- Retirement is NOT what happens when you are no longer capable of working and are preparing to wind down your life. Rather, retirement is simply the ability to financially support yourself without having to work. This means that you can work if you want to but can pretty much do whatever you want with your time (i.e. in our case travel, study, work flexible hours, watch our children’s every sport game etc).
- How much you need to retire depends on how much you need to live (nothing to do with your salary).
- This means that reducing your living costs/spending has two effects:
- You need less to retire on
- You can retire sooner because you are saving faster
- 4% is very important. I’m still digesting exactly how it all works but my rudimentary understanding is: I need to have enough capital so that my living expenses per year take only 4% of that capital. This will ensure that my capital generates enough interest to keep up with inflation and provide for me for the rest of my life. This means that I can retire when I have saved 25 times my yearly living expenses. The brilliant Mr. Money Mustache explains it beautifully here. For my fellow number panic-ers (spelling?) here it is explained in picture format:
- I just love the graph in this post by Mr. Money Mustache because it makes complicated maths very practical for my Humanities-loving brain. For example, if we save 60% of our income (i.e. live off 40% of our income) then we will be able to retire in just TWELVE-AND-A-HALF YEARS! Say whaaaaat? 🙂 🙂 🙂 🙂