How to retire well
I recently had dinner with very good friends we’ve known since we were teenagers. They were sincerely interested in how early retirement was going.
I told them that when I was working and looking out the window of my office or a boardroom, I used to think about how much I wanted to play golf.
I was once a promising golfer, but while working, I rarely had the chance to play more than a couple of rounds each summer. Then, when I finally stopped working and had the time and opportunity to play much more golf, I realized I no longer had the desire to spend six hours on a golf course three times a week.
That is one of the surprises of retirement: what you think you want while you are working may not be what you actually want once your time is fully your own.
I asked our friends if they felt prepared and ready to retire. As much as they wanted to retire, they didn’t have the faintest clue how to retire or when they could realistically do it.
So I shared with them the framework I used for preparing to retire well.
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1. Expenses
Start with three years of detailed and accurate expense tracking, categorized into:
- Absolute core living expenses
- Discretionary lifestyle expenses
Retirement math is frankly impossