#209 – You May Be Able To Retire One (Or Five) Years Sooner

Wes Moss [00:00:45]:
You know, I’ve been writing for Forbes.com for a while now. It dawned on me the other day that we have all this content on the retire Sooner podcast, how to make your money last we’ve talked about the 4% rule, the 4% plus the 4% versus the 6% rule. We talk about how to lower your anxiety around money when it comes to your retirement so you can retire sooner. We talked to a couple who moved to Ecuador because they didn’t have a whole lot of money for the United States, but they’re kind of living like kings. As expats, we talk about maximizing or optimizing your Social Security because it’s a big piece of the equation for most folks when it comes to the retire sooner calculation. But I realized the other day, we haven’t done an episode in a very long time around how to actually retire sooner, meaning shave off a year? Shave off three years. Shave off five years from a work perspective, get into that economic freedom we’re all searching for. So today we’re going to do exactly that.

Wes Moss [00:01:46]:
We did a bunch of math. There’s a little bit of math here on this episode, but that’s really a huge part of what financial planning is all about. It’s what investing is about. So we’re going to go through some of the math that will help you make a plan to shave off a year of working, three years, five years of working as we up our savings, up our investing. So we’ll start with the bottom line. And the bottom line here, and we’ll explain all this, is that we know savings is hard. It’s really hard. The only way to really lessen that savings load in a given year is to give yourself more time.

Wes Moss [00:02:22]:
The longer we wait, the higher the amount that needs to be saved each year. And it goes up. And it goes up, but it almost goes up parabolically, meaning that if you wait a couple of years, you delay a couple of years doesn’t really have a material impact on how much you need to increase your savings in any given year to reach the same goal. But if you start waiting six years, eight years, ten years, it’s not so much that the amount that you need to save each year goes up linearly. It almost goes up parabolically. So it goes up a lot the longer we wait. So to lessen the uphill climb, we need to give ourselves more time to retire sooner. And as I’m going through and looking at all these numbers, I’m thinking, well, there’s really not much magic here, but maybe there is some magic here.

Wes Moss [00:03:10]:
It’s called the magic of time, and giving yourself enough of it, you can do almost anything. Here’s another reason why I thought we’d focus on something this fundamental when it comes to retiring sooner. Here on this episode I’ve been writing for Forbes.com for a while now. I’m in the personal finance vertical. Gives me a lot of leeway, though. I write about the habits of happy retirees and income investing and dividend investing, retirement planning, you name it, kind of across the board. Some of the articles have done okay. At least a few people read them.

Wes Moss [00:03:45]:
But one we recently published was so simple and so basic that I thought it would bomb. It was titled one small shift that can make a $2 million difference in retirement. Now, I will admit the title is pretty good. It’s a good title. But all the article really did was show the difference between Jack Saver and Jill investor super simple. They both saved $1,000 a month for 30 years. The saver got 1% per year. The investor got a hypothetical 10% per year, and there ended up being a huge difference between the two.

Wes Moss [00:04:22]:
The saver, Jack ended up with about four hundred k. The investor Jill ended up with almost 2.4 million, almost a $2 billion difference. But that was it. Ultra simple. Just a little bit of math. That one article has now more reads and more views than all of my other forbes.com articles combined. Huh. But it made me realize that simple is often the very best approach.

Wes Moss [00:04:51]:
In fact, one of our core values at CIA Capital investment advisors is, to quote, make it simple. The world of financial planning and investing is by nature almost infinitely complex. So the better we are at herding all those cats into something that is simple and manageable, arguably the better you should be able to do. Over time, I think we can all forget just how impactful a small or simple shift or simple idea can make on your overall retirement journey and your life so we’re going to look at something today that’s also easy, very simple, but powerful concept. What could help you retire just one year sooner? This is, after all, the retire sooner podcast will also go for five years sooner. So before we start with some math, I also want to revisit a YouTube video I did a couple of years ago. It still stands very true today, and it was titled five reasons you should retire ASAP. Essentially, if you’re facing these five things or any of these five things, you should really think about how to either retire from your primary job or go part time or do something else kind of catalysts around what should get you into that next phase of life.

