Finding Your Level of Enough

by Matt Spillar · February 17, 2019

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contentment

In today’s age, it seems that contentment and gratitude are lacking. We’re constantly chasing after more, and losing sight of what we already have. Bigger houses, fancier cars, nicer clothes. Social media is a highlight reel where we’re always trying to one-up each other. When we get something new, the joy we feel is fleeting and we’re on to the next thing.

With these tendencies, it’s no wonder that 76% of people are living paycheck-to-paycheck and the average savings rate is below 3%. Ask people when they plan on retiring, and most assume they’ll be working until 65 or longer since that’s just how it is.

If only we made more money, then we could pay off our debt, save more, and be happier. Unfortunately, it’s not that simple. Most of the time, when we make more money, our lifestyles inflate to snap up the new funds and leave us back where we started.

Moving Up Your Retirement Date

What many people don’t realize is that your retirement age can be moved up by decades by spending less and increasing your savings rate. With each expense that is cut, not only are you increasing the amount of money you can save now, you’re also decreasing the amount of money you need to have invested for retirement.

How Much Do I Need for Retirement?

How much do you need to save to be able to retire? $1 million? $5 million? $10 million? It’s a simple math equation, and it’s all based on how much you spend.

The “Trinity Study” was a retirement study published in 1998 by three professors from Trinity University in Texas. This study analyzed how various retirement portfolios held up over every 30-year period from 1926 to 1995 based on different withdrawal rates and portfolio allocations.

This study is also referred to as the “4 Percent Rule,” where the key findings were a guideline stating that historically, if you withdrew 4% of your assets each year in retirement you would be extremely unlikely to run out of money. While this should be used as more of a guideline rather than a rule etched in stone, it is an effective starting point for determining how much money you’ll need in retirement.

There are retirement calculators out there that base your retirement needs on your income, which is the wrong way to go about it. There are also plenty of people out there who choose a number they think they need, without taking a look at hard numbers. Grant talks about this in his new book, Financial Freedom, where a retirement calculator told him he needed $3.5 million to be able to retire, which turned out to be way more than he actually needed.

Example Spending Levels for Retirement

Using the 4% rule, we can come up with various portfolio sizes that would be necessary for different levels of spending, by multiplying by 25 times:

$40,000 annual spending x 25 = $1 million portfolio needed
$50,000 annual spending x 25 = $1.25 million portfolio needed
$75,000 annual spending x 25 = $1.875 million portfolio needed
$100,000 annual spending x 25 = $2.5 million portfolio needed
$150,000 annual spending x 25 = $3.75 million portfolio needed
$200,000 annual spending x 25 = $4 million portfolio needed

Reaching this level of 25 times your annual expenses is also called “financial independence” or “financial freedom.” This means you’ve reached the point where your investments can fully cover your expenses and you no longer need a paycheck from full-time employment.

As you can see, the more you want to be able to spend in retirement, the more money you’ll need to save. In fact, every $100 you cut from your monthly expenses is $30,000 less you need to save for retirement! You don’t have to be perfect to reach financial freedom, you just need to be more mindful about your spending.

Living the Life You Want on Less

Henry David Thoreau once said, “I make myself rich by making my wants few.” This is a beautiful sentiment that we can all learn from. The more simple we keep our lives and the less material possessions we find ourselves wanting, the less money we need to live a happy life.

How much is your level of enough? Do you need the 5,000 square foot house, an upgraded car every 3 years, and fancy clothing? Or can you find contentment with a modest home, a 10-year old car, and non-name brand clothing?

I’m not telling you what you should or shouldn’t spend money on, that’s up to you and what you value. My point is that everything is a trade-off. The more you want to spend, the more you’ll need to save. The more you need to save, the longer you’ll need to work.

If we can find our level of enough and reach contentment with what we have, cut back our expenses to only what we truly value, and increase our savings rate – we can retire much sooner than the traditional age of 65.

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