I’m not sure about you, but I’ve not exactly had retirement modeled for me all that well. My parents are younger and still of the working age, and Mrs. Money’s parents are mostly retired but still working a few side hustles here and there. I feel like our generation is somewhat taking retirement planning seriously but honestly I feel like I don’t have a good grasp on how much money I’ll need, how much I should save and if / when I could actually retire, and what that will actually look like.

For the time being, I’m saving 15% of my salary towards retirement, up to the max that is allowed by the IRS of $22,500. I figure in a few years perhaps I’ll sit down, perhaps with a professional and take a serious look at our plan. Hopefully me saving 15% year after year will have paid off!

At work recently I had a colleague make a comment that they had a plan to retire at age 48. That struck me as very interesting, for several reasons. He’s a few years older than me, but not by much. How did he actually have confidence that he could retire at 48, and what does that actually look like? Also, 48 is a very specific number, making me think he’s put some serious thought into this. I asked him to a virtual coffee session and ended up picking his brain to learn more! I found it super fascinating and encouraging, and wanted to share what I learned in the hopes that even if you’re not going out and making your own retirement plan that you at least will have a little bit better of an understanding of what it could look like!

What has his financial journey been like so far?

My first question was to try to understand where he is actually at financially. Had he been doing the FIRE (financial independence, retire early) model where he saved the vast majority of his money? Had he just been making tons and tons of money to the point that he could save a lot more? Or perhaps did he figuratively have a rich uncle that passed away to give him a super head start?

The answer I was pleased for my own sake to learn (as I don’t meet any of the above criteria) was no. In fact he had a pretty similar background to myself. Grew up in a middle class family, had some debt, started off working and rose up the corporate ladder, and did have a little bit of help from an inheritance (but nothing outrageous).

What I took away from that was that hey, it doesn’t take a great financial upbringing or head start to even be able to dream about retiring early. What it does take (spoiler alert) is financial discipline, good habits and a bit of luck (but I believe luck comes through the repetition of good habits!).

Why retire early?

As obvious as it may seem, I was curious his reason for wanting to retire early. I don’t know a ton about retirement but it does seem that it’s important to have a good purpose and or good hobbies and things to keep you busy. An idle mind and body in my opinion just doesn’t seem to last as long as a busier mind and body.

My interviewee relayed that they do have a family with 2 younger kids and how cool would it be to be able to have control of his time to be able to spend more with his wife and kids. Being in corporate America definitely take a lot of time and focus, most of which occurs during working hours but some can occur after working hours too. He does have lots of hobbies outside of work, and really enjoys travelling, both things he would love to have more time to do.

What also struck me was that he is looking to retire early because he can, which I really appreciated learning more about. I’ve personally often said that work isn’t everything, and my interviewee pointed out that hey if you can afford not to work, perhaps you shouldn’t? I love thinking on this idea – as I hit MiddleAgeMoneyFinance I’m thinking more about my life and what I want to look back on. I don’t intend to work forever and so perhaps it’s worth looking more closely into when I could stop. Perhaps it’s earlier than I had initially thought! Work is good, but if I don’t need to keep working I should consider not!

How do the numbers work?

I don’t really even know where to begin to think about money in the future. How much will I spend? How much will I need? How long will I live? What will inflation look like? My interviewee has given some serious thought to it and I enjoyed following his line of thinking.

To start with, he did some math on how much he spends each month, like on everything (although he did make a joke about how the Amazon budget was separate!) from food to fun to gas to bills to the mortgage. He then multiplied this by 12 months to know about what he spends in a year. He reflected that his current lifestyle was pretty nice – i.e. in retirement he wouldn’t feel the need to live that much more extravagantly or anything. He has a nice house, takes nice trips, eats out from time to time and is able to spend money on most reasonable things he wants to. I love that thinking – so comparing his current lifestyle and the expenses he has today and thinking yeah my future retired self would probably live the same.

