Feb 20

Feb 20 How To Plan For Retirement Without Stress

Ultimate happiness is the ultimate goal. To achieve this, I’ve decided that financial independence is my means to that end. So to reach that ultimate goal, I have a lot of smaller goals along the way. These goals are set through a lot of reflection on how I want life to look after retirement. How much money do I need? Well that depends on how and where I choose to live. Camper vs Home, Rent vs Buy, U.S. vs abroad, higher luxury vs current frugality. Using these personal preferences along with as much research and hard data as I can, I mixed it all with a lot of buffer that led me to my savings goals.

54% savings rate
Max IRA & TSP every year
The rest into Vanguard Index funds
Cut all expenses not necessary or leading to real happiness

I Had Zero Education on Investing

This experiment started on March 1, 2015 and the results so far have been amazing. I started off with a net worth of $38,200 which was all in cash. I was able to get there even after personally paying for college because I have always been frugal. I even took the ACT seven times so that I could get a high enough score to cover most of my college expenses. I was doing well but I knew that trying to retire on cash alone was a losing battle. So, I opened up a Betterment account because investing scared the crap out of me and I wanted someone else handling it. I’ve never had any formal education investing but I knew one thing for sure…The time to start is yesterday.

From there, I’ve started to self-educate myself as much as possible and really fell in love with the Financial Independence/Retiring Early movement. I gained more confidence in the idea of low-cost index investing and started a Vanguard account to mirror the investments Betterment was making for me but at a fee closer to 0.05% instead of 0.25%. I was finally investing my own money. At the end of my “fiscal year” (Apr-Mar), I had surpassed my goals with the following stats:

$1,738.09 monthly expenses
$2,780.93 monthly savings
Savings rate of 61.54%
Net worth increase of $34,456.13
Net worth $72,656.13

I Was So Proud of Myself

I was so proud of myself. I really felt like having a goal and tracking everything made a big difference. I didn’t feel as though I was depriving myself at all because I was going on a lot of trips like skiing, any concert I could find, and luckily some nice ones for work. I was so busy that there’s not much more I could have done. Now it was time to start the year two spreadsheet.

My spending has stayed very similar even with some large purchases ($1000 of camera equipment, smart watches, trip for two to Mexico, etc.) and getting my Master’s degree. I had some great TDYs aka business trips (Australia!) that I really maximized and some slight pay raises which has allowed me to even outdo last year up until this point (Apr-Jan) with the following stats:

$1,789.19 monthly expenses
$4624.48 monthly savings (~$3,700 per month if you omit TDYs & Motorcycle sale)
Savings rate of 72.11%
Net worth increase of $57,009.69
Net worth $129,665.69

And That’s Where The Trouble Starts

It has really been a heck of a year so far and I never could have imagined exceeding a 70% savings rate. But now my competitive nature sets in and that’s where the trouble starts. My savings rate is partially this high due to lucrative TDYs (business trips) and selling a $3,000 motorcycle. The motorcycle sale is obviously not happening again and the TDYs are far from a guarantee. This means that even with a pay raise to Captain and a jump in housing allowance by moving to the Boston region, I will very likely have a lower savings rate next year in comparison to this year and it kills me.

Why do I even care? The numbers tell me that a 54% savings rate will get me the life I desire by age 43, especially if coupled with a military retirement. I calculate 54% to be fairly conservative and will probably give me excess to what is necessary and yet somehow a 60% savings rate next year would be a letdown. This is something very real I am anticipating and trying to get out in front of.

My ultimate goal if you remember is ultimate happiness. I chose financial independence to get me there because for me, exploring and time with my friends/family are necessary for ultimate happiness. It would be a shame if I let my path to happiness turn into obsession and continual stress. Going forward my goal is to simply trust the process.

I’m Going to Take My Wins and Stop Judging Myself

If I’m meeting my checkpoints along the way and there’s no seriously negative trends then why fret. Much like the investment markets, there will surely be ups and downs with income and expenses. I’ve built in safety nets and I’ve vetted all the numbers numerous times. It’s easy to get caught up in the numbers and it’s tempting to shave off just one more month of your career, but once it impedes on your happiness at all, you’ve gone too far. That’s why I’m going to take my wins (years above 54%) and stop judging myself so hard and I invite you to do the same.

So how do you create a low stress path to retirement? First, the only goal you should really focus on is savings rate. You can’t control your returns no matter how smart you think you are so just do your part. Obviously, if you can increase your earning power that’s huge as well but refrain from driving yourself into the ground on the way up that ladder. Next, take the Ronco approach “Set it and Forget it”. Once you’ve calculated your needed savings rate, have that deposited automatically every month. Then transfer your cash that is above and beyond your emergency fund into your investment accounts. Lastly, don’t become a day trader. The money you have set up for these automatic withdrawals should be going into 401ks, IRAs, and brokerage accounts comprised of wide reaching index funds. You’ll move as the market moves (which you can’t control remember), the money will keep getting deposited, and you can just go about your days knowing your plan is solid.

The way I see it you have three options.

Don’t stress now and stress later:
- This is where you just live life oblivious to the needs of future you
- May have more fun now (debatable), and no fun working into your 70s
Stress now and don’t stress later
- This is where you stress about every potential decimal of saving and returns
- You’ll be set for retirement but may end up there worn from years of stress
Be responsible now, don’t stress later
- This is where you simply make your plan and stick to it
- You’ll have plenty of money in retirement as well as happy life along the way

It’s pretty easy to see that you really can have the best of both worlds. Don’t dismiss your ability to prepare better for retirement all while having a great life today. Grab yourself a good expense tracker and see just how much waste you have in your budget. Be creative and really squeeze the most value and experience out of every dollar. Set your plan up based on your excess. Then follow your plan and get ready to reap the fruits of your labor.

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