One of the epiphanies I have had while delving into the world of personal finance is that retirement is not a single number. Most of us are use to those ING commercials where everyone is walking around with “their number.” Most personal finance pundits will refer to planning for the future and estimating your financial needs with wide selection of retirement calculators for you to choose from.
Retirement is really a flexible target, there is not just one number for any of us. We actually each have a range. On the upper end of the scale you can easily buy the house of your dreams, travel on a whim and eat lavish meals at fancy restaurants. On the other end of the scale you will live a modest retirement at best or possibly need to supplement your income with a part-time job.
Retirement can come a lot sooner than many would think. Of course to get there may require what some might consider “extreme” measures. Jacob from Early Retirement Extreme has shown that if you are determined, you don’t have to have a lot of money, you just have to lower your consumption.
This chart is based on data provided by the New York Times graphic titled How Do People Spend Their Money. While many writers will highlight the best places to retire cheap, for this experiment I want to focus on how to get there faster. To do so we either need to increase income or decrease our expenses.
Looking at the chart the obvious opportunities are to decrease housing and transportation.
In a rare moment of spontaneity, while taking out the trash with my wife, I shared with her my desire to sell out and move to Detroit. She nearly tripped over her own two feet as she lost her balance due to the unexpected announcement. Once she recovered she concluded that this must be a joke.
But consider this for just a moment. Assume that you have worked hard to eliminate your debt and you have begun to accumulate a decent nest egg. Could you move up retirement if you were to move to a place such as Detroit?
Virtually every housing market in the country is in better shape than Detroit at the moment. The picture above is a listing that I found today! Houses are still selling for less than the price of a new car.
If you “retired” and pay cash for a house in Detroit you will already have nearly 22% of your expenses behind you. With no debt and no mortgage, how much money do you really need to live?
This of course is there the thought experiment gets very personal. If you can only be happy in life with champagne and caviar and need lots of sunshine and warmth you may not be ready for Detroit.
Do you enjoy lazy days at home in front of fire while watching your neighbors shovel snow. If a great day to you is spending the afternoon at the library reading, then Detroit is waiting for you.
Theoretically, with maybe the occasional side job, the wife and I concluded we could probably afford to retire in Detroit, but it is Detroit. No offense to all our hard-working motor city citizens but personally, I do need the sun and warmth. If we could only move Detroit further south!
This exercise does make me reconsider my vision for retirement. How much am I willing to compromise to achieve financial freedom sooner?
Detroit may not be right for you either but hopefully you do realize that retirement is a function of income, assets and expenses. The lower your expenses (both today and in the future) the quicker you can achieve your retirement.
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