Wes Moss [00:06:06]:
Early retirement, regular retirement, any sort of retirement at all. And I’m going to quickly go through these five and just focus in on one because it impacted me today. And that is, number one, is your commute longer than 45 minutes? Two, is your work schedule unhealthy? Three, do you love your job? Do you really love it or not? Four, are you appreciated at work? This goes beyond just the money. Are you really appreciated and valued for all the time you spend at your job? And then five, have you topped out financially? Now all of these deserve their own conversation. I’m just going to focus in on the very first one, because it hit me today in the southeast, and this happens, I would think, most places in the United States, not all, but in the southeast, we’re well known for these surges that either come through the Gulf of Mexico. Tons of hurricanes, obviously will come through New Orleans or Louisiana and the Alabama coast, and then they will eventually, by the time they get to Atlanta, they’re usually not hurricane strength, but they do a lot of damage obviously in their path. That along with just good old fashioned thunderstorms, we are a city of trees. Atlanta is well known to be a city of trees.

Wes Moss [00:07:25]:
If you fly over Atlanta in an airplane, yes, you see downtown and midtown and you see the skyscrapers, but it’s surrounded by trees. It’s a very green city, as you do a flyover, and that’s wonderful. But it also means that almost every time we have some sort of weather system that comes through that can last for ten minutes, we have downed trees, and down trees mean down power lines, and down power lines means traffic chaos. We didn’t even have that big of storms last night, but evidently it knocked out a bunch of power in kind of the main area of Atlanta and what is normally a, let’s say, 20 minutes commute for me, which is really good when we started talking about commuting, very fortunate. Turned into almost an hour. And I thought, this is ridiculous. This is terrible. What an awful way to start the day.

Wes Moss [00:08:18]:
And then it reminded me of what we’re talking about here today. A lot of people have a 1 hour commute each way every single day. That’s when there’s no weather and when all the lights are working and there’s no road construction. And the reason I originally came up with this idea as one of those many catalysts that can kind of push you over the edge and say, okay, I’m done working, is that it’s not uncommon that a family that I’ve, let’s say, worked with almost the last straw, the straw that broke the camel’s back on saying, I’m done is a brutal commute. And we’re well known for it here in Atlanta, because a lengthy commute takes a toll in a lot of different ways. The stress of a super long drive, it’s not that healthy for your body. There’s been studies that show long commutes over 45 minutes can hurt your relationships. If one spouse commutes longer than 45 minutes each way, the couple is 40% more likely to get divorced.

Wes Moss [00:09:16]:
Time spent in the car? Yeah, maybe. We listen to podcasts, our favorite radio station, but it’s not time you’re spending with your spouse or your family. And as much as you might love the retire sooner podcast, you’re way better off hanging out with your kids and your family and not me. And they’d be getting worse commutes. Now the average city is around 30 minutes for a commute each way. Atlanta’s 29, Philly’s 28. DC is 33. They have one of the worst.

Wes Moss [00:09:45]:
That’s the average. That’s the average. That means for every 15 minutes commuter, there has to be a 45 or an hour to get the average that high. And we all know people, and it may be you that regularly spend 45 minutes, an hour, an hour and 15 minutes in the car each way. That just isn’t good. There’s just real negative impacts. According to the Keck School of Medicine at USC, there’s all sorts of physical and psychological impacts associated with long commutes. And once the distance rises to 30 miles or more, it increases the probability of obesity.

Wes Moss [00:10:20]:
Who has time to exercise with commutes that long? Another study from the Keck School of Medicine at USA found that those with a commute of more than 90 minutes are far less likely to make trips out for social purposes, to visit friends, relatives, play sports, or even go to the movies. That means higher levels of loneliness, lack of sleep, more exposure to pollutants, and, of course, increased levels of stress. Long commutes are just not good. And it’s just one of many reasons why being able to stop work or shifting to a work from home schedule at least a couple days a week is a real variable when it comes to what retirees are thinking about in their next phase. Now, let’s do some retired sooner math. When it comes to this math, the equations are pretty simple. We’re just talking about different set periods of time. Ten years, 15, 25, 30 years.

