According to Gallup research, 62 is the average retirement age for Americans; however, there is no one right retirement age.
In this post, I’ll share a real life story of a couple planning their retirement and walk you through some practical steps to take you through planning your own retirement.
Real life story of a couple planning retirement
Rob and Adrienne are nearing retirement but worried about having enough.
In our conversation, we dig into their Conscious Spending Plan to reveal a massively successful investment strategy that remains shrouded by deep lingering fears, $3 questions, and hard-to-break bad habits with money.
Rob is still plagued by his fears about spending money despite the both of them already having $2million in net worth. Adrienne has bigger visions of a rich life and they both struggle to communicate that with each other.
To help them, I pressed them on the importance of setting specific, quantifiable goals. Vague aspirations can perpetuate financial anxiety, while concrete numbers provide a clear target to work towards.
By nudging Adrienne for specifics, I wanted to show how being detailed with their desires could make their retirement planning more enjoyable.
[00:05:04] Adrienne: I would love to tip extra when I go out to eat with people. I would love to also– I don’t know. If I had to dream, like a dream, I would love to create, if I had the money, if this is actually real, to create a scholarship for some people that I know would love to take coaching programs that I love, or to take classes or things like that. I would love to be able to have that kind of generosity in the world. And also really support causes that mean a lot to us, like environmental causes and things like that. And we do give money to charity, but to give a little extra more money to charity.
[00:06:03] Ramit: Let me pause you there, Adrienne. I love what you’re saying. You know what I haven’t heard at all? Is any specifics. So you mentioned tipping. I don’t know how much. You mentioned a scholarship. I don’t know how much. Charity, I don’t know how much. If we’re talking about an extra 2% tip, let’s just say it and be done with it because that’s easy. Look at Rob’s face right now. Rob’s like, what the fuck numbers are you talking about? Just tell me the number. I have the calculation open right now.
[00:06:29] Rob: Fear was coming up as she was describing all of this stuff.
[00:06:32] Ramit: Hold on. Hold on. Hold on. Hold on. Hold on. This is very important. This is amazing. So Adrienne, you’re painting this beautiful vision. I love it. It’s powerful. It’s compelling, and it’s personal. That is a beautiful set of ingredients for a Rich Life.
[00:06:48] Rob did a great job. Rob, first you were clouded by fear. It’s like a cloud. That’s what I see. Fear, it’s a cloud, a poisonous gas you can’t see through, and you inhale. Look at me. And the toxin gets into you. It makes you unable to hear. It even makes you unable to see.
[00:07:13] It’s a noxious green gas cloud around you. That’s fear. That’s how I see it. But we cleared it away, and you were an excellent listener. So let’s try to ground this a little bit. Let’s start with the tipping. I love tipping. I love people who tip. I hate cheap tippers. What percentage do you have in mind in your Rich Life?
[00:07:34] Adrienne: I had 25%.
[00:07:37] Ramit: Love it. So do we all agree from now on you’re going to tip 25%? Is that the new rule?
[00:07:45] Rob: Yeah.
[00:07:47] Ramit: You’re sure? I don’t want to pressure anybody. It’s your money. It’s not mine. Tell me. If you’re worried, this is the time to speak up.
[00:07:53] Rob: I’m not worried. This is what I’ve been tipping mostly. So yeah, it’s fine.
[00:07:57] Ramit: All right. Adrienne, how do you feel about that?
[00:07:59] Adrienne: I feel good about it now that I know that I’m allowed to do it too.
[00:08:05] Ramit: Totally. What do you learn from that example, Adrienne, in describing your Rich Life?
[00:08:10] Adrienne: I learned that Rob and I don’t ask each other a lot of questions.
[00:08:15] Ramit: Correct. You two are not asking each other any questions, so it’s like one person’s just saying something, and then the ball just drops like dead. There’s dead silence here.
Most couples I talk to are often blinded by the numbers, they miss the bigger picture of what money can do for their lives. I also pointed this out with Rob and Adrienne.
