In this report, I ask, do you have enough money to retire early?
I am not a financial planner. I am just a guy on the Internet that reads a lot and likes to think about what I read. So I will explain how I analyze this question. But you will need to talk to your financial planner before making any decisions.
While I explain how I analyze this question, I will show you pictures I have taken traveling all over the world. You see, I retired early and travel the world now. I have been to 67 countries since I left the USA 14 years ago.
Do I have enough money to retire early?
The question, “do I have enough money to retire early,” seems to have some assumptions built into the question. Let’s talk about those assumptions. First, they have some money saved now. Second, they are younger than the official retirement age.
So, they want to know if the money they saved is enough money to last until they reach the official retirement age when they begin receiving their official retirement, whether a pension, 401(k), or social security.
Assume next that they have read our retire cheap reports world wide. They have completed their exploratory visits to their favorite places. They have picked their favorite location. During their visit, they estimated that it will cost $1300 per month to stay fat and happy in paradise.
But they want to retire 4 years early. So, they will not be able to collect their retirement income for 48 months. They know they will need to cover their cost of living for 48 months before their monthly retirement income starts.
So, they decide to add $200 extra per month, just in case. So they estimate it will cost $1500 per month for 48 months before their retirement checks start. $1500 for 48 months means they will spend $72,000 of their savings before their retirement check starts.
Luckily, they have saved $167,000 to retire early. So they have more than they need to last 48 months. If they can stay within budget and spend only $72,000 during the 48-month early retirement, they will still have $95,000 leftover. Is that enough?
They have visited the social security web page (Social Security (ssa.gov)) (link provided) and they have determined that their full retirement check will be approximately $1833 per month when they reach full retirement age in 48 months.
So, on the surface, the $167,00 looks like it will be enough to make it for 48 months, plus have $95,000 extra, if things go as planned. So is that enough money?
You may remember, I did a report called “The Two Biggest Risks to Retiring Cheap Overseas” (link provided). Make sure to click and read it. I explain the two biggest risks are your health and your money, and I explain how I handle those two risks.
That report talks about having an emergency fund to help reduce both risks of retiring cheap overseas. There I explain that you need an emergency fund and an emergency parachute. The emergency fund and parachute are covered in the details of that report. Click and read.
Emergency Fund and Parachute
I am not telling you what to do. I am just explaining what I would do. I would split the $167,000 into two parts in my mind. The first part would be the $72,000 I would need to pay my cost of living for 48 months. The other $95,000, I would label as my emergency fund.
In my two biggest risks report, I talk about keeping 36 months of living costs in my emergency fund. That would be $1500 per month times 36 months, or $54,000. So, even at the end of the 48 months draining my account, I would still have $95,000 more.
So if this were me, I would say yes. I would have enough left over in my emergency fund to help reduce the risk of retiring cheap overseas. My two biggest risks report explains why that is enough money for me. But I have a very high risk tolerance. It may not be enough for you.
Should You Invest The Early Retirement or Emergency Funds
Some financial planners will tell you to reduce risk as you get closer to your retirement age. I would apply that reasoning here. Since I would need that $1500 per month for the next 48 months, I would likely keep it in a very low risk investment. So I might keep the $72,000 I need to maintain my early retirement in T-Bills.
The Emergency funds are a little different. First of all, the emergency fund exceeds the $54,000 I would require to reduce the two biggest risks. So I might take the excess amount and invest it in slightly more risky investments. The extra risk might grow the money faster.
This extra income might offset any inflation that I may experience in retirement. Hopefully my $1830 monthly retirement will have a cost of living adjustment for inflation also. If I decided to take on any more risk for whatever reasons, I would probably buy put options on whatever riskier equities I bought.
What About Lump Sum Retirees?
What about someone that has no pension or social security on the horizon? How much money do they need to retire early? This is an almost impossible question to answer.
Imagine someone that is 55 years old and want to know if $600k USD is enough to retire overseas? There are too many variables to answer this question. You would need a crystal ball. How much erosion of capital will inflation cause? Will they need to keep the $600k in risky investments to keep up with inflation? What if the market crashes? How long will they live?
There is a rule known as the 4% rule. Roughly, the rule states that if you don’t want to run out of money in the next 30 years, you should withdraw no more than 4% of your lump sum amount per year. Here is a source explaining how the 4% rule works.
If you multiply 4% by 30 years, you will withdraw 120% of the lump sum amount over the 30 year period. The extra 20% is created by the income you receive each year on the slowly declining balance.
So if this person has $600k lump sum, they would be able to withdraw 4% per year, or $24k per year, or $2000 per month for 30 years.
But many experts say that the 4% rule is not dependable because you don’t know how bad inflation will be or how long you will live. So, to be safe, either live on less than the 4% or earn some extra money in retirement.
But remember, there are just frameworks for ideas about early retirement. Once you have ab idea for early retirement, then you have to go over the details with a financial planner. They have the knowledge and experience to poke holes in your theory and increase the chances of success.
Should You Supplement Your Income in Retirement?
Many people continue working during their retirement years. This helps in two ways. The longer you wait to retire, the less money you will need once you finally do. If you work until 70 and die at 85, you will only need to fund 15 years of retirement.
Working longer also means that your monthly check will be greater when you finally do retire. As an example, if you retire at 62, your check might be $1200 per month. If you wait until 67, your check might be $1800 per month, and at 70, your check could be $2400 per month.
But that didn’t sound appealing to me. I wanted to retire even earlier than 62.
I decided to retire early because I wanted to have more energy when I traveled. I wanted to be able to hike to high elevations, partake in strenuous activities, and keep a hectic travel schedule without running out of energy. I didn’t want my age or senility robbing me of the joys of world travel.
I wanted to keep my brain fresh once I was retired. I also didn’t want to run out of money in old age. That is why I decided that I would supplement my income in retirement. For me, the key was figuring out something fun to do in retirement. I didn’t want it to just be about money.
Over the last 20 years, I had watched the Internet economy slowly swallow the brick-and-mortar economy. It seemed like a magic force that was changing the world at an ever-increasing rate. I wanted to understand how the Internet economy worked. It was fascinating.
I am one of those people that likes to understand how things work. I was tired of watching all of these kids make a buck on the Internet. So, I decided that I would keep my mind fresh, and make extra money in retirement by starting my own business online.
So, rather than just hope I would have enough money in retirement, I set a goal to make money online with my hobby. I wanted to make money online doing my favorite thing, travel. So I decided to teach people how to retire early and travel the world, on the cheap.
And it has worked. I am presently making triple what I need to travel the world with my online hobby. I am so thankful to the paid subscribers, I decided to create a course called the Hobby Income Course. The course teaches people how to supplement their income by doing their favorite thing in the world, their favorite hobby.
The course is a bonus to my paid subscribers, whether $9 monthly members or $99 one-time lifetime members. Feel free to check out my free report, “What is the best online business for retirees?”
This and all other resources discussed in this report are available to you. Just click the “More Information” link in the notes below this Youtube video. While you are there, make sure to grab a free copy of my eBook, “How I fired My Boss and Traveled the World for 14 Years.”
This is Dan of Vagabond Awake, the YouTube channel for VagabondBuddha.com. The world is your home, what time will you be home for dinner?