The secret to doing big things

The secret to doing big things

by | Mar 28, 2014 | Lifestyle Design, Mini-retirements, Pursuits, Retirement

It’s no accident that this site is called Intentional Retirement.

Being intentional with this brief, but beautiful life is one of the things I’ve tried to weave into the DNA of the site since day one.  I preach that sermon every chance I get and I work hard to practice what I preach.  I know many of you do the same.

One side effect of being intentional is that you start to tackle big things.  You look past the low hanging fruit of your daily “To Do List” and instead set your sights on those big, intimidating goals that you’ve thought about for years, but have never brought to the front burner of life.

Here’s an example from my own life.  As many of you know, I’m in the middle of planning my first Mini-Retirement.  One thing I’ve learned so far is that ditching your job and traveling halfway around the world for four weeks takes a lot of planning.  I know.  Who knew?  Right?

I’ve spent months working on logistics like accommodations, rental cars, airfare, event tickets, reservations, train tickets and daily itineraries.  This is to say nothing of other important details like figuring out a way to pay for it all (Donations accepted.  Just kidding.  I’ve learned a lot about traveling less expensively and I’ll detail that in a future post.).

As I thought about all this, I had a flash of insight relating to doing big things.  It’s the universal secret to accomplishing anything big in life, whether that’s a big trip, writing a book, having a great relationship, building a healthy marriage, having a successful career, getting in shape or putting a man on the moon.

Here it is.

Ready?

The secret to doing big things is to do a bunch of little things.  In other words, you don’t “write a book,” you write a little bit today, and then tomorrow and then the next day.  You do that a few thousand times and then throw in a good dose of editing, pitching and publishing and Voila!  You’ve written a book.  This same process applies to anything big you want to do in life.

If I were to put that into an equation, it would look something like this:

Little things + Consistency + Time = Big Things

Application

As you think about how you can apply the above equation in your own life, keep one thing in mind: The clock is ticking.  In other words, the “Time” variable in the equation is getting smaller each day.  Why is that important?  Because if “Time” is getting smaller, then you need to increase the “Little Things” and the “Consistency” in order to still achieve the “Big Things” that you have in mind.  If you can’t do that, then you need to rewrite your equation to get rid of the “Big Things” and replace them with medium or small things.

That’s why I’m so adamant about not waiting until your 60s to retire.  It’s why I’m so against saving the best for last.  Too many people follow the “traditional retirement” path and when they arrive, they realize that their equation doesn’t balance.  They do the mental math and realize that many of their plans and dreams require a crazy amount of effort and consistency because they’ve waited so long start.  This results in no small amount of discouragement as they let those dreams go and settle on smaller plans.

So remember that equation above.  Dream big, but don’t wait to start.  Retire today.

Have a great weekend!

Joe

Why retirement will be cheaper than you think.

Why retirement will be cheaper than you think.

by | Mar 14, 2014 | Distribution Planning, Income, Retirement

Will retirement be cheaper than you think?  Maybe.  A lot depends on your income replacement ratio.  What’s that you ask?  It’s the percentage of your current income that you will need during retirement to maintain your standard of living.

Some people will need 100% of their current income.  Others will be able to get by on less.  Ironically, the more money you make now, the lower your income replacement ratio will likely be.  That’s because you probably aren’t using all of your current income for expenses that will still exist during your retirement years.

Here are three major expenses that will likely disappear from your retirement budget:

Savings:  Retirement is a shift from the accumulation phase to the distribution phase.  That means no more 401(k), IRA or savings account contributions.  How much are you saving now?  Five Percent?  Ten?  Fifteen?  Once you’re no longer saving, you won’t need that income.

Payroll taxes: Looking at the glass half-empty, retirement means no more paycheck.  Looking at the glass half-full, that also means no more Social Security and Medicare taxes on your earned income.  Right now you’re paying a 6.2% Social Security tax on your first $114,000 in income and a 1.45% Medicare tax on all your income (7.65% total or twice that if self-employed).  And if you’re a high-wage earner ($200,000 for singles, $250,000 for couples) you’re paying an additional 0.9% Medicare surtax.  Those taxes go away when your earned income goes away.

Work expenses: Think of all the expenses you have that relate to your job: commuting, dress clothes, expensive lunches, a second car.  Most of those expenses can be reduced or eliminated in retirement, which is probably the equivalent of hundreds of dollars each month that you can cut from your budget.

If I apply those three items to my own budget, I could eliminate more than a quarter of my expenses.  How about you?  How much could you get rid of?  I’m guessing the amount is significant.  If you’re able to pay off your house and retire debt free, you could eliminate even more.  To be fair, you’ll also have some expenses that get added to your budget during retirement (e.g. travel, hobbies, etc.), but those likely won’t outweigh the cuts.

A common rule of thumb for your income replacement ratio is 85%.  David Blanchett, head of retirement research at Morningstar, thinks that most people will be able to get by on less.  Whatever the number, it is the primary driver of how big your nest egg needs to be.  Shave 20% from your income replacement ratio and you’ll be able to shave 20% from your nest egg, which means you could save less and retire sooner.

Start Today

One of the benefits of the exercise above is that it shows the direct link between expenses and retirement.  The less you need, the sooner you can retire. Remember that your ideal retirement is not about age or work status.  It’s about control.  It’s a gradual shift from doing what you have to do to doing what you want to do.  One way to speed that shift is to save more, but equally effective (and often overlooked) is to need less.

~ Joe