Help me stop my constant worrying about retirement!

[FlowGirl]

Spreadsheets!

For me, being able to look at the numbers and figure out exactly what we needed to do to get from A to B, was the key to relaxing. I don't know yet what our exact retirement expenses will be like since we're still 12 years away, but I started by picking a reasonable goal to shoot for. I then projected out our household income for the coming years, assumed a conservative rate of return, and came up with what we needed to save each month to reach our goal. Our plan is ambitious, but not unreasonable, and the great part is that we feel free to spend the rest of our money on "the now." We tried going the "save as much as possible" route, but it didn't work for us - we have a pretty natural sense of balance and so didn't feel too deprived, but there was always that nagging guilt that we should save even more. That guilt is now gone...

Our system isn't perfect, and every so often we'll have to check in and revise the target and/or savings rate - but for right now the retirement plan is mostly on auto-pilot and we're having a lot of fun in our lives.

 

[sgeeeee]

. . . You all seem so relaxed about retirement, like it is basically inevitable.  The whole point of this discussion really is based on that point.  How do you enjoy today yet feel secure that you are doing enough about tomorrow?

Several years ago, my DW was scared -- I mean irrationally terrified -- of cows. Now, this may sound like I'm way off topic or that such a fear would not matter, but let me continue and I promise to end up on topic . . . Anyway, we do a lot of archaeology survey and mapping out here in the dessert Southwest. To do that, we drive off road on rugged two-track 4x4 trails across all kinds of grazing land. And we have to go through a lot of gates. So DW prefers if I do the 4x4 driving which leaves her to get out and open the gates. But if cows were near the gate when we pulled up, she would freeze up and refuse to get out. Worse, once we got as far as we could drive, we would hike. But if we had to cross a field with cows, she couldn't bring herself to do it. We'd end up walking miles out of our way to avoid cattle. Sometimes the detours would actually keep us from getting to where we wanted to go.

So . . . we bought a Texas Longhorn and joined the TLBA (Texas Longhorn Breeders Association). This required her to feed and care for our cow, to take it to shows, etc. She started reading about cattle, breeding, etc. She became an officer in our TLBA chapter and helped plan shows and events. Our cow finished in the top 10 in her class at the TLBA World competition one year. We eventually sold our herd (through successful breeding we ended up with 4 cows before we quit). This was a hobby, not a money making venture. In fact, it was a pretty expensive hobby. But my DW is not afraid of cattle anymore. She knows a lot about them and is comfortable walking through a herd to open the gates and get us to our destination.

See . . . I told you this was on topic.

 

[daxm]

Several years ago, my DW was scared -- I mean irrationally terrified -- of cows.  Now, this may sound like I'm way off topic or that such a fear would not matter, but let me continue and I promise to end up on topic . . . Anyway, we do a lot of archaeology survey and mapping out here in the dessert Southwest.  To do that, we drive off road on rugged two-track 4x4 trails across all kinds of grazing land.  And we have to go through a lot of gates.  So DW prefers if I do the 4x4 driving which leaves her to get out and open the gates.  But if cows were near the gate when we pulled up, she would freeze up and refuse to get out.  Worse, once we got as far as we could drive, we would hike.  But if we had to cross a field with cows, she couldn't bring herself to do it.  We'd end up walking miles out of our way to avoid cattle.  Sometimes the detours would actually keep us from getting to where we wanted to go.

So . . . we bought a Texas Longhorn and joined the TLBA (Texas Longhorn Breeders Association).  This required her to feed and care for our cow, to take it to shows, etc.  She started reading about cattle, breeding, etc.  She became an officer in our TLBA chapter and helped plan shows and events.  Our cow finished in the top 10 in her class at the TLBA World competition one year.  We eventually sold our herd (through successful breeding we ended up with 4 cows before we quit).  This was a hobby, not a money making venture.  In fact, it was a pretty expensive hobby.  But my DW is not afraid of cattle anymore.  She knows a lot about them and is comfortable walking through a herd to open the gates and get us to our destination.

See . . . I told you this was on topic.   

