What Could You Do With A Million Dollars?

On the Stacking Benjamins Podcast I was listening to today, Joe was talking about the responses he received when he asked his Twitter followers what they would do with a million dollars.

He got some interesting responses.  Some were altruistic–donating the money or helping family members.  Some were realistic–like paying off debt.  And some were funny–like calculating the time it would take to count the money at the bank–in twenties.

It got me thinking.  What could each of us do with a million dollars?

I’m overly rational so I got out the calculator.  $1,000,000 invested should provide $40,000 of retirement income forever.  With Social Security providing 40% of our needs (as it does for the average recipient), we should have a stream of income of about $67,000 in retirement.  I could live a pretty nice life on $67,000.

That $1,000,000 invested in rental real estate should provide even more income.  According to Paula at affordanything.com, we shouldn’t invest in a property unless it will rent for 12% of the purchase costs per year, 6% of that goes to costs and that leaves 6% return for us.  Our retiree now has an annual stream of income of $100,000 including Social Security.

Now we’re talkin’!  With that income, we could do some really cool altruistic stuff too!

But not everyone will need a million to retire comfortably–the lower your expenses, the less you will need.

A rule of thumb is that you need to have 25 times your annual expenses invested.  This will allow you to spend 4% of your invested balance when you retire and then increase that spending amount for inflation each year.  You’ll support yourself with that, plus social security and any pension (if you’re a lucky pension receiver!).

Now, it would be amazing if someone just handed us our $1,000,000 but that’s not very likely so what would it take to save our $1,000,000?

There’s a fabulous calculator on Bankrate.com that will help us figure that out.  The defaults of 7% return and 2.9% interest are reasonable.  I’m super conservative (aka chicken) with my projections and use 6% for investment earnings but 7% isn’t too aggressive even for me.

If a 30 year old starts with $10,000 invested and invests an additional $520 a month, they will reach $1,000,000 when they are 65.

Of course inflation makes that $1,000,000 worth less than it is today.  You’d have to invest about $1,525 each month for your money to be worth $1,000,000 when you turn 65.

Seems impossible huh?!  But I did it–and I did it long before age 65.  So you can too!

I started earlier.  By age 30, I had $35,600 invested.  I had some home equity on top of this but that was rolled into future homes so I don’t count it.

I saved more.  I couldn’t find my budget from age 30 but at 31, I was saving just over $1,000 each month including my employer’s retirement match.

Some of this savings was to buy my next car and save for vacations–I didn’t segregate my savings by goal.  It may help to keep separate savings accounts for each of your goals.

And then I saved even more.  As my salary grew, I let my expenses grow a bit but not nearly as much as my income.  And I socked away the difference.

You’ll find it easier to save as you get older so long as you don’t allow your expenses to grow with your income.

You have to decide what is important to you and spend your limited resources on that–but not spend those limited resources on what is not important to you.  You can afford anything but you cannot afford everything–visit Paula at affordanything.com for some great insights.

We own a boat, a stupid big custom home, and a vacation home.  All paid for with cash.

But we used a VCR until two years ago, we don’t go out for expensive dinners, we don’t travel much (other than to the lake or vacation home) and I don’t have expensive clothing, jewelry, electronics etc.

Shopping is not among my hobbies.  If shopping is your hobby, find a new hobby.

This also means you cannot finance your lifestyle with debt.

Debt keeps you enslaved.  You are paying for your past instead of preparing for your future.

You will need to use debt–for your home and maybe for your education.  But use that debt carefully–buy only what you need and work hard to pay it off quickly.  Or if you prefer to keep that debt, work hard to build a sinking fund that would allow you to pay it off.

So start working on that million. 

If you are starting late, start now.

If you aren’t able to save as much as you need, save what you can.

It will only get easier–I promise!

Fees Matter . . . A Lot

Do you know how much you are paying in mutual fund fees?  You should, because fees matter . . . a lot.

When you hear people talking about mutual fund fees, they are usually talking about the expense ratio.  This is the percentage charged against the earnings of your fund each year.  These fees pay the operating costs of running the fund and, usually, return a bit of profit to the company running the fund.

My focus in this article is going to be on this expense ratio. Continue reading “Fees Matter . . . A Lot”

Autopilot can be great . . . unless it isn’t

We are truly fortunate that we can set many of our financial transactions up to happen automatically.

Most of us have 401k contributions come out of our paycheck before we even see it.  You can’t spend what you can’t see.

My utility bills go on a credit card automatically which–you guessed it, gets automatically paid in full each month from my checking account.

When I was working, I had an amount automatically sent from my checking accounting to my investment account each month.

Now that I’m retired, my investment account sends money to my checking account–automatically.  It feels like I’m getting a paycheck–even if it is just from myself!

These automatic transactions are great when they help us achieve our financial goals–forced savings and simplification of routine bill paying are fantastic.

But automatic transactions can also derail us from reaching our financial goals. Continue reading “Autopilot can be great . . . unless it isn’t”

You Should Leave A Job With More Than Just Memories

When I retired, I rolled my 401k balances over to IRA accounts with Vanguard.

My company’s 401k plan was a good one.  They even offered my favorite Vanguard fund (VTSAX). But all 401k plans have fees in addition to the underlying fees of the funds where the money is actually invested.  This is because of the reporting requirements, paperwork and account holder support that 401k funds provide.  Those services cost money so each quarter I’d see some of my money disappearing to pay those fees.

