Cosy Cabins or Dreamy Destinations?

Retirement: Not When, But How.

We're all conditioned to believe that reaching retirement age is the ultimate dream. We hear it constantly: "When I'm 65, I'll finally be free!" or “Only 10 more years until retirement for me”. The problem? Reality isn't on that schedule and the goalposts keep moving. As governments continuously make changes to the retirement age we suddenly realise that even the "when" we thought we had control over is out of our hands.

• UK’s pension age is rising to 67 in 2028 and 68 in 2044.
• In France, despite protests, the retirement age increased to 64 from 62 with the requirement that retirees must have worked for 43 years - that means working non-stop from age 21.
• The US increased the full retirement age to 67 and is considering an incremental increase to 68 starting in 2026.?
• Vietnam’s retirement ages, 60 for men and 55 for women, will be incrementally increased to 62 and 60 over the next 4 and 11 years, respectively.?

But there's an even bigger issue: everyone's so fixated on when they can retire, they forget to ask how.

“There’s no chance of retiring for at least a decade,” Nancy, 66, London.*

*Otte, Jedidajah. “‘We never got off the treadmill’: the Britons who can’t afford to retire'" The Guardian, 8 Feb 2024.

Even when hitting the public pension age, the public pension is not nearly enough to survive. Stories like Nancy's, a 66-year-old Londoner with a decade of forced work ahead, become all too common.?

This shouldn't be the norm, right?

Financial Freedom, Not Just Retirement

So, what if we flipped the script??

Objectively speaking, wouldn’t the world be a better place if working pushed us towards a goal or dream as opposed to working until a government-enforced date?

Whether you want to retire in a cosy cabin or jet-set to dream destinations, having the freedom to pursue life in retirement at an age that you yourself determine is, at least for me, the ultimate W.?

Because it shouldn’t be just about reaching a certain age; it should be about building a life where your money works for you at a certain age. Read that again.?

Of course, we can’t just wish this life to fruition, we have to plan for it.

The bad news?

It’s a bit of a Financial Struggle. You have to put some work in.?

The good news?

It’s better than struggling financially.?So what do we do?

Mapping Your Escape Route

First things first: how do you want to retire?

Figuring out how you want to spend your time in retirement will help you determine how much money and assets you will need to be financially free. It gives you a goal to target and something meaningful to actually work toward.?

Second, you have to figure out how much money you will need to afford the lifestyle you have decided that you want. Spending your days in a cosy cabin with your family coming to visit would be significantly cheaper than a globetrotting adventure!

Lastly, you have to take steps to implement your plan to help you reach your goal within your specific time frame. Whether you increase your income, cut spending or invest aggressively, you have to implement an action plan to hit your goals.

A very simple example:

How do you want to retire??

Be completely financially free, not have to work and explore the world 3 months every year.?

How much will you need to live your dream?

Cost of living is $40,000/year.?Assume travel costs are $3,000/month x3 months.?

The total cost of living your dream would be $49,000/year.?

How to get $49,000/year?

In 1994, Mr William Bengen published a study called the 4% rule which showed that most retirement portfolios would last at least 30 years if you withdraw 4% from your investments in the first year, and then adjust your withdrawals every subsequent year based on inflation.

Simply put, if you want to have a $40k inflation-adjusted annual income, you will need an invested retirement portfolio of $1m on your first day of financial freedom. (50% in bonds and 50% in an index fund.)

To get $49,000/year in income we would need an invested retirement portfolio of $1,225,000.

(How to build a $1,225,000 portfolio is a topic for another day, but it’s not as hard as you think. Have a play around with THIS investment calculator to see how much you have to invest to hit your goal!)

Financial Freedom is Your Destination But The Journey Matters

It is equally as important to remember that the path to financial freedom isn’t solely about the end goal. It’s about creating a life you enjoy now, while also being able to enjoy your life down the line.?

After all, we are here for a long time and a good time. But, we cannot neglect the future in favour of just enjoying the present.?

So while you figure out how you want to retire and what financial freedom means to you, take the necessary steps to also plan for the now.

What do I do/want?

I love the idea of settling somewhere in the Mediterranean. Italy or Greece, maybe. To be able to live there, my wife and I would likely need a combined inflation-adjusted income of ~$54,000/year.?

Since I would likely want to continue working a little and I assume I’ll have a working income of ~$20,000/year, we’d need to withdraw $34,000/year from our retirement portfolio to reach the necessary $54,000/year income goal.?

This means that our combined retirement portfolio would ‘only’ have to be valued at $850,000 for us to live a version of our dream life. Call it $1m to be on the safe side - this is my/our goal.

I hope this article has helped you reconsider retireme… I mean financial freedom!

So how do you want to retire??Cosy cabin in the woods or cruising the world?