I am glad your wife was able to overcome an irrational fear.  Sometimes the knowledge you have the fear (and letting other people see/know it) is worse than the fear itself.  My hats off to her for her accomplishment.

 

[Mr._johngalt]

Several years ago, my DW was scared -- I mean irrationally terrified -- of cows.  Now, this may sound like I'm way off topic or that such a fear would not matter, but let me continue and I promise to end up on topic . . . Anyway, we do a lot of archaeology survey and mapping out here in the dessert Southwest.  To do that, we drive off road on rugged two-track 4x4 trails across all kinds of grazing land.  And we have to go through a lot of gates.  So DW prefers if I do the 4x4 driving which leaves her to get out and open the gates.  But if cows were near the gate when we pulled up, she would freeze up and refuse to get out.  Worse, once we got as far as we could drive, we would hike.  But if we had to cross a field with cows, she couldn't bring herself to do it.  We'd end up walking miles out of our way to avoid cattle.  Sometimes the detours would actually keep us from getting to where we wanted to go.

So . . . we bought a Texas Longhorn and joined the TLBA (Texas Longhorn Breeders Association).  This required her to feed and care for our cow, to take it to shows, etc.  She started reading about cattle, breeding, etc.  She became an officer in our TLBA chapter and helped plan shows and events.  Our cow finished in the top 10 in her class at the TLBA World competition one year.  We eventually sold our herd (through successful breeding we ended up with 4 cows before we quit).  This was a hobby, not a money making venture.  In fact, it was a pretty expensive hobby.  But my DW is not afraid of cattle anymore.  She knows a lot about them and is comfortable walking through a herd to open the gates and get us to our destination.

See . . . I told you this was on topic.   

So many puns spring to mind my brain is spinning. Guess I'll steer clear

JG

 

[ronin]

How do you enjoy today yet feel secure that you are doing enough about tomorrow?

You have nailed the question.  This is the art of living.  We have a habit of thinking, "in a perfect world I would do this or this would be happening".  The reality is that where we are at this moment is a perfect world.  We have the opportunity to experience and learn exactly what we need.  My experience has been that when I do my sincere best to both enjoy today and plan for tomorrow, it all works out OK.

 

[Nords]

I'm late to the game but I lugged along a lot of math & numbers. 

BTW, this is part of worrying constructively.  At some point you'll get tired of it and go surfing, so you'll have enjoyed today while remaining secure in the knowledge that you'll have done quite enough about tomorrow.

Anyway as many others have pointed out, there are two issues here.

First, your retirement expenses are probably going to be considerably less than your working expenses.  One estimate from this board is $50-$100/day, another is 50%, and one extremist claims 33%.  (Unclemick2, your $12K/year is about two standard deviations outside of even that extremist.)  Take a look at your work expenses, consider paying off your personal-residence mortgage, and look for any other things that you won't be paying for in retirement.  Some years you'll spend 4% of your portfolio but others you'll only spend 2-3%.

Second, there's compound interest.

According to my 1977 edition TI-55 calculator handbook, the final value of a series of payments is:
FV = Pmt x {[(1+i%)^n - 1]/i%}

and eventually

n = ln[(FV*i%/Pmt) + 1]/ln(1+i%)

n = number of compounding periods
ln = natural logarithm
i% = interest rate as a fraction (.06 instead of 6%).

So starting from nothing (although you already have $125K), saving $12,000/year, and compounding it at 6% after-tax annually to achieve $1.625M would take

n = ln[(1,625,000*.06/12000) + 1]/ln(1+.06) = 37.9 years.

I believe that 6% is a pretty achievable rate of return, but it's much more fun to plug in 8% (32.1 years).  Or presume that you keep on achieving 8%, you get a raise, and you can afford to set aside $1200-$1500/month (30-27.4 years).

But let's take this to its more conservative conclusion-- assume your current net worth of $125K keeps compounding at 6%.  In 10 years you'll have $223K and in 20 years you'll have $400K.  Let's also assume that you keep saving $12,000/year at 6%, so in 10 years

FV = 12,000 x {[(1+.06)^10 - 1]/0.06} = $158K for a total of $381K

and in 20 years

FV = 12,000 x {[(1+.06)^20 - 1]/0.06} = $441K for a total of $841K.