[00:14:38] Adrienne: Well, we hired a coach actually, who’s really cool, someone from our community. And then we just decided to commit to this. It’s an emotional program that’s on Zoom. It happens every other Tuesday, where we get together with a whole entire community of people, and we talk about different issues. And then we also have private counseling as well on Zoom.
[00:15:10] So that’s what this year was dedicated to. I was a little bit surprised when Rob said that we weren’t doing anything that he wanted to do this year because I feel like we’re doing a lot together that I thought we both decided on together.
[00:15:29] Rob: Yeah.
[00:15:30] Ramit: That’s because in your relationship, the numbers eclipse everything else. You could go on an amazing vacation and all you remember about it are the numbers. You can be doing all these amazing things, but the only true central focus in your relationship as it relates to your Rich Life is the numbers.
[00:15:50] And that will not change no matter how much money you have. Your money’s going to double. You know the math. Rule of 72. It’s going to double. It will not change until you tackle the actual symptoms. I’m glad you’re doing this coaching class. I think that’s amazing.
[00:16:06] Adrienne: The rule of 72, though, does that apply even if you’re not putting money into the market?
[00:16:12] Ramit: Totally irrelevant to a more important point.
[00:16:17] Ramit: You’re proving my point, which is that in your relationship, numbers eclipse everything else. Do you see what I mean? And it’s hard. It’s easier to ruminate and spin, but it’s hard to be like, what’s actually going on in here?
[00:16:59] I love that you’re starting to tackle it, but in my opinion, of all the stuff you talked about, relaxing, using your heart, helping the planet, getting to have fun and relax, massages, trips, the only way you actually get to do this and enjoy it is if you learn to manage your fears, Rob. Nothing else matters.
[00:17:22] Rob: Part of it is a lack of vision, and part of it is fear. I feel like the fear is almost like the fog you’re talking about. It’s a general fear. I don’t know if I have a specific–
[00:17:34] Ramit: I guess what I’m saying is, Rob, we can see that this is costing you a lot. It’s costing you trips. Most importantly, your fear is costing you the ability to connect with Adrienne over a Rich Life vision, one that you’ve both worked incredibly hard for.”
To give them more perspective, I also walked them through several tangible options they could consider.
[00:39:27] Ramit: Assuming you stop working this year, you keep your expenses where they are, at 4,900 a month, no wiggle room. You continue to travel for coaching retreats, etc. $30,000 a year, and you live until 95. We’re assuming that because you’re in good health. And again, you don’t want to run out of money before you die. What do you notice on screen, Rob?
[00:39:57] Rob: When I’m 90 years old, I’m still going to have $1.2 million.
[00:40:01] Ramit: Mm-hmm.
[00:40:57] Rob: At the end of life, we end up with over a million dollars doing it that way.
[00:41:02] Ramit: Yeah. And remember, that’s if you live until 94, 97. It continues to grow. It grew last year, but I felt like because the market was doing so well last year, that was the only reason it grew last year. For the next seven years or eight years, it has the balance growing as opposed to leveling off so early.
[00:41:30] Adrienne: It seems more relaxing to know that everything is going to be okay, I guess.
[00:41:40] Ramit: Okay. I love that comment. How do you know this chart is more relaxing?
[00:41:48] Adrienne: Because there’s not a negative sign on it.”
Helping Rob and Adrienne open up about their retirement dreams revealed just how deeply fear can take hold, even when you’re financially successful. By gently pushing for specifics and digging into those underlying beliefs, I wanted to show them how getting crystal clear on what they want is the key to actually enjoying their success.
How much do you need to retire?
You really want a number? Okay, here it is: $1.8 million. That’s how much you and your partner need to comfortably retire.
Let me explain.
- Retirement age: Let’s say you retire at 65.
- How long you’ll live: American women will live, on average, 14 years beyond 65, and men will live 8 years beyond 65—to ages 79 and 73, respectively. (Now you see why I want you to live your Rich Life now.)