Wes Moss [00:11:20]:
And we need a destination target. So we want a goal in mind. So we want to solve for a certain amount of money saved, and then we have to have a rate of return assumed, and we’re going to use 8%. Now, that’s not a low bar. 8% is not a low bar. However, since the s and P 500 has been around 10% for most longer periods of time, 10% on average per year, I’m okay with using just a hypothetical 8% in the real world. It could be less, particularly if you’re a more balanced stock bond real estate investor. But it also could be more in the real world.

Wes Moss [00:11:57]:
All right, now we need a goal or checkpoint that we’re reaching for. And since we all know that a tribes, on average, have a $1.25 million savings pool in liquid retirement savings, let’s start there. Million and a quarter. Again, not a low bar. We’ve got to start somewhere. And since a lot of our listeners, many of you listening, are already savers, you’re already an investor. So let’s assume you already have $250,000 saved. Don’t worry, we’ll do some starting from scratch examples as well.

Wes Moss [00:12:32]:
But let’s assume you’ve already at least gotten started. You have 250k. Now, you need a million more to get to one and a quarter million dollars. And let’s set our baseline at 25 years to get there. That means let’s say you’re 40 and you’re looking at age 65 as your target age, or you’re 30 and you’re looking at age 55 for your target age. That sounds like a retire sooner age 55. I love that. If we’re assuming an 8% rate of return, what kind of savings would it take then? What would it take to get there one year sooner? If you’ve ever done a Jane Fonda workout, or if you remember as a kid, rocky running the steps, and if Michael Keaton is still mister mom to you, then guess what? It’s officially time to do some retirement planning.

Wes Moss [00:13:25]:
It’s Wes Moss. Weren’t those the good old days? Well, with a little bit of retirement planning, there are plenty of good days ahead. Schedule an appointment with our team today@yourwealth.com. dot that’s y o u. Ryourwealth.com dot. We’re going to start out with Conor. He’s our example to start out with. Conor’s age 40 and wants to have a total of $1.25 million by age 65.

Wes Moss [00:13:52]:
It’s 25 years for you listening. Whatever your age is, just add 25 and that’s your goal year. So if you’re 35, your target age is 60. When it comes to this example, okay, Conor already has $250,000 saved invested. For him to reach a million and a quarter in 25 years, he needs a million more. How much would he have to save each year and each month, assuming again this 8% rate of return to get there? Spoiler alert, Connor doesn’t need to save anything more. Here’s a breakdown of the calculations. If he already has $250,000, that just at 8% rate of return, that would grow to approximately 1.7 million by age 65.

Wes Moss [00:14:37]:
With an 8% annualized rate of return, what? That way exceeds the target of one and a quarter. So nothing additional yearly or monthly necessary. Our producers here in this studio didn’t even see that coming. It’s funny, when I started doing the math, I didn’t even see that coming. I was thinking, okay, another million dollars. He’s got 250. Excel table calculated out, 8% rarity. He’s at 1.7 million.

Wes Moss [00:15:05]:
That is just the power of being able to have a nucleus that is starting to work for you. Now we’ll assume he’s starting from scratch. Okay. At least. Okay, now we’ll assume he’s starting from scratch. $0. So if Conor started with $0, he wants to reach a million a quarter in 25 years, 8% rate of return. He’d need to save approximately $17,000 a year.

Wes Moss [00:15:28]:
And I’m rounding these numbers, by the way, it’s $17,098 a year. But just to make it simple, I’m going to round these numbers just a little bit. That translates to about $1,425 a month, 1425 a month, 8% rate of return, 25 years. He gets to his goal of one and a quarter by age 65. Time in this example is so on Connor’s side here. Is $17,000 doable for some people? No. Maybe not. But for some people, hopefully those listening today, I think it is doable.

Wes Moss [00:16:03]:
In fact, it’s several thousand dollars less than what we can put in our 401 ks. 2024 levels, about 23 grand to max out a 401k. That’s if you’re under age 50. Age 50 plus it’s $30,500 a year. So we’re able to do all this hypothetically with just 401k contributions. Now, what if Conor wanted this to happen just one year sooner? Let’s shave off a year. A million and a quarter is the goal. But now at age 64, not 65, he’d need to save approximately $18,700 per year, or $1,560 a month.