25 years produces $125K*(1.06)^25 + $12Kx{1.06^25-1/0.06} = $1.2M.

As FlowGirl has pointed out, it's time to make a spreadsheet that lets you vary your initial net worth, your monthly savings, and your rate of return.  The more time you spend on this the more detailed/accurate it will be, and the less you'll worry.

As others have mentioned, 6-7% is concensus from Warren Buffett and other reasonably accurate market prognosticators.  And as others have mentioned, if you put that in tax-free accounts (401(k) & Roth) then you'll easily achieve 6-7% and you'll still be able to withdraw the Roth contributions anytime.

Combining all these variables, I'm betting that you're only 23 years MAX away from achieving your ER.  I also predict that somewhere during that period you'll determine that you don't need that much, so you're closer than you think...

 

[REWahoo]

I'm late to the game but I lugged along a lot of math & numbers......
~
According to my 1977 edition TI-55 calculator handbook, the final value of a series of payments is:
FV = Pmt x {[(1+i%)^n - 1]/i%}

and eventually

n = ln[(FV*i%/Pmt) + 1]/ln(1+i%)

n = number of compounding periods
ln = natural logarithm
i% = interest rate as a fraction (.06 instead of 6%)...

Nords,

I was looking for an existing thread to post an article about how today's investors are caught between "want and worry", when I found your post above. Man, I have to give you credit. Apparently your math can bring a very active thread to a dead stop faster than kayaks or dryer sheets.

So instead of "What color is your kayak?" as the rallying cry from the forum when we are saying enough already (think Art vs. th), maybe we should say, "Nords, what do the numbers tell us?"

REW

 

[Nords]

Nords,

I was looking for an existing thread to post an article about how today's investors are caught between "want and worry", when I found your post above.  Man, I have to give you credit.  Apparently your math can bring a very active thread to a dead stop faster than kayaks or dryer sheets.

So instead of "What color is your kayak?" as the rallying cry from the forum when we are saying enough already (think Art vs. th), maybe we should say, "Nords, what do the numbers tell us?" 

REW

Thanks, I think!

One of our biggest ER influences has been the ability to set aside the advertising hype (or the fact that the advice is coming from a friend) and to do basic "what if" math.

One of the components of the Navy's nuclear power training program is "theory to practice". The watch team is supposed to calculate the effects of doing some normal procedure and then observe whether their numbers are matched by the plant's performance. If it doesn't work out the way you expected it to, then it probably wasn't the plant's mistake and you need to go back to your number-crunching.

That practice pays off in "real" life too...

 

[Caroline]

Basically I think I worry so much because I don't want to waste our lives working toward an unachievable goal.

Lots of fantastic advice here on the monetary side, so I'll focus on what I personally felt was the nub of the problem -- the tradeoff you have to make between living for today and saving for tomorrow.

I read "Your Money or Your Life" several years ago and immediately started living well below my means and saving like a fiend. This led me to a job that maximized my income, to very modest living situations, often with multiple housemates, to a modest car I just sold after 14 years, etc. etc. And I'm well on my way to my monetary goal as a result.

But I started to find that this laser focus on saving every dime left me MORE distressed, rather than less. Would I sacrifice for retirement only to find that I'd grown old in the process and had lost interest in things I wanted to do? (Travel, meaningful work for humanity, etc.)? Would I save like mad only to become sick or die before my time? After some years I decided that for me personally, balance was going to be more important than leaving my job on the earliest possible date.

I kept to my plan in large part, but backed off enough to start enjoying the here and now more. This included several (frugal) trips to Europe and one blowout trip to Africa, it included a stint of part-time work to combat burnout and reconnect with the family somewhat, and it included donations to those causes I would like to support but dont' have the time to volunteer for -- yet.

I've told this story before but I had a friend who skipped a group trip to Mexico two years ago because he "had too much to do at work." One month later he was diagnosed with brain cancer and his first words were "I should have gone to Mexico." He died four months later.

Adding balance to my life has helped me to manage something I fear more than a delayed retirement -- the thought that I'll end up like my friend and put off life now for a future that never arrives.

