “Lord, I have got to retire soon and get out of this office.”  A good friend of mine back in LA worked his whole career, finally got to retirement, had all of these plans made, and got a virus and died 2 weeks into his retirement. 2 weeks, and 1.5 of those weeks he was sick. What a pisser. Retired or not, I still see myself working to some degree, whether it’s at a job with a paycheck, making wooden stuff at home and selling it on Etsy or some other e-commerce platform, or maybe just playing bluegrass and getting the occasional gig. Who knows? But, I know that I’ll have some internet police giving me the business when I mention “work” and retirement in the same post. Until then, I’m still working and counting down the days until I can define my schedule, job, and what retirement will be like for me.

How do you see your retirement taking shape? Will it be more of a traditional model, or more of a FI approach where you can choose where and how you want to work if you choose to work at all?

Hurry up retirement!

I'd rather have a mountain view than look at this all day!
I’d rather have a mountain view than look at this all day!

So you’ve been noticing that I’m very bad with financial decisions, getting better, but seriously it did take me about 6 years to realize that this whole FIRE thing really would work out and we could retire in another 4-6 years without our current lifestyle being affected. You’ll also notice that  one of my big hang-ups is to not retire and live off of Ramen in an RV park somewhere (not that there’s anything wrong with that). So, here we are ready to go, just sitting back and investing and saving and planning and now that I’m fully aware of our situation, it has become the foremost thought in my head most days of the week, I close my eyes and see a giant ‘Retirement Countdown’ clock ticking.

I remember once when I was eight thinking to myself, “OMG, I’m never going to be 16, that’s like 8 years from now, I’ll never get my license to drive!” Every year I would count down 1 year closer, but my goodness it was brutal and agonizingly slow. Sort of like Christmas as a kid. I would look forward to it and the magic of it with the decorations, cold weather, fires in the fireplace, holiday dinners and music, culminating with the opening of presents on Christmas Day and more food. And then January, I would start counting down to Christmas again and it would seem to take forever. I think I’m probably OCD somewhat in that I have lots of countdowns going on for lots of things. Let’s see, there’s the “build a banjo before 40”. I made the neck, pot, fretted it, and essentially just need to put it together and then the kids came along I need to finish it before 40 due to an errant sentence by Mrs. SSC “one day, you’ll look up and be like,  I’m 40 and haven’t even finished that banjo”… There’s the weekly countdown; only 4 days to the weekend. Vacation countdowns -only 2 weeks before a week off for Christmas. There’s the countdown to death, morbid I know, but I see 80 as that scary crossover point. IF I get to 80, it will be a great achievement, but every day after that will be like a gift of sorts. Most people in my family die around 80, if they even get to 80, hence 80 being the magic number of death. There’s the” start a bluegrass band when I don’t need the money from it to live on” countdown. What’s the difference between a banjo player and a large pizza? The pizza can feed a family of four! Hahahaha That countdown has gotten moved up quite a bit. There are plenty more, but I don’t want to get too off topic and you’ve probably quit reading by now and I’ve probably made my point.

The newest and loudest countdown is currently the countdown to FIRE, and OMG is it loud!!! Every day I think, only 2 more months until 2015, and then only 4 months until April, and then only ~4 years left. OMG there’s still 4 whole years left! Did you see my trick of breaking it into shorter chunks though? Those seem to fly by! Two months here, 4 months there, next thing you know, we’re halfway there, which is only 2 years and 3 months away…. Seriously, it’s kind of disturbing in here sometimes. I’m not like Russell Crowe disturbing in “Beautiful Mind” but it can feel like it sometimes. I need to figure out a way to get this on the back burner of my brain, but for the life of me I can’t. I can’t get it back there or get it to quiet down.

Remember the post about the cruise and noticing the Miller’s “Boat-tober 2014” shirts and thinking, man, that’s probably a lot of coin spent on shirts that may get worn 2-3 times? Well, that revelation helped me to  start noticing the other extravagances that people were sporting. Even more mundane, I was a little proud of myself a few months ago when I realized that if I took the second on-ramp to the toll road to get to work, I could save 45₵. Yep, 45₵. I even calculated (while driving of course) that if I did this every day  I could save about $80/year. I told Mrs. SSC and then she noticed the same except on her drive, getting off one exit sooner does the same thing, so that’s an easy $160/year we just saved. More recently, I was testing a new route on my commute, and found that I could not only save 3 minutes or more on the drive to work, but also entirely avoid the toll road doing so. That’s close to $275/year saved, and I save time on the drive in. You’re probably focused on the fact that I’m proud of saving 3 minutes on the drive, but this is much like the countdowns. I know how many minutes it “should” take to get somewhere and how many minutes I’m ahead or behind of the normal schedule. For instance, it should take ~17 minutes to get from my office to a certain on-ramp, lately I can’t get there in less than 24 minutes. Disheartening… It should take ~10 minutes to get through the elevated portion of 59 southbound on a good day, slow days 14-17 minutes. Slow days, I can get through downtown surface streets bypassing that section in 12 minutes.