With Vanguard, I pay the underlying fees of the funds and nothing else.

Converting my account was easy.  They even assigned an account rep. who monitored the transition and kept me updated on its progress.

I think the account rep. thought I was crazy. Continue reading “You Should Leave A Job With More Than Just Memories”

It’s Not Always Smart To Do The “Smart” Thing

It is typically recommended that we purchase insurance for catastrophic, infrequent events and we self insure for everything else.

So we should insure our lives and our ability to work if people depend on our income with life and disability insurance, our home because its loss would be difficult to recover from with homeowner’s insurance, our cars because the damage we can do to others is enormous with auto insurance, and our other assets if they are significant with an umbrella policy.

But we should not insure things that are relatively easy to replace or dollar amounts that are small relative to our net worth.

Using that rule, it would not make sense to insure my wedding ring.  While it is valuable to me, it isn’t valuable compared to our overall net worth.  It was when we got engaged but it isn’t now.  For $35 to $50 in premium each year, we’ve had the peace of mind that comes from not worrying about replacing my ring.  We’ve paid that premium for 28 years.  We filed a claim once and may be filing another claim Monday. Continue reading “It’s Not Always Smart To Do The “Smart” Thing”

If You Can Only Do One Thing

Life is busy, I get it.  The last thing you need is one more thing on your to do list.

Mastering your finances seems really time consuming and complicated.  I tried to simplify it as much as I could for you but it ended up being 12 steps to a kick a$$ life.  And those 12 steps didn’t include some really important things that help us move through the steps more quickly like figuring out your why and tracking your net worth.  And it didn’t include things like making a will and getting life insurance which are critical if anyone depends on your income or in-home work.

If I had to pick one thing to have everyone do (after getting life insurance*) it would be to calculate your net worth.  Your net worth is like a business’s balance sheet.  What you own minus what you owe.  Calculating my net worth kept my eye on the prize and was my secret weapon to achieving early retirement.  Once you start tracking it, your mind automatically thinks differently about earning and spending decisions–you want your net worth to go up each month.

Net Worth = What I Own – What I Owe Continue reading “If You Can Only Do One Thing”

What Is Weighing You Down?

I wrote this a couple months ago–I wish we had 10″ of snow today, that would be super fun.  I woke up this morning thinking about what was weighing me down and decided to put this out into the world.

We were blanketed by 10″ of snow today.  We live 30 minutes from world class ski areas but are in a banana belt where we get much less snow and big storms like this are not that common.  After shoveling the driveway, we grabbed some friends and went cross country skiing on our local golf course.

It was warm and the snow was wet; it was sticking to the middle part of my ski.  It’s pretty hard to glide on a ski when you have a heavy lump of snow underfoot.

This is how life is.  In life, we can’t get where we want when something is weighing us down.  I came up with several ways to get rid of the snow.  Each sort of worked but none worked great. Continue reading “What Is Weighing You Down?”

Yikes–I Went Back To Work!

Almost universally, when I talk about being retired, people say “but you’ll go back to work someday–right?”  I’ve been asking some close friends about this.  Why are people trying so hard to un-retire me?  Are people more comfortable with me if I have a lifestyle similar to theirs?  Well, I guess I’m going to make those folks a bit more comfortable.

I’m adding a word to my title–I’m now Semi-Retired.  I’m an accidental Semi-Retiree.

I guess I’ve been a Semi-Retiree since I started this blog in July.  The blog is work–right?  But I made $20 on the blog last year, and I spent over $3,000.  Most of it was to attend a financial bloggers conference (yep, that exists).  But over $600 was for hosting and software.  So I guess this blog is the worst part-time job ever–but I love it.  And my readership is growing and someday it may make a few dollars (in case the IRS is reading this). Continue reading “Yikes–I Went Back To Work!”

Turn A Treat Back Into A Treat

When something is scarce, we value it more.

Our water was shut off the other day so a leak could be fixed in front of our desert home.  Fortunately, Mr. Ms. Liz saw the plumbers coming and filled a bucket with water.  I can wash my hands in about 4 ounces of water when water is scarce.  When water isn’t scarce, it takes at least four times that much.

I love sweets–chocolate, sour sugary, chewy caramel–all of them.  My Mom was a dental hygienist and didn’t want sugar on our teeth so there were no sweets in my home; even the table sugar was hidden.  This turned me into a great sweet sleuth (with only one cavity) but also made me enjoy every morsel of any sweet.  Each year, my brother and I were given the Russell Stover four pack chocolates in our Christmas stockings.  I remember stretching those four chocolates out over the day, paying close attention to each bite and each flavor.  Last night I ate four blueberry/dark chocolate squares almost without a thought. Continue reading “Turn A Treat Back Into A Treat”

How Are YOU Doing On Your Path To Retirement?

I’ve written a lot about my path to retirement.  The savings rates it took to retire at 51 and the choices we made.

savings-rate-nw-accum2

I’ve also stressed that everyone’s retirement path is different.  We each have to find the path that works for us.

I found a great resource that can help you figure out how much you need to save, what savings milestones you should have reached at certain ages, where your retirement income will come from and how to make your retirement savings last.  Fidelity Investments released a series of articles that will help guide you on your path.

How much should you save for retirement?  They say 15% of your annual income.  This includes your contributions + any employer match you receive.  This savings is for retirement only–any other savings goals would be in addition to this 15%. Continue reading “How Are YOU Doing On Your Path To Retirement?”