I started on the road to FI in a full-out run, but realized that FI is a marathon, not a sprint. Slowing down a little to take advantage of the water stops actually improves your chances of getting to the finish line.

FWIW,
Caroline

 

[haha]

Nice post Caroline. FWIW, it's worth a lot.

Haha

 

[Eagle43]

Caroline, that is a great post. I keep thinking about those index funds and I-bonds that just keep growing. If I don't spend it, I have a couple of grandkids who will know how to spend it, and quickly. I've got a friend of mine I ran into Sunday, who told me she has budgeted $1000/month for travel. She asked me why I did not do the same. I had no answer! Especially since we attend the same funerals of people we knew while working. There's a message there! And you hit it, balance.

 

[maddythebeagle]

good post, Caroline. I agree on the balance issue, that is why spreadsheets are so great for me.  I can update annually (or more often for some) and figure out where I am with my goals, expenses, and savings rates.

 

[laurence]

Great post, Caroline,

Balance is critical, I view it like going on a diet, crash diets leave you crashing and burning. I was pondering in the shower this morning how some on those other boards take it too far from any logical view. If you save and extra $10 a week spending an extra 3 hours a week washing tin foil or biking to 3 different grocery stores instead of driving to one, when you could have spent those 3 hours with family and friends, what did you really gain? 1 year ealier retirement? 2, maybe? At the cost of being mental and having stunted relationships with the world around you?

I have a goal date, I know how much per year I need to save and any extra gets used now for fun/immediate needs.

 

[SteveR]

I agree on the balance issue.

Have a goal in mind to save X% of your income each year. It should be enough to get you where you want to be but not so much that you miss out on living each day. It is a fine balance but one that is important for mental health.

If you have to wait another year of two to ER then so be it. It is not a race it is a journey.

I think that some people get so involved in the nuts and bolts of saving a few bucks here and there that they forget to live and enjoy life. None of us are promised tomorrow. Worrying and scrimping at the cost of your family life or your sanity may lead you to be a rich but bitter person. Learn to live for today but save for tomorrow. Life if a balance and too much of any one thing will make you sick.

 

[Nords]

Frugality isn't deprivation

But I started to find that this laser focus on saving every dime left me MORE distressed, rather than less.  Would I sacrifice for retirement only to find that I'd grown old in the process and had lost interest in things I wanted to do?  (Travel, meaningful work for humanity, etc.)?  Would I save like mad only to become sick or die before my time?  After some years I decided that for me personally, balance was going to be more important than leaving my job on the earliest possible date.

People keep bringing up frugality and dragging it across the line into deprivation.

One of the biggest questions is deciding on your interests and what your time is worth. If you're the kind of person who enjoys passive entertainment (TV or radio) then it's not that hard to occupy your hands with washing plastic bags or cutting up dryer sheets or other "excessively frugal" activities while you're engaged in your primary interest. IOW you're making good use of your time without detracting from your interests. I don't NEED to pick up pennies off the sidewalk, but it's an enjoyable part of the evening's exercise and I feel a ridiculous surge of pleasure when I pick up all that "free" money.

We don't focus on "saving every dime". We avoid wasting the dimes on things that have no value to us or that would consume way too much of our time. Again it's a cost/benefit debate whether the upfront labor is worth the putative back-end saving. I don't personally care to wash out plastic bags, but we save the clean grocery plastic bags and we buy in bulk whenever there's a plastic-bag sale.

Another waste is food prep. It's much more convenient to pay higher costs for prepared food, but in ER I have more time to cook. I don't particularly care for cooking, but I'd rather spend the savings on other things and I'm hyper-concerned about the unhealthy aspects of most prepared foods. So I'm efficient at cooking-- large quantities, making the most of a hot BBQ grill, crock pots, and lots of freeze & reheat. We tend to eat about the same 10-15 dishes every month with an occasional test recipe. But we still "waste" $12.97 every Friday for CostCo pizza and a couple frozen yogurts. You'll never find me in the kitchen glazing carrots or making Hollandaise sauce, but I can get dinner on the table from scratch in 15 minutes.