Back to the point of this post. How do you get around not having FIRE at the front of your brain all day every day? I’m really expecting some buyers’ remorse when I do achieve it and can tell work I’m retiring. I need to figure it out soon though, or maybe embrace it and just try not to get overboard with it. The blog I thought might be good getting out, exorcising some the demons so to speak, but instead it seems to be “exercising” them and just making those thoughts stronger and more entrenched. Which has its side benefits, like saving money on tolls, and I’ve broken my “trolling the internet looking for anything to buy” habit and my allowance account has been uber-positive this past year, and my appreciation of what I have has grown, as opposed to constantly wanting more and more. Maybe it’s not that the countdown to FIRE is loud in a negative way, I just think it’s going to be a LONG time getting there. And I realize anything can happen to derail that timeline, but until then, I’ll be thinking about what to do in another 4 years and 6 months….

 

* Mrs SSC: I apologize, I believe Mr. SSC drank fifteen pots of coffee this morning…

WTF: I need HOW much to retire?

  • Do you need 70% of your income just to live off of? According to  most financial advisors,  “you should retire with 70% of your pre-retirement income to maintain your lifestyle when you retire.” Some advisors even recommend 80-85% of your current income! What kind of lifestyle are they referring to? For instance, Mrs. SSC and I currently live off of ~50% of our income, and use the other 50% for investing, saving, putting towards reaching Financial Independence Early Retirement (FIRE). However, one key factor that most of these financial advisors and even yourself may not take into account (because I know I never did) was what bills are you paying now that you won’t be paying in 5 years, 10, years, etc… For instance, we have daycare, full time for 2 kids that runs about $2,000/month, which is ~$24,000/yr. That’s a LOT of money! But, we’re not going to have that bill forever. We’re going to get to leave that bill behind and suddenly be $24,000/year “richer” in about 4 more years when the kids go to school. If we take that into account, we immediately need less than before to maintain our current lifestyle in retirement.

Another assumption is that we will stop putting money into the kids college funds. We’re saving fairly aggressively right now, but we feel that we will have enough saved for them to go to a state school, assuming there are no scholarships, grants, or other means to help out with college tuition. If they want to pursue graduate school, I would support it, but I feel that no one should pay for a graduate school degree. I got a full ride for graduate school, as did my wife, and I can assure you my grades were not stellar, but I was able to work hard and get accepted into the program I wanted. The point is most graduate programs that are worth pursuing offer research assistantships, Teaching assistant positions, and more as well as cover tuition. Getting back to finances though, this is another cost we’re paying out each month that will immediately save us on money that we won’t need each year in retirement. For us, another one is mortgage. We plan on saving enough to cover our house when we retire and move so that we won’t have a monthly mortgage. This is another HUGE cost savings (not as much as daycare), but still, this again cuts our monthly bills for retirement.

Mrs. SSC did a post explaining our current needs/monthly bill assumptions with her spreadsheet. I looked at this spreadsheet off and on for years before it sunk in that, we really can do this, and keep our current lifestyle. We will be doing it living off of ~20% of our current income, pre-retirement levels. Yep, about 20%. Your number will most certainly be different, maybe it’s 40%, maybe you can pull off 15%, but the point is you’ve looked into and found a number you would need for your lifestyle and your current income and you didn’t take the blanket statement that you’ll need 70-85% of your income. More to the point, you aren’t listening to all those yahoos that keep saying, WHAT?! You can’t retire before 60! How are you going to live?! You can’t access your 401k until you’re 60, what will you do for money?!” Yeah, let those guys keep working that long, and in the meantime, figure your number out and start working towards it and living life on your terms, not the naysayers.

The more I have looked at our numbers since my initial realization that we really can do this, the more I’ve come to realize a few things.

1. When we hit 60 and can access our 401k’s we’re set! Meaning that the money that has been growing in those accounts will allow us more income/year than we have been living off of the last 7 years, and most likely the next 30 years. Besides being able to already live within those means, we will be back to having even more extra money to spend. We can use it to go see the kids, grandkids, if we want to travel more, or who knows what we may be in the mood for then.

2. We live pretty comfortably off of way less than we bring home. When we got out of the habit of just purchasing things because we “wanted” it and didn’t need it, it saved a lot of money that we were able to put towards retirement. Tracking our spending helped with that a LOT. If you’re not tracking your spending in some form, you should start. NOW. It’s amazing.

