You Don’t Need A Retirement Plan

To achieve financial security and flexibility, set savings goals

There is no road to a traditional retirement. Instead, retirement, like so many other life events, will come in spurts. Allocate income wisely to live how you want to live today, on your terms, not the old and tired retirement industry’s.

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Portland: Where Young People Go To Retire / The Oregonian

Cash Flow

To subsist, you need enough regular cash flow to pay your bills. To live comfortably and put money away for the future, you need ample cash flow.

The definition of “ample” varies from person to person.

After you pay your bills, do you want an extra hundred dollars a month?

An additional thousand? Five thousand? Ten thousand?

Your answer can vary from month to month depending on your short-term goals. Your monthly income directly affects your ability to meet these goals. Most people generate income from some type of work.

In retirement, the goal tends to be ample income minus the work part.

To get to where you want to be with less stress and better effectiveness, you have to redefine two traditionally-held components of retirement:

  • That you need a million dollars (or some other magic number) to retire.
  • That you’re going ride a straight line into retirement.

The Non-Linear Retiree

Let’s take the second point first.

In his recently published book, Life Is In The Transitions: Mastering Change At Any Age, Bruce Feiler does an excellent job using real-life stories to illustrate what we pretty much already know.

Life doesn’t follow a linear trajectory. It happens in fits and starts on a seemingly disjointed path if you subscribe to the notion that school leads to work, work leads to marriage and kids, marriage and kids lead to retirement, and retirement leads to death.

I just turned 45, and my life fits Feiler’s non-linear model.

I got my first job when I was 13. I left my hometown when I was 19 to start what I thought was my forever career on a full-time basis. I switched careers when I was 25. I enrolled in college when I was 27. I dropped out of a PhD program when I was 33. Since then I have had at least a dozen different jobs in, let’s call it, 3 or 4 different careers.

I don’t think much about retiring.

I think more about being able to do what I want to do when I want to do it.

Maybe I want to work really hard for a few weeks, months, or years. Maybe I want to work very little or not at all for a few weeks, months, or years. Maybe I want to leave Los Angeles and “retire” in Portland. Whatever.

To essentially call your own shots, you need a plan. And that plan has nothing to do with amassing a million dollars. There is no such thing as a traditional retirement plan because, increasingly, for quite a few of us, there’s no such thing as a traditional retirement.

What’s Your Magic Number?

Your magic number should not be the total value of a nest egg. It should be the amount of cash flow you need to generate each month to pay your bills and do the things you want to do. To live how you want to live.

If you break it up into manageable parts, you’ll have a much better chance of getting there.

I suggest structuring your plan using savings account “sinks.” That’s the idea of opening multiple savings accounts at one or more banks and using each account to save for each need or goal.

There are two or three “sinks” most everyone should have.

Subsistence Fund

This can be a checking account. But it’s essentially the pile of money you need to meet your fixed monthly obligations, such as rent, transportation costs, food, and debt (though, in a perfect world, you have cleared your debt prior to saving and investing).

I suggest adding discretionary spending as a fixed obligation. Earmark an additional $500 or whatever you spend on obligations that are not technically “fixed,” on things you don’t actually need, such as a night out or cup of coffee. As you deplete this fund each month, you’ll get a better sense of what your budget actually is, and how you can adjust spending accordingly.

Emergency Fund

This should be a savings account with anywhere from three to six months of expenses. You accumulate this cash to ride out any interruption in income.

In other words, as you earn, you get your subsistence fund to where it needs to be. If, in a given month, you can’t do that, you have the emergency fund to fall back on. This money also helps cover extend periods of income loss or reduction.

Ideally, you never touch this money. It just sits there, as a security blanket.

Some folks oppose keeping this money in savings. I don’t because I value peace of mind. I’ll accept the minimal interest I earn in an emergency fund in exchange for the sense of financial security and certainty I feel when I look at the balance.

Temporary Retirement Fund

Follow me on Medium to receive notifications of future articles where I extend this line of thinking and planning to get deeper into investing, but, for now, let’s keep it basic.

There’s nothing wrong with merely saving. Once you accumulate cash, you give yourself the flexibility to redirect it to investments that can help you reach short- and long-term goals.

After you have demonstrated that you can save enough to subsist from month to month and build a suitable emergency fund, you can focus on accumulating the extra cash required to function as a non-linear retiree.

To be able to make the decision that you want to “retire” temporarily in Portland (or Portugal) without digging into your subsistence or emergency funds. In other words, you prepare for the possibility of “temporary retirement” by padding your subsistence fund to cover your fixed obligations for as long as you want to temporarily retire, be it fully or partially.

Unless you’re starting with a substantial chunk of money, you won’t be able to create all three funds at once. You’ll need to develop this strategy in stages, situating subsistence first, emergency second, and temporary retirement third.

I’ll dig more into how to do this and how it leads to investing for the future in the coming days and weeks.

I write about doing life and personal finance, focusing on the psychology of our relationships with other people and money. I’m anti-guru, pro-empowerment.

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