So when you're trying to cut expenses, look at the things that have value to you. If travel is important then put it in the budget. If a commuter Starbucks & Krispy Kreme is more a hassle habit than a necessity, and if you decide that the money you're spending could be better saved, then do without it for a week and see if you miss it. Then take an extra step down the frugal path-- try brown-bagging your lunch. Take a look at what you're paying on your utility bills and consider whether a new refrigerator or water heater would reduce costs enough to pay back in a few years. Question conventional wisdom whenever you can do the math to prove it!

And despite years of subjecting my taste buds to Navy coffee, today I still drink 100%Kona. The Navy stuff is cheaper, but life is too short. My FIL is still trying to convince me that it's worth buying a grinder for the beans, but that's just too much of a hassle right now. Maybe when a free grinder drops into my lap...

 

[SteveR]

Nords,

I don't think anyone here is knocking being "careful" about wasting money. I think the issue, at least with me, is being anal about it to the point of losing your direction in life. Some people believe it to be a contest to see who can live on the least amount of money. Good for them but it is not for me. I made many decisions in my life and career to allow me to have a certain life style. However, that does not mean I piss money down the drain. I shop at Sam's and Costco and WalMart to save money so I can be more extravagant in some ways. We are focused on saving but we don't deprive ourselves of certain things.

I know that once we do retire, we will cut back more and will be making some life style changes but we will not be in the race to see if we can live on $25/day. I have better things to do with my time than go dumpster diving to maintain my lifestyle.

Frugal is not bad.....until it becomes the ONLY thing in your life.

 

[Nords]

I have better things to do with my time than go dumpster diving to maintain my lifestyle.

Me too.

But if I see something in a dumpster that I want to have, then ah-oo-gah...

 

[REWahoo]

But if I see something in a dumpster that I want to have, then ah-oo-gah...

OK, Nords. This falls in the category of "things I've always wanted to know but was afraid (I would look stupid) to ask." Does the US Navy still use that funky horn sound to signal the sub crew you are going to submerge?

And in my defense, you're the one who brought it up...

REW

 

[shiny]

Comment by Nords:
We don't focus on "saving every dime". We avoid wasting the dimes on things that have no value to us or that would consume way too much of our time.

That is exactly how we feel!

One time I was at a friend's house and she picked up the phone to call information for a phone number even though she had a phonebook and a booted up computer sitting right there. I asked her why she didn't use the 2 free options available and she teased me for being concerned about her spending fifty cents. Well, the way I figure it, if you can get something free without much trouble then spending the fifty cents is a total waste. There are lots of things you can't get free and I'd rather put my fifty cents towards those things!

I know this makes me frugal, but it is the opposite of deprivation (I get more for my 50cent)

 

[Nords]

OK, Nords.  This falls in the category of "things I've always wanted to know but was afraid (I would look stupid) to ask."

We're not still talking about dumpsters, are we?

Does the US Navy still use that funky horn sound to signal the sub crew you are going to submerge?

And in my defense, you're the one who brought it up...

Sorry, old figure of speech. Usually when those slip out my spouse nudges me and says "You can speak English now."

When I joined the submarine force (1979) that ah-oo-gah was the ONLY diving alarm available. (It's spelled that way because most submariners have it on their vehicle's vanity license plates.) But by the time I got to a LOS ANGELES class submarine in 1989 we had this weird electronic diving alarm that sounded like a three-year old waking up from a cranky nap-- "WaaaaaAH!, waaaaaAH!". Most red-blooded submariners clapped their hands over their ears in pain, immediately ripped it out, and replaced it with the old-style alarm.

Then some inspectors got a bit pissy about the subject. ("It's not part of the standard plans, we don't carry repair parts for that anymore, some crewmembers might be confused between the old & new alarms, ad nauseum.) For a long while you'd carry the old-style alarm hidden away somewhere and only install it when you were out at sea without inspectors on board. Then you'd have to remember to replace it when you got back into port or you'd get in trouble. It reached its peak of silliness when you were greeted at the pier by squadron weenies staff who'd come below and have you test the alarm to make sure you had the "right" one. Eventually the oldsters (hey, I'm one now!) all retired and everyone on sea duty thinks that "waaAH" is the "right" sound. But the traditional alarm still makes its way into the Submarine Birthday Balls and other bubblehead gatherings.

