Retirement planning? What’s that?
As an accountant, I knew I should be saving for retirement, but with life happening all around me it never really hit the top of the priority list until I was in my 40’s.
Here’s how it went for me:
- In my 20’s I took on a lot of debt (school, car, mortgage, credit cards)
- In my 30’s I was barely making ends meet. In fact, I was falling behind financially.
- At age 39 my marriage ended and left me with with more than $150,000 in debt, a single income household, and 2 kiddos to support.
- I switched employers many times over my career.
- I worked for some employers that offered pensions – and some (non-profits, startups, & contract positions) that didn’t.
- I didn’t seriously start saving for retirement until my 40’s.
Will I Ever Be Able To Retire?
This is the question that has been on my mind lately. Let me tell you why.
Sweetie will soon be hitting the “magic number” for his retirement under his pension arrangement.
Age + Years of Service = 85
Although he will only be 55 years old on his next birthday, he will be entitled to his full pension and is going to have to decide whether to retire. He has only worked for two employers in his entire life (20 years with the Canadian Military followed by 10 years with the Canadian Federal Government) and his pension was transferrable from one to the other.
He is young to be considering this decision, and of course there are other important factors to consider beyond his pension. He is still perfectly healthy and quite young.
- What will he do with his time?
- Is he ready to adjust his lifestyle?
- Is he ready to start living on a reduced income?
Admittedly, it was probably more good luck than good planning on his part, but he is one of those rare birds that has his retirement income sorted out.
His situation has had me looking at my own.
I started checking out the retirement websites for advice and to see where I stood.
Almost every website has a laundry list of things you should do to prepare for retirement.
Guess what?
They are all the same things you do when you simplify your life!
Simple living has me doing all the right things to set me up for retirement!
Here are 7 things you should do, according to the retirement gurus, to get ready to retire comfortably.
They are all the same things you do when simplifying your life.
1. Right-sized Housing
Retired or not, housing is where most of your money (and mine!) is going.
About 30% of the average household spending goes to shelter.
Heatmaps reveal that the average family is only using 40% of their home regularly; the kitchen, bath room, and where ever the TV is located.
The North American standard for homes can be described as “sprawling” yet we are not really using more than half of our homes!
Average houses have grown from less than 1,000 square feet in the 1950’s to almost 2,500 square feet today.
Still, most of us feel like we need more space.
It’s not because we have bigger families – we don’t. It’s because we have more stuff!
Houses have become two things:
- Status symbols (fulfillment of the American dream…)
- Storage for all our stuff
We are paying a premium for garages we can’t park in because they are too full of stuff, attics and basements that are nothing more than storage facilities, and rooms that rarely get used like formal dining, living, and guest rooms.
We spend our money and our time to heat, decorate, clean, maintain and insure all this unused space.
As you simplify your life, you right size your home to what you really need.
Along my journey to simplification, I tried many living arrangements.
I owned my own home, rented houses, and rented apartments in subdivided homes and apartment buildings.
I even rented rooms. No not during my university years – as a single middle aged adult. (That was a great way to save money fast and, because I had no responsibilities as a homeowner, all my time was free for fun and adventure!)
Today I live in a home that’s less than 700 square feet.
This keeps the cost of living low and manageable. Exactly what you are looking for in retirement.
2. Pay Your Mortgage Off Early
As long as we’re talking about housing let’s talk about mortgages because about a year ago I gave up my “debt-free” status card and took on a mortgage.
At the time I decided to purchase the cottage-style prefab where I am now living full-time, I was renting in another city where I was working. I came home often to visit my parents and my kiddos.
The “cottage” was going to be a place to stay during our visits, and would later become our retirement home.
I was willing to take on a mortgage this late in life because I felt a key to financial security in retirement would be owning a home free and clear.
I estimated that I could pay the mortgage off in 3-5 years because of my simple lifestyle.
First, I had a healthy down payment. Simple living allows me to save money, and I had savings not earmarked for retirement that I could use for the cottage.
Second, I knew I could save myself thousands of dollars in interest by paying the mortgage down faster. Here’s how I accomplish this:
- I pay bi-weekly on the same schedule that I am paid at work, rather than monthly.
- I maximize my bi-weekly payment. Most banks will allow you to pay more (up to a certain amount) and you can always move back to the lower payment, if necessary. Since the expenses related to my simple lifestyle are few, I can easily fit the max payment into my budget.
- I make annual payments on top of my regular payments. Most mortgages allow you to make an additional payment each year (up to a maximum amount) without a penalty. Simple living means I am able to save and contribute the full top-up each year.
By the time I am ready to retire the cottage will be paid for keeping monthly living expenses lower than if I hadn’t right-sized my home, and much more predictable than if I had continued to rent.
3. Live Below Your Means
If you continue to work full-time after you have simplified your life, you will be living well below your means.
If you are still in the process of simplifying your life and aren’t yet living below your means check out this note for tips on how to get there: You Can Live Below Your Means (Here’s How) – Nola Noreen!
We all know that when we retire, we will be living on less income.
When I compare my expenses today to my projected retirement income (based on my retirement savings to date) I can pay my bills and living expenses. I even have a little “mad money” but not as much as I would like.
This is pretty amazing to me.