3. I’m no less happy now than I was when I was spending willy-nilly like I had all the money in the world. It’s like buyers remorse. Sure, you feel good about that Amazon purchase, and sure you really did want that thing, but then it gets to the house and a few months later you realize you don’t even use it… Ugh, the money I’ve wasted on late night comfort buying.

4. Having a goal of FIRE and working towards it makes me even more conscious about how I spend money, and areas where I can save money. I used my allowance to surprise Mrs. SSC with a short cruise to celebrate our anniversary recently. It was a good deal, we can drive there, and it was only a 4 day cruise, so it was more about getting to spend time with her and relax, while the grandparents watched the kids. While standing in line to embark on the cruise, we were both struck by the thought of “how much money people waste on useless things.” The amount of people with matching bedazzled shirts, boas, tiaras, etc… for their cruise groups, or better yet, matching monogrammed luggage (it was only a 4 day cruise…), and even the families with matching shirts and slogans like “Miller’s “Boat-tober 2014”. Anyway, we both commented on it to each other at about the same time, mainly due to the lavishness of a group or two near us in line.

How much of your pay do you actually use to live off of? If you’re not tracking it, you should start, and you will probably be surprised by a few things. First, is how much money you probably waste on little things without even knowing it. We realized we were spending about $300-$400/month at Target for nothing. Just random,  “oh we could use this, Oh that’s cute, put it in the cart” type of spending. That could be close to $5,000/year we could have been saving. Now we go to Target once a month, and have a list of what we need when we get there. The second is probably how little of your income you actually need to live off of. Granted everyone’s situation is different, and many people probably have car loans, credit card bills every month, cable, cell phone, and other bills and other things that they think that they really need. Or if you are like me and are just finding out about FIRE, then you read some of these people’s blogs and think, “No way in hell am I going to get some ghetto cell plan, get rid of cable, bike everywhere, ALL the time, and cut out all kinds of other comforts, just so I don’t have to work. I don’t hate my job that much, heck I even LIKE my job, why would I want to quit and eat Ramen and crackers? No thanks!”

That’s how it started with me. I realized early on, there were a few different camps that FIRE people seemed to fall into. One that turned me off from FIRE was the “I’ll do anything to not work” camp, and that could include moving into an RV, eschewing all comforts of life for the cheaper version of everything, and ultimately being very cheap, not frugal, cheap…  Not that there is anything wrong with that, if that lifestyle works for you. I didn’t like living on $25,000/yr when I was single and in college (actually, I’m pretty sure it was less than that), but certainly not now when I have 2 kids, a wife, and I realize I like the comforts that my career choice, and current lifestyle offer. Especially, growing up poor and knowing how it feels to not be able to do school activities due to no money being available, or even scrounging for money for lunch each day, or constantly worrying about money as a child because my parents were horrible at managing finances well and we were the poster child of living “paycheck to paycheck” with no real savings, emergency fund, any of that security. I don’t want my kids to experience that, and I choose to not go to extremes just to retire early.

So what did we compromise on to be able to achieve early retirement? Not a lot really. I mean, we didn’t spend all of our income to show the world that we could afford to drive fancy cars, and live in fancy houses, and wear $200 sunglasses, and expensive clothes. We’ve put that towards retirement instead. We don’t buy the newest phone or tech gadget just because there is a new one. I’ve had my same smart phone for over 2 years now, and it still does everything I need to even though it’s only a Galaxy S2 (EEEP! S2, but they’re up to S5 now!). We eat well, but make most of our food at home, and if we go out to eat it comes from one of our allowances. We realized we saved ourselves a lot of money just by switching eating out to coming from one of us personally. Also, clothes come from a personal allowance, so you can get as nice or shabby clothes as you choose to buy without affecting the family finances. Ultimately, we may have times where we spend money on “needless” things, but we are consciously doing it and make the choice that it is worth it, like the cruise. No one needs to take a cruise, ever. They can be a huge money trap depending on what you do onboard, but we enjoyed the quiet time reading and relaxing on our balcony, and getting to relax for a few days without the kids. It was forced relaxation, because where else are you going to go?

Ultimately, we didn’t read the news articles and finance articles saying “you need 70% or more of what you make today to retire comfortably!” and then think to ourselves, “Well, we’re never going to get to retire.” You shouldn’t do that either! We analyzed our spending, bills, etc.. and found the number we needed and are now working towards it. Within 5 years, we will be able to take the kids to school, come home and have some coffee on the back porch before we get to what it is we’re doing for the day.

What’s your number, and how close are you to getting there? Are there things you’ve done to be able to get there sooner than most of America? Let me know!