Wes Moss [00:16:41]:
That’s not a whole lot more. It’s barely any difference. It’s only 135 bucks extra per month. So one year earlier or sooner translates into only $135 a month more to essentially buy you a full year of economic freedom. This is where you can start to see why Starbucks and lattes got such a bad name. Because a little bit of money in any given month, if you do it for a really long period of time, adds up tremendously. And in this example, it adds up to an entire year of being able to retire sooner. What is $135 bias these days in the inflation world we live in today? Producer Mallory just told me that it’s easy to spend $6 on a latte.

Wes Moss [00:17:29]:
I don’t go to Starbucks just because the line is too long. But six $7, easy to spend on a drink, plus a tip called $8. Guess what? That’s 16 lattes a month. That’s one every. It’s not a latte a day. It’s a latte every other day to get to that 135 extra, that buys an entire one year when you give yourself time. Now, this is an example. Over 25 and 24 years, it’s a long time.

Wes Moss [00:17:57]:
A little extra month goes a long way. Now, how about five years sooner? Conor wants to get to that one and a quarter million dollar goal by age 60. But he’s only got a 20 year timeframe. Now, he’d need to save approximately $27,300 per year. That translates to about $2,300 a month. By saving and investing that amount. If he were to get a hypothetical 8% rate of return, he can get there. He can reach that retire sooner goal in 20 years, not 25.

Wes Moss [00:18:30]:
So shaving off five years, what would it take relative to the so 20 versus 25 years, it’s an additional $850 per month. So this is not a small amount. Now we’re going beyond lattes here, but that’s the math. On top of that, 17,000 a year that he’d need to save to get to 65, to shave five years off to make it work, by age 60, it takes an additional $850 a month. Again, not saying this is easy, but that’s the math. Let’s look at this on a monthly basis. 1420, $5 gets to the goal in 25 years. $2,300 a month gets him there in 20 years.

Wes Moss [00:19:14]:
So an extra $850 a month buys five years of arguably financial freedom. A, can he do it? B, can you do it? C, is it worth it? Well, that’s up to you. As I’m going through these numbers, I do recognize this is a lot of money to be able to save. When you’ve got median household income in the United States, that’s 70 grand a year to save. 30 is a giant deal. So I also recognize that not everybody’s able to do this. I also recognize that that number, 27k, is still. A lot of that work can get done just by using or maxing out.

Wes Moss [00:19:57]:
The is more than the max, but it’s pretty close. And it’s actually less than the max if you’re 50 plus. Now, here’s what I mean about as we wait to get this started. This reminds me of the great buffet quote, the trees that you see today. This is the essence of the quote. The tree that you see today was planted many years ago by someone who planted the seed of the tree, something like that. And if you don’t see any trees, the best time to plant a tree is today. But if I go and look at this over time, and let me explain what I mean about parabolically, another thing I recognized when I went through this math, and think of this, if you’ve got.

Wes Moss [00:20:40]:
I looked at this in a slightly different way, still trying to get to the same million and a quarter goal, doing it in 30 and 29 and 28 years, all the way down to only having ten years to do it. So think of somebody age 50 that wants to get to a million and a quarter and wants to do it by age 60. I mean, in the end, it is just math. But when you have a long period of time, those early years of waiting doesn’t cost you that much more savings as long as you get started. Meaning that if you have 30 years to get to the million and a quarter, it only requires about $920 a month. If you only have 29 years, okay, it’s only $1,000 a month. If it’s 28 years, it’s only $1,100 a month. If you haven’t gotten started now, you’ve got 28 years.

Wes Moss [00:21:31]:
If you got 27 years, it only goes up to $1,200 a month. So in those early stages of delaying savings, it’s not that. It’s not that dramatic of an increase of what you’ve got to save additionally. So you wait a year, goes up by $82 a month. You wait two years, it goes up by $173 a month, et cetera, et cetera. But the longer we wait, if you look at this as a graph going from left to right, the bar chart that shows how much you need to save each year stays pretty modest for a while on that graph and then really shoots up almost parabolically when you only have starting around. If you only have 20 years left, particularly only 15 years left. So if you only have a 15 year horizon, so say you’re 40 and you want to retire at 55, you need to save almost 50 grand a year, $3,800 a month.