- Income: Assume you make the median household income of $70,784 and want to continue your lifestyle in retirement.
- You need: $1.8 million ($1,770,100, to be exact).
That number isn’t random. It’s based on financial advisor Bill Bengen’s “4 percent rule,” which says that you can safely withdraw 4 percent of your portfolio every year of retirement—including increasing your withdrawals based on inflation—and not run out of money within 30 years. (To simplify the actuarial science, we use 30 years because you want to protect yourself from running out of money before you die.) Some bozos claim you can safely withdraw 8 percent per year (and “easily” make 12 percent in the market), but 4 percent is much more realistic. I cover this in more depth in I Will Teach You to Be Rich.
If you have $1.8 million in your portfolio, you can safely withdraw $72,000 per year—which, in this example, is exactly the current income you’re living on. You wanted to know the number, so there you go.
When should you start saving for retirement?
In a perfect world, you should have started saving for retirement yesterday. So whether you’re in your 20s or later in life, begin setting aside money as soon as possible.
The key to successful retirement planning is giving your money ample time to grow through the power of compounding, which multiplies your savings exponentially. The earlier you start saving, the more your money can benefit from compounding.
To illustrate this concept, consider the following scenario: If you begin saving at age 35, contributing $3,000 per year to a 401(k) or a similar tax-deferred retirement account, you’ll have invested $90,000 of your own money by the time you retire at age 65. However, thanks to the magic of compound interest, assuming a 7% annual return on investment, that $90,000 will have grown to slightly over $300,000 by retirement age.
Budgeting is outdated. Build your conscious spending plan to take control of your finances and spend guilt-free on the things you love. Find out how in our FREE guide.
How 401(k)s work
A 401(k) is a tax-deferred retirement account that allows you to save for retirement while enjoying tax advantages. Money that goes into a 401(k) is pre-tax. In comparison, if you put money into a normal investment account, some of it will go toward income tax. Essentially, you can save more with a 401(k). This also means you’ll have more money compounding — translating to more money in the long run.
Another major perk of a 401(k) is that many employers will match a certain percentage of what you put into it, up to a certain annual limit. For instance, if you earn $80,000 per year and put 5% of your salary ($4,000) into a 401(k), a company offering 1:1 matching will likewise put in $4,000, doubling your investment. You can even automate contributions so you don’t have to stress about the process.
However, if you try to withdraw from your 401(k) before you reach the full retirement age of 59 and a half (as of 2021), you’ll face withdrawal penalties. But if you leave it there and don’t touch it until you pass the 59 and a half eligibility mark, you won’t face these penalties. You’ll just have the normal income tax to pay on the money when you withdraw it.
What about retiring early?
Although the baby boomer generation may have set the benchmark at 62, millennials and Gen Zers plan to leave the workforce earlier than older workers. With savvy financial planning, this milestone is possible. It just takes research and dedication.
The 4% rule can also help you plan for FIRE, which you can use to set your financial independence goal. This article talks more about how to achieve that goal, including earning more money (for example, through a part-time side hustle), investing in tax-advantaged accounts, and diversifying your investment portfolio. Savvy financial tools like a Roth conversion ladder can also help you retire early.
People who want to retire early may also want to consider cutting costs. Keep in mind that factors like location can impact the cost of living. The cash that seems sufficient in small-town Utah or Vermont may not get you as far in an urban center like Washington, D.C. A growing number of Americans are even moving abroad for retirement, looking to countries with a lower cost of living, like Mexico.
Your journey to a wealthy retirement starts today
To simplify retirement planning, incorporate it into a conscious spending plan. This allows you to manage your money in a way that includes guilt-free spending, giving you the freedom to lead the lifestyle you want while still controlling your finances.
If you’d like to learn more about how to create a conscious spending plan that works for you, watch a 10-minute summary of my NYT bestselling book while you’re here!
Or, download the first chapter right to your device: