We are living on not a lot of income, mostly because everything is paid-for.
When I was working, I would talk with financial advisors who would say asinine things like, "When you retire, you'll need to make about 60-75% of your highest gross income!" Some idiots claim you'll need to make 80% of your highest income(!).
Let me tell you, that's bullshit.
In my prime, I was making the vaunted six-figure salary, which today is considered pretty middle-class. But back in the day, it was a big deal. And at one point, I was making close to two-hundred-grand a year. Whoo-whee! I thought I was rich! Turns out I wasn't. But hey, we had a vacation home, boats, cars, an RV and we traveled the world. So yea, we were pretty well off - and still are.
But today, we are not making 80% of our last income. In fact, we are making far, far less - by design. If I was making 80% of my highest income level, I would be paying a shitload of taxes. Moreover, since I would not qualify for an Obamacare subsidy, I would have to pay about $25,000 a year in medical premiums. I probably would not be able to retire before age 65 at the earliest.
We live on $100 a day - about $36,000 a year. And we are hardly starving. We have a late-model car with low miles on it, a de-luxe pickup truck to tow our new camper trailer with, and we spend three months a year touring America. Once all this pandemic nonsense dies down, we hope to travel overseas again.
Financial advisors are full of horseshit.
The advice they gave me scared the crap out of me at the time. To make 80% of my highest income, using the 5% rule for retirement, I would have to save up nearly three million dollars - in savings alone! That's a pretty daunting task for anyone, even someone making six figures. In fact, it's pretty darn near impossible to do. You'd have to put nearly half your income into savings or work until you were dead.
So why were they so wrong? Well, I think for starters, they want to sell you investments. Whether it is insurance policies or mutual funds, they get a commission on each sale, so the more they can sell you, the more money they make. So they use fear to sell you another investment or another policy. You are going to end up destitute in your old age if you don't put all your money into your 401(k)!
And you should put money into your 401(k) - no doubt about it. Don't take this the wrong way, I am not saying you should be a spendthrift or assume you can live on $10 a month when you retire. It ain't like that. But if you haven't saved up $5M by the time you retire, it isn't like you are going to starve.
The second reason they make such a wrong assumption is that they assume you are playing the IRS game, where you are mortgaging your life to the hilt in order to get a tax deduction, so you will have hefty mortgage payments until the day you die. They assume the only real drop in spending in retirement will be because you commute less, eat out less, and don't have to have your suits dry-cleaned. Hey, that's 20% right there!
But not having a mortgage, not having credit card debt, not having car payments, not having student loan payments and so on and so forth, make a big, big difference. When you are old, you hardly drive - our hamster has 30,000 miles on it in seven years and looks and drives like new. At this rate, we'll have it for two decades before it hits 100,000 miles - presuming we need it that long. When I was "working" I put 15,000 miles a year on my cars, and traded in on average, every four or five years or so.
It becomes a game - to see how cheaply you can live. We stopped going to malls and "shopping" a long time ago. We find great bargains at the thrift stores - particularly ones in wealthier neighborhoods. You can buy a nice shirt, hardly used (sometimes brand new) for a dollar or two. Or, you could go to Abercrombie and pay $100. It is a choice. Often it is the same shirt.
We eat at home - and eat well. When we were "working" we went out to eat - a lot. We also sent out for food or took home "takeaway" foods. This increased the cost-per-meal by a factor of four or five. It wasn't healthy either.
Of course, years ago we cut the cord on cable. Today I pay $25 for my Internet hot spot and we stream video from that onto an old television. We subscribe to one channel (or just YouTube) at a time and pay for one month of service - which is all you need to see all they have. Some folks pay hundreds of dollars a month for "all the channels" and high-speed internet and the latest smart phones. Are they getting more out of the deal, or just getting depressed and fat sitting in front of the TeeVee wolfing down bad delivery pizza. Been there, done that. I wish I could take it all back.
The point is, relax. Life doesn't end in retirement. It can be a real mess if you retire with massive debts and no savings. And that does happen to people who don't plan and don't think they will ever be laid off. Plan on being laid-off at age 55 or so - it happens a lot. If you aren't laid-off, well, good for you - you have the option of retiring early. But have a plan in place because it many cases, people lose their jobs in their 50's and never work again, or work at a second career for far less money.
If you are socking away money in your 401(k) and paying down debts - and have a plan to be debt-free before you retire - then you probably will do well and have a comfortable and happy retirement. But don't stress about having to save up millions of dollars to maintain 80% of your current income in retirement. Chances are, you don't need that kind of money when you retire - or shouldn't anyway.
And beware of financial advisors - they lie like a rug!
