Trinity University: Birthplace of Early Retirement Research
So you want to retire. Perhaps even earlier than most people.
Sounds like a great idea. But… How much (or how little) money do you need? $500k? $1 million? $10 million? What is your retirement number?
Pick a number that is too low, and you might end up begging for change, working at Wal-Mart, or worse. Pick a number that is too high, and perhaps trade years of life working for money that will benefit only your heirs
Determining the right amount starts with some basic questions
- How much does your target retirement lifestyle cost?
- How long do you expect to be retired? 15 years? 30 years? 60 years? More?
- How many dollars do you want to leave to your children or to charity?
Each person will answer these questions in their own way, with no answer necessarily better than another
“I plan to retire at the age of 57 with a cost of living of $10,000/month, mostly for golf club membership and my wine collection. Society never gave me nothing, and I’ll return the favor.”
“We will retire in our 30s to travel the globe, which we estimate will average around $3,000 per month. Ideally we will leave behind a large endowment to fund charitable hospitals”
There are other important questions that are more subtle and nuanced
- Do I have to change my shorts every time the stock market drops?
- Am I so set in my ways that I will refuse to make life changes regardless of the cost?
“Wow, 2008 was a wild ride! Stocks dropped 50%, but businesses took advantage of opportunities and made changes to enable future growth. Next time that happens, if our cash flow isn’t what we would like we can spend next year in South America instead of Europe”
“I don’t care what it costs, I’m driving the stretch RV to Florida every winter and dining on steak and lobster every night! And those Wall Street guys are crooks! No way am I putting my money in the stock market”
Somebody with low risk tolerance and great resistance to change will need a larger bank account than somebody that goes with the flow and enjoys a bit of excitement.
For better or worse, the older we get the less any of these things matter. But for somebody that plans to retire extremely early, all of these factors are of utmost importance
With all of this complexity, no wonder every bit of retirement advice in the press seems contradictory or not actionable.
Fortunately, some really smart people found a way to cut to the core of the question, “What is your retirement number?”