Of course I had questions about the unknowns – inflation in particular. The 8% inflation we had last year was pretty brutal. I loved his answer here – hey unknowns will always be unknown and you can’t predict them. So, take the historical average (around 2% inflation each year) and go with that. If you have to course correct on your plan that’s fine, but at least he’s got a good plan! I also asked about the mortgage and one good point he made – he’s paying a decent mortgage payment right now each month (like many of us) and when he’s set to pay his house off around age 55 (so a few years after he’s ‘retired’). So his monthly spending number in the future will be that much better once his house is paid off. I kind of liked how that math worked – so hey my spending number will be even better once the house is paid off.

I also asked the answer that I knew the question to – but how did he predict how his money would grow? Well same answer – take the average. I know that the stock market on average has returned 8% annually, which of course that’s just an average, and he said his number projections were ran off of a 5% number – i.e. more conservative.

He then had his numbers run to him living to be 90. So, he knows about how much he spends each year, knows he’ll live to around 90, and then added that number up to know how much he’ll need to have. Of course money will still grow as he pulls from that big pot of retirement money and so that was factored into it.

At the end of the day it became a big math problem to be solved!

So where is this money?

Similar to me, my interviewee has in the past had a side hustle of real estate – but he’s taken it a step further with buying and fixing up, having a rental or two and then most recently selling those and buying a pretty nice house that they’ve fixed up and is now more valuable. It’s in a desirable area and they’ve seen their house grow in value by coming up on 50%, i.e. a lot of equity in their main house. Outside of that, he’s got most of his money in the stock market with some in low cost index funds, some in bonds and then a fancy life insurance policy that he’s told me about which is intriguing – but it’s not a huge part of his plan.

So how would this work?

I then asked about his number – retiring at 48 when you can’t pull out true retirement money (i.e. 401k, IRA) until your 59 ½. He shared his plan is to sell this larger house (the kids will be out of the house or nearly out of the house by then), take the equity and buy a smaller (but still nice) house and take the leftover equity and use that until he hits 59 ½ when he would then access his 401k and IRA money.

The other question I had was around health insurance. Being retired would mean that he wouldn’t have health insurance, and he would not be able to get Medicare until he’s 65. His answer was that he could get insurance through his wife – who isn’t planning to retire as early as my interviewee, or he could find a part time enough job where he could snag some health insurance. Not a bad plan!

What didn’t I ask?

We ran out of time – time flies when you’re having fun! – but I had meant to ask about a legacy – i.e. what type of a life does he want for his kids or some other sort of charitable giving. Although I assume he’ll fill me in once he reads this on my blog – I would imagine his answer to be ‘enough to set them up for success’ – i.e. perhaps some or all college, perhaps somewhat of a financial gift at various times in their lives. He spoke of his middle class upbringing where money was there but not in abundance, and he spoke of wanting to be in a solid financial situation to provide differently for his family. I love that idea and hope to be able to do something similar for the kiddos.

What I’m taking away from this convo

I really enjoyed hearing this perspective and plan for retirement. A couple of takeaways for me:

• Retirement, including early retirement is possible if you plan ahead and save some money (it doesn’t have to be a huge amount…just small to medium amount of a long period of time).
• There potentially will be a point that you have enough money to where you don’t need to work. It doesn’t mean you have to stop or will stop, just know that it’s a possibility.
• Get serious about planning and start looking at numbers. Saving 15% will probably be good…but why not be a bit more sure? It’s just a simple(ish) math problem to solve.
• Retiring early may or may not happen…but wouldn’t it be nice to hit 48 and know that you could?
• I’ve always said this but it is a balance – figure out how to maximize your enjoyment of life both now and later. You don’t have to go full FIRE and also don’t have to completely forgo saving for retirement to enjoy the now.

A big shout out to my interviewee for sharing his plan and perspective! I hope this at least gives you some ideas on what retirement could look like for you!