Even thought I didn’t start seriously saving for retirement until my 40’s (and I had a lot of debt to pay down at that point), I am accomplishing this without scrimping and saving now to have a good retirement later.
This is 100% attributable to living a simple life.
The excess that I am earning by living below my means is going to towards retirement and to having life adventures now (before I retire).
There is peace of mind knowing that my living expenses are already covered, years before I am ready to retire.
As I continue working, living a simple lifestyle, and saving I am contributing to a better retirement lifestyle. The more I can save, the more life adventures I will be able to have in my retirement!
4. Reduce Spending (& Stuff)
Stuff costs you money.
First you pay for it.
Then you pay to store it and take care of it.
Then, because of it, you buy more stuff.
Ever hear of the Diderot Effect?
Put forward by famous French philosopher Denis Diderot (who ironically lived in poverty most of his 18th century life) is the idea that acquiring new possessions triggers a cascade of further desires or purchases ultimately leading to excessive materialism.
Diderot came out of poverty and bought himself a new scarlet robe. He then became dissatisfied with his other common looking possessions and started replacing them one by one.
We all feel these desires to keep buying and upgrading once the first purchase is made.
You buy a new dress and want shoes to match.
You get a phone and have to purchase a phone case, charging cord, and screen protector.
You start with the basic cable plan and before you know it you’ve added sports, movies and the kid’s channels.
A common struggle when people retire is that they overspend relative to their new (and reduced) income.
They need to downgrade their lifestyle to match their retirement income. For some, the transition is quite difficult.
When you simplify your life you come to terms with your stuff. You spend a lot of time getting rid of it and downsizing.
You figure out what is really important to you, and what you are likely to get rid of in the next round of purging.
Pretty soon you stop buying things are aren’t really serving you well.
By simplifying, you are already living a lifestyle that accommodates a lower income. Furthermore, it is a lifestyle that focuses on things that really matter to you.
It is a lifestyle that you love.
5. Get Debt Free
There is no question that it is a good idea to be debt free when you retire.
When you are not working it is much more difficult to pay down debt.
Heading into retirement with no loan or credit card payments, you have less financial commitments (and will be less impacted if interest rates get ugly) while you are living on a fixed income.
Simple living allowed me to pay off debt much quicker than I ever thought possible.
At one point in life, I thought I would be paying off my mortgage until I was age 65.
Remarkably I found myself completely debt free in my 40’s (after only starting to get control of my finances when I turned 40)!
6. Retirement Mindset
I have already mentioned how difficult new retirees can find it to adjust to the downgraded lifestyle required by a reduced income.
Even moderate levels of overspending during the adjustment period can make it difficult to recover and impact how long your retirement savings will last. The longer it takes you to make the adjustment, the more at risk your retirement becomes.
The social adjustment is often the hardest part.
As a retiree, you may not be able to say yes to every dinner out, every round of golf, every shopping trip with the girls, or every trip south.
You suddenly have a lot of time to fill.
It is tempting to head to the mall, take a day trip, have lunch out, or plan to meet friends for a movie. Of course you want to do these things in retirement.
Not every day, however, and only as your budget allows.
Those who have simplified their lives have already adopted a minimalist lifestyle, which is akin to a retirement mindset.
- They don’t spend money they don’t have.
- They look for free and low-cost fun.
- They have learned to enjoy the little things like gardening or a visit to a coffee shop.
- They only spend their time & money on things they really enjoy (whether that is travel, adventures, family, or passion projects).
- They have eliminated unnecessary expenses and kicked the shopping habit.
- They have learned that they don’t need to be doing what everyone else is doing, going where everyone else is going, buying what everyone else is buying, and generally keeping up with the Joneses.
Except for the part where you still get up and go to work every day, living a simple life is very similar to the way you will be living in retirement.
Financially and socially you have already made the adjustment.
7. Save
This seems kind of obvious, but every retirement guru out there talks about saving for retirement.
Living the simple life before you retire results in money to spare. Money that you can use to right size your house, pay your mortgage down early, get debt free, and save for retirement.
There are lots of places to go for investment advice and I would be a very poor person to advise anyone. I don’t follow the markets, buy real estate, or flip houses to build wealth.
I keep it simple.
I contribute to a pension plan through work, and to two of my own retirement saving plans on the side; one with a bank and one with a wealth management company.
Being the risk adverse person that I am, I don’t like all my eggs in one basket.
All of these “contributions” come directly out of my bank account each time my pay is deposited.
I do nothing but check the balances occasionally and meet with an advisor once a year.
I never see this money in my bank account, so I never miss it.
I quietly build my retirement savings while I go on with my life.
If it were any more complicated than this, I probably wouldn’t do it. (Know thyself!)
The Simple Summary
If you think retirement is out of reach and you have yet to embrace simple living, this could be your pathway to retirement.
I started saving for retirement in my 40’s with 2 young children and $150,000 in debt. At the time it was a struggle to make ends meet.
If I retired today (age 53) I could comfortably afford to cover all my needs without sharing any expenses with Sweetie.
This includes housing costs (including property tax, electricity, internet & phone, insurance), my vehicle costs, and household needs (food, clothes, personal care).
I am still working on saving up my mad money…but there is huge peace of mind in knowing how far I have come in such a short time by embracing simple living.