America - the land of the poor!

Rich country... Poor people

The US is among the world's "richest" countries when defined by a Gross Domestic Product per capita of $51,248. Only 6 countries are considered wealthier. However, for such a wealthy country we seem to have some pretty poor people.

Consider the following statistics for the "average American family" (source: Statistic Brain - Poor Americans)

• Average amount saved for retirement - $35,000
• % of Americans not saving for retirement - 40%
• % of Americans with no retirement savings - 25%
• % of Americans "very confident" about having enough money for retirement - 18%

Without a doubt then we are the world's superpower, right?!?!?

$5,179,358.03

The above? That is the estimated, minimum liquid net worth (liquid assets less all liabilities; in other words not factoring equity from my home or rental properties) I would need to see in order to quit my job tomorrow. Suffice to say I am going into the office on Friday! 

What’s your magic, early retirement number? (Please participate in the poll below and check back for how much people think they need for retirement)

Forget my actual number for a moment (I am sure it is wrong). Have you ever sat down and asked yourself what it would take to retire tomorrow? It is a daunting task. Technically I am more than 25 yrs away from retirement which seems like a long time to amass $5,000,000. Thankfully I am not starting from zero. However:

a)     we are a single income family (my wife is a kick-ass stay-at-home mother of one),

b)     college tuition estimates for 2030 are offensive (up to $350k for just 4 years of Ivy, ~$100k for state school) - something has to give here!

c)     while healthy today, healthcare costs are a tad out of control (I can’t be too critical since my income is directly tied to the industry)

d)     the odds of Social Security being around when I am expected to retire are laughably low, and

e)     although genetics aren’t on my side, my ultimate demise is very much unknown

Although I am fairly financially literate (I keep a quarterly spreadsheet tracking my family’s net worth), have a fairly detailed budget,  and manage my own stock portfolio (I worked on Wall Street for 5 years for whatever that is worth), I have not thought much about an early retirement until recently. I’ve always said I’d quit my job tomorrow if I could. Until now, I didn’t have any real clue on what that would take.

$100,000 per year isn’t too tough to spend during retirement

Using my current situation as a guide, in 25 years time our annual expenses could be (assumes 2% annual inflation):

• ~$29k for real estate taxes
• ~$30-35k for groceries (assuming my wonderful wife continues to cook as much as she does)
• ~$10k for utilities, maintenance, etc
• >$10k for health insurance

So that’s conservatively $85k in largely fixed costs and I’ve yet to buy my wife anything for her birthday, an anniversary, or just a “your wonderful” gift. Nor have we travelled, dined out, bought any new clothes or donated to charity. Sure we’ll probably downsize our house some day and can do other things to reduce the burden but blowing $80-100k/yr in retirement doesn’t seem too challenging.

We only need $2.1m once I turn 65, but…

So I retire at 65 and for arguments sake let’s say my wife and I live to 86 (to experience our golden anniversary). So: $100k/yr x 21 yrs in retirement = $2,100,000

So why do I need $5,100,000? Well I just turned 39 so to retire tomorrow we would need at least another $1,950,000 to get us through the 26 years of “early retirement”. This figure doesn’t include paying for college tuition and other niceties.

Thankfully my wife and I discuss these things and we are working together to get to an early retirement. So I ask you - what is your magic number?