My Father was equally as rich. What do they have in common you might ask? They are/were content to live within their means, on their own terms, happily.
I found the NY Times Article: Definition of Riches Changes with Income interesting. It got me thinking because I bet some people will read this and decide what their savings target should be based on the income range they fall into. There is some validity to the wisdom of crowds – in this case, a number of people in your salary range contributed their thoughts to the average number in this survey. If only it were that simple.
Where you retire matters significantly. And how you want to retire can vary. If you want to travel to one or two countries a year using a travel company, that could cost you easily $10,000 a trip not including flights. If you’re planning on camping out, tending your gardens and playing with your grandchildren, that’s a whole different ball game.
Define Retirement on Your Own Terms
So rather than have someone else – anyone else- provide you with general statistics on what you need for retirement, you really have to figure it out based on your own needs. Start by making some basic assumptions: when you want to retire, life expectancy, and what you want to be able to do every year. It doesn’t have to be perfect first time around – you just need a general idea on the size of the gap between where you are now, and where you need to be.
This sounds onerous, but you can do it one step at a time. Do one calculation a week and you’ll be surprised how quickly you can start forming a benchmark in your mind. Start with where you will likely live and determine what your costs will be – is it in your current home or will you be moving? Will you still have a mortgage or will you downsize and receive equity from your home? That’s enough for one week. The second week, look at your credit cards. Be honest with yourself – you will still be buying ‘stuff’ when you retire. So what expenditures are likely to go away or be reduced and which are not? The third week, tackle the toys and adventures you would like to have when you retire. Estimate the cost of these. You get the idea.
Then next, look at your savings. If your savings grow every year at a rate of 8%, will you get anywhere near your goal? Here are calculators you might want to use that do most of the work for you: TD Ameritrade or T. Rowe Price.
If you won’t likely meet your goal, you need to start managing your expectations today or change your savings patterns. The likelihood of winning a lottery or investing in a Google stock early in life is not high, so don’t even think it’s going to happen. You either need to grow your savings more if you can, or change your dreams. Being rich is not being in the top 100 wealthy people in the world or having what other people have– it is having what you need to live happily on your own terms.
Thanks Dad, and Dick for a solid life lesson.
Carrie Rattle is a Principal at BehavioralCents.com, a web site for women focused on the psychology of money behaviors. She has worked in the financial services industry for 20+ years and hopes to inspire women to better prepare themselves for financial independence. Thoughts always welcome: firstname.lastname@example.org.