In the mid-70s the submarine force went through a brief infatuation with voice-response technology. The traditional gongs, bells, bleeps, & ah-oog-ahs were replaced by a VERY seductive woman's voice. (I'm referring to the voice. I was told the woman was a grandmother in her 60s.) Instead of being blasted out of your rack at 3 AM by the fire alarm, your dreams would suddenly be affected by this lovely voice gently murmering into your ear: "Fire. Fire. Fire in the ship's laundry." You'd smile lazily and roll over to pat something when you'd suddenly realize that you were at sea with a male crew and that burning smell was not good.

There used to be training films on the system. There's something very dissonant about that voice saying "Steam line rupture" or "Flooding. Flooding. Flooding in the engine room." Since this was the primitive days before cheap RAM, the voice was recorded onto audio tape which either broke frequently or was subject to very innovative experimentation by juvenile delinquents with too much time on their hands inquisitive sailors on quiet watchstations.

Eventually the voice became known as the "b**** in a box" and shortly afterward the status quo ante returned. By the time I got to the fleet the only remnants were the training films.

 

[Caroline]

Quote from: Caroline on August 10, 2005, 08:12:28 PM

But I started to find that this laser focus on saving every dime left me MORE distressed, rather than less.  Would I sacrifice for retirement only to find that I'd grown old in the process and had lost interest in things I wanted to do?  (Travel, meaningful work for humanity, etc.)?  Would I save like mad only to become sick or die before my time?  After some years I decided that for me personally, balance was going to be more important than leaving my job on the earliest possible date.

From Nords: 

People keep bringing up frugality and dragging it across the line into deprivation.

Exactly my point, Nords!  When frugality becomes deprivation, the pendulum has gone too far, and you need to get back to center. 

For myself, I loosened the purse strings enough to do some of the travel I was putting off until "someday."  On the other hand, I still don't own a clothes dryer -- hanging the laundry is relaxing, and it smells so Gooooood.  And the vast majority of my clothing still comes from the thrift store (I can see some people shuddering now.)

I think we all chart a course, but have to make little corrections now and again as we learn more about the journey, and about ourselves.

 

[Nords]

On the other hand, I still don't own a clothes dryer -- hanging the laundry is relaxing, and it smells so Gooooood.  And the vast majority of my clothing still comes from the thrift store (I can see some people shuddering now.)

I enjoy the idea of hanging laundry (and saving all that electricity) but spouse won't do without a dryer and won't put up with hanging clotheslines.

So we've compromised with a drying rack for the elastic/delicate stuff, and I fill it before I start using the dryer.

Our Goodwill shorts & t-shirts have the same logos and the neighbor's $20 shorts & t-shirts. It really hit home when our kid took the middle school's "consumer economics" class, budgeted her $10 at Goodwill, and watched the other kids spend $150 at the malls.

 

[FlowGirl]

I agree about the balance - and while I try to mind the small stuff to the point where it doesn't get out of control, some of it is not worth stressing about.  I'm currently taking some university classes this summer as a non-matriculated student.  I have a long commute. Going by public transportation is free (pass was included with tuition) and I can study along the way.  Driving cuts my commute in half, but costs $7 and I'm not productive.  Most days I opt for public transportation, but on Fridays I'm willing to pay to drive in order to get a jump on my weekend.  Likewise, I bring my lunch because its cheaper and better, but I don't sweat purchasing coffee on campus - bringing a thermos is more hassle than I want.  However I will bring my own empty mug to get a 75 cent discount.

 

[Eagle43]

The traditional gongs, bells, bleeps, & ah-oog-ahs were replaced by a VERY seductive woman's voice.
Eventually the voice became known as the "b**** in a box" and shortly afterward the status quo ante returned. By the time I got to the fleet the only remnants were the training films.

I love that seductive voice in elevators. . . "Going down, Going down."

 

[Nords]

I love that seductive voice in elevators. . . "Going down, Going down." 

Apparently Steven Tyler felt the same way... one of his better efforts!