Retirement Is Not An Age. It’s A Bank Balance.

Truth be told, retirement is a bank balance. People commonly think that of retirement in terms of an age. Traditionally, it’s been age 65 and lately it’s been cropping up to age 70. For a little while in the 90s, age 55 was the catchy second half of a very successful marketing campaign called Freedom 55.

I’m here to tell you that age doesn’t determine when you retire. Your bank balance does that. Think about it for a minute? If you hit age 55, 65 or 70 with $17.89 to your name, can you really consider yourself retired? Is there even the slightest possibility that you’ll have to keep working because you won’t have enough money to live?

On the other hand, if you have $23,000,000 in your bank account by the time you’re 30, 35 or 42, then it’s quite like that you have the option to retire. Whether or not you do so is entirely up to you. The fact is that it is the amount of money in your bank account that determines when you’re financially able to retire.

Age has little to do with when you can retire. The more you invest, and the sooner you invest, the faster your net worth will hit an amount that will allow you to retire. This is the premise behind the hard-core-retire-as-soon-as-humanly-possible articles from FIRE people who are willing to live on the absolutely least amount of money. Some people are willing to save 70%, or more, of their incomes so that they can live off their dividends and capital gains without working for someone else. More power to them!

Myself, I choose not to save quite that much. Make no mistake. I do want to retire early, but I don’t want my life’s journey to be miserable. Living on 30% or less of my take-home pay would make me miserable. You might be able to do it with ease, but maybe not. You’re the only one who can make that call.

But back to my main point…

Spending Every Penny

If you spend every penny throughout your life, and borrow to spend more, then you get to retire never. It’s a harsh truth. You need to have extra money available to divert from today’s spending.***

That money has to be invested for long-term growth. This is why I repeatedly suggest that you invest a portion of every paycheque into equities and to re-invest whatever dividends and capital gains your investments generate. Unless you’re saving huge amounts of money, it’s going to take a long time to build the cash cushion that will fund your retirement.

Again, there’s no magic to the age 45 or 50 or 65 or 70. You can retire as soon as your portfolio generates enough money to replace the money from your paycheque. You’re also going to want your portolio’s annual growth to outpace inflation. No one aims to dust off their resume at age 90! You need your money to grow faster than inflation so that your purchasing power isn’t eroded over time.

In other words, retirement is a bank balance. Once you have enough money in the bank, you can retire. Live below your means so that you always have money for investing. Stay of out debt too. Money spent on repaying your creditors is money that cannot be invested for your desired retirement.

Semi-Retirement

If you need more motivation to save and invest for your future, always remember the following. Employment options widen considerably once your portfolio generates enough to cover the living expenses that won’t be covered by a potentially lower salary. Happiness – and semi-retirement – might be just one employment move away if you have enough money stacked to pay your bills.

The principles of saving for retirement apply equally as well to semi-retirement. Maybe you hate your current job with an unholy passion, but all the jobs you truly want to be doing will pay you less. You earn $75,000, your annual expenses are $60,000 and you invest $15,000. The job you really want to do only pays a salary of $40,000 and your portfolio generates $30,000 per year. (These are net income numbers, not gross.)

Since your portfolio covers half of your $60,000 expenses, then you can take the lower paid, but soul-enriching job. And in this example, you will still have $10,000 each year to invest into your portfolio (= $40,000 – $30,000), so your portfolio would still be growing. Admittedly, you’re saving $5000 less per year and you may have to work longer. Yet, you wouldn’t hate your job and you wouldn’t be miserable while working. Only you can decide if you hate your job enough to take a pay-cut.

No Downside to Saving & Investing

If there’s even the slightest chance that you don’t want to work until the last breath leaves your body, you should be saving and investing as much as you can.

Absolutely spend on what brings you joy, but ruthlessly cut out everything else. When you spend your money, I want you to be getting maximum utility and joy out of that purchase. Your money shouldn’t be wasted on that which adds nothing to your lived experience. What sense does it make to spend your money on things that don’t bring you joy?

Again, retirement is a bank balance. It is not an age. If you start today, then you can reduce the risk of having to work into your dotage. If you’re still working at age 70, 80, or 90, then make sure that doing so is a choice and not a requirement.

Do what you need to do to increase the odds of having the retirement you want when you want it.

*** Our economic system is designed so that people at its bottom live hand-to-mouth for their entire lives. These are the folks who legitimately have nothing to save because they are just barely surviving from one paycheque to the next. This article – and most retirement advice – is not for them. People in financially-precarious situations are forgiven for focusing all of their energy on surviving from one day to the next. Everyone else has no excuse. If you’ve got some fat to trim in your budget, then you’ve got the money for saving and investing. You’re simply choosing not to.