A few weeks ago, I read a great article from Joe @ Retire at 40 talking about whether retirement planning is a sprint or a marathon. I’ve been giving it some thought lately about how we should approach retirement planning and I really liked the running analogy. There are several ways to retire just as there are several ways to train for a run. Let’s revisit how you can retire depending on your “workout”:
Sprint – Is this an Option?
In my opinion, you can’t really sprint your way to retirement. Unless you have the ability to make a lot of money in a very short period of time, the sprinting method will not happen. In order to build a solid nest egg, no matter how good you are at saving, you will need at least ten years to build it.
Unfortunately, we see too many people waiting until they hit their late forty’s before thinking about retirement planning. This is when you wish you make a lot of money and that you have finished paying off most of your debts. If you are not in this situation, the sprint to retirement will be harder than you think.
For example, someone at 45 saving $10,000 per year at 5% will gather only $330K before he retires à 65. At the same rate of investment, the 330K can generate $26.5K per year as a pension and the payment will stop at the age of 85. This calculation doesn’t take in consideration inflation so you can guess that 26.5K in 40 years in not much to live comfortably! If we increase this amount to $20,000 per year, the retirement nest egg grows up to $661K and will generate $53K per year for 20 years. So if you are thinking that sprinting is a good option; you’ll have to save $1,666 per month if you start at the age of 45!
Spartan Race – For Those Who Eye Early Retirement
If you ever have the chance to do a Spartan Race, Prison Break or a Tough Mudder race, DO IT! I did one myself this summer and I truly enjoyed this mix of hiking, running and military training. It truly demands all your body’s abilities.
You can take the Spartan Race way to plan your retirement. It will be harder than a regular race. Instead of focusing solely on saving money, you will need to work on all your personal finance abilities. This may include saving more, creating a business, paying off your debts very quickly, etc.
My plan to retire looks like a Spartan Race: I work more hours than a normal job since I work at both my job and online business. By doing both at the same time, I make sure that I have my “normal” retirement plan on line while I try to reach early retirement.
My normal retirement plan includes investing $5,000 per year in my savings account + my pension plan. This plan ensures that I’ll be making roughly $100K per year starting at 65 and ending at 90. This should be enough to cover for both my wife and I.
Now that I’ve secured this option, I can start my Spartan Race and look for early retirement. For example, if my online business generates over $20,000/month in ten years, I might be able to stop working in my early 40’s.
As is the case with real Spartan Race, I’ve faced a few obstacles with my retirement plan. Having three kids has slowed me down since I have more expenses and less time to work on my company. I don’t regret my choices at all, and I just came to the conclusion that the Race was harder than I thought in the first place and that retiring early is quite challenging. I also failed to resist spending more in previous years. This had a big impact on my early retirement plan.
At least, my “marathon” plan is on pace and I know that in the worst case scenario, I will retire at 65 with a solid pension.
The Marathon – The Right Way to Approach Retirement Planning
I’ve never run a marathon… yet. The biggest race I’ve done was 16.5km and that was this summer. In order to reach that level, I started by running 5km 3-4 times a week this spring and ran 10km once a week. I started slow and increased as I think my body can support it. I expect to be able to do my first half-marathon next year. In fact, I could probably take the step this year but I’m not sure I’ll have enough time ;-).
Retirement planning way ahead is like training for a marathon; there is nothing exciting about it! When you make a habit of saving money on each pay check, you ensure a safe retirement. At the same time, you don’t have to starve for years or stay on your couch for your vacation. Actually, if you save $1,000 per month toward retirement for 35 years, you will be a millionaire (this makes $1,083K at a 5% investment return). Since you don’t need that much money to retire, you can drop your monthly retirement plan to $600 per month and still gather $650K in 35 years.
No matter how you run your race, the end is always a finish line. The only thing that is different is how you feel once you have crossed the line! Are you going to be proud, exhausted or feel ashamed because you haven’t trained enough for your race?