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Want to retire early? Answer these questions first

Usually when one of our 20- or 30-year-old listeners sends us a question for the show, they wonder if they can afford a home or what they should do to pay off their student loans. 


A guide to U.S. retirement accounts Learn more about what kind of plans are out there and which is best for you. Plus, browse our other resources to help you reach your retirement goals.


But not 30-year-old Amanda in Chicago. She has no debt, holds six-figures in retirement savings, an emergency fund of $35,000 and was recently let go from her company. And she's wondering if she can skip the whole day-to-day job thing and get straight to retirement.

"I'm calling in today cause I'm hoping you'll tell me I'm ready to buy a boat and sail off into the sunset," says Amanda. "When is enough, enough? I was diligent and put away money well."

Amanda actually has more savings than 75 percent of the country. But is it enough to retire?

Though some sites say that retirement lies in a magic number, like saving $1 million or 10 times your annual salary, it's more important to figure out what you're saving for, since every retirement situation looks different.

Questions to answer

  • Where will you live? Do you still owe money on your home or pay rent monthly? Would you be able to afford that even if your income stopped? 
  • Do you plan on still working? Even if you do leave the 9-to-5 behind, could you work a part-time schedule or find freelance work if necessary?
  • Will you have to take care of family? If your parents aren't adequately prepared for retirement, will you have to support them?
  • Where will you live? Other cities, and countries, offer significantly lower costs-of-living. Would you be willing to leave?
  • How much debt do you have left? Will you be able to juggle payments even without income?
  • Wha will you do? Some people aren't content with sitting at home. Will you travel or volunteer abroad? How much will that cost?

About the author

Carmen Wong Ulrich is the former host of Marketplace Money, APM’s weekend personal finance program.
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Carmen:

I really wanted to comment on a different Marketplace Money story from the same show, but the newly designed web page now makes that impossible.

Regarding the interview about marriage as a contract. I'm absolutely astounded that you found this a novel idea, when this is so obviously what is going on in a marriage (weather or not it is openly stated). As one of your guests pointed out, this has historically been the way it has been commonly understood (whether between 2 people or between them and god).

Also the the idea of an annual renewal is also very old; it was the common practice in Pre-roman Celtic societies. Marriages typically occurred in the spring at the feast of Beltane and were renewed at the next Beltane if the couple still wished to remain together. It was something you reevaluated and to which you recommitted each year.

Carmen,
Set me up with Amanda! Haha. I am also 30, live in the Midwest, I have a similar six figure savings and am careful with my money. I think one of the biggest problems that people have with relationships and marriage is the idea of what to save and not to save. That portion of the interview hit on an excellent point of the fact that it is difficult for people in our situation to find someone of a similar background who has similar financial and retirement goals. If only there was a place to find like-minded people :) Excellent interview though, I appreciated the story because of my similar situation and the suggestions of staying active with connections and being connected with others in your field. After I was laid off, it definitely became more difficult to find a new job the further time went on and maintaining connections was key to finding a new job.

Ditto to baseballfans comment! Set him up!

Carmen,

Welcome to Marketplace Money!

In the broadcast you labeled Amanda a "unicorn", but she's really only half of one. The half that counts, of course, is the mental fitness she has demonstrated by working hard and saving responsibly. Kudos indeed.

But she's far from "fantastical" (as you called her): off the top of my head I can think of at least 5 people in my life in Chicago (including myself) between 28 and 35 who already have over 7 figures saved/invested, with 6-figure (3-4 year) emergency funds. We all got here the same way Amanda did, and you've never heard of us because we don't live extravagantly. We keep plugging away at our jobs because we like them or because we recognize that $1M is not enough to support a person for 40-60 more years, let alone a family!

You also talked about finding Amanda a partner who shares her financial attitude. Good luck to her! If her search is anything like my experience seeking a woman in Chicago who doesn't want to spend all of my money, it may take her a while ...

Six figures is probably not adequate for a reasonable draw down over the next 40-50 yr. Even those at 60+ are encouraged to have 7 figures ..... (3-4% draw down per year is a commonly accepted rate) -

Besides, what will you do for the next 40-50 yr? -- you DO have an adequate nest egg to launch an "alternative" - your own craft/sales bus - back to school for the degree you really wanted - work part time at a job you really want - apprentice yourself in a craft/trade/skill (baking, cooking, catering - or writing poetry/prose - carpentry/fine woodworking/metal working ) - buy an RV, tour the continent and write about it - gotta do something beyond cook/clean/listen to NPR for the next 40-50 yr!

Wish I were so lucky as to have a nest egg when laid off in my early years .... Had wife/kid and needed a job so ended up working the next 20 yr. in a company that I despised.

frn

There were no details in this piece, to a fault. Obviously the woman did not want to reveal her nest egg. Well, they could have talked about how she plans to tap this nest egg - 4% rule? Leave it alone, use emergency funds and then part-time work?
Or what?
It was so lacking in investment discussion, planning, anything - sorry, but this was a miss.

I agree. I was expecting a discussion that tried to answer the caller's question - which was - how much is enough to retire on? And yes, it depends on many factors, but the substance was never addressed.

Amanda asked a question that was not answered. "How much is enough to consider retirement?" Too often these are answered by a function of income. Instead consider it a function of your expenses. I follow a blogger named Mr. Money Mustache his advice is that if you have 25X annual expenses you have enough to consider retirement. One of the few places that can be found that recommends how much is enough for "retirement" based on expenses.

@Ritired River --- Actually, many financial "advisors" recommend having enough to live on 4% withdrawals per year which is the same thing as 25X. However, that 25X rule of thumb applies to a 65 year old who expects to live 25 years in retirement. She's 30 and could live another 54 years assuming her X chromosome 84 year life expectancy. She really needs more like 54X her current annual expenses assuming she hopes to maintain her current lifestyle.

To Carmen:

Now that Amanda has saved up a stake and wonders why she should keep working, it's time to take a year and examine herself, and figure out what she most loves to do. Then figure out how she can MAKE money doing that. Create money.

If she likes to paint, she can set up a virtual store that lets people buy prints of her paintings for various things - as a normal framed picture, as a T-shirt design, as a lamp shade design, as modern skirt/shirt material, as furniture cloth design, as a back-lit wall light (same painting, on plastic). America offers freedom, and the internet offers endless income possibilities by letting you market products worldwide.

Carmen, you advised her on limiting her spending, but never mentioned INVESTING her money.

She can buy land and have a four-home townhouse built, and have a property manager rent out the homes to four families, and have a never-ending income source.

She can buy tools and materials that she needs to do the things she loves to do, then use those tools to do those things. If she loves boating, she can offer boat tours, boating lessons, fishing expeditions, etc... Her boat would then be an investment, because it would be an income source.

Read Robert Kiyosaki's books; he has an excellent attitude about money.

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