Wes Moss [00:22:27]:
A month. If you only have ten years left. So you’re age 50, you want to retire at 60, you want to get to that million and a quarter takes over seven grand per month in savings in order to hit that goal. Of course, it makes sense. Much higher dollars because we have a much shorter time horizon, plus the rate of return over time. There’s more uncertainty when the timeframe is that compressed. I think that’s just another variable if we’re looking at these shorter timeframes. So that’s the math.

Wes Moss [00:22:56]:
But there is hope. I truly believe it is never too late to start saving for retirement. I have seen so many families over the 25 plus years I’ve been in the planning and investment business that did not start until they were in their mid to late forties, even early fifties, because they just. These are fairly high earning people that they lived in an expensive city. They had multiple kids. Those kids went to college, they had to help pay for college. And in the end, they just really couldn’t afford to save three grand, five grand, eight grand a month. But once the kids got out of the house, let’s call it age 50, and got out of college and mortgages were closer to being paid off, or in some cases, paid off, then they were really able to ramp up and accelerate and compress the period of time it took to save and get to the goals they needed.

Wes Moss [00:23:51]:
I’ve seen it happen over and over and over again. So even if you are in your forties and fifties and haven’t really started and don’t have that quarter million dollar jump that we talked about in the first Connor example. It’s okay. It’s okay. I’ve still seen people and families make it work again. We’ll go back to the bottom line. This is just, this is really just around math and time savings is super hard. We all know that there’s a reason why more than 50% of America essentially has nothing saved.

Wes Moss [00:24:22]:
There’s a reason that almost 70% of baby boomers are aged 65 to 69 have less than 100k saved. It’s hard. Saving is really hard. Investing makes it even a little harder. But in order to get to these goals, if we’re going to have a real rate of return, it’s not going to happen in the money market. It’s not going to happen in cash. And the only way to really lessen the load, the savings load. The difficulty in any given year is to try to give yourself more time.

Wes Moss [00:24:51]:
Very simply, the longer we wait, the more we have to put in per month to reach those same goals. But also the longer we wait, the steeper that climb becomes gets almost parabolic. So we want to lessen the uphill climb by giving yourself more time again. When you look at it just from a math perspective, there’s really no magic. But maybe there is some magic in understanding what the math tells us. It’s called the magic of time. And if you can give yourself enough of it, and I’ve seen this, the retire sooner journey is absolutely possible. So I hope this concept is something that you’re able to take away from and enact today or this month.

Wes Moss [00:25:33]:
If you see the power behind this concept and these actions, it can do wonders for you over the long run and hopefully retire at least one year sooner, which is the mission here on the retire Sooner podcast.

Mallory Boggs [00:25:46]:
Hey y’all. This is Mallory with the retire sooner team. Please be sure to rate and subscribe to this podcast and share it with a friend. If you have any questions, you can find us@westmoss.com dot. That’s wesmoss.com dot. You can also follow us on Instagram and YouTube. You’ll find us under the handle Retire Sooner podcast. And now for our show’s disclosure.

Mallory Boggs [00:26:07]:
This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal. There is no guaranteed offer that investment return, yield or performance will be achieved. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions for stocks paying dividends. Dividends are not guaranteed and can increase, decrease, or be eliminated without notice. Fixed income securities involve interest rate, credit inflation and reinvestment risks and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Past performance is not indicative of future results.

Mallory Boggs [00:26:47]:
When considering any investment vehicle, this information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investment decisions should not be based solely on information contained here. This information is not intended to and should not form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment tax, estate, or financial planning considerations or decisions. The information contained here is strictly an opinion and it is not known whether the strategies will be successful. The views and opinions expressed are for educational purposes only as of the date of production and may change without notice at any time. Based on numerous factors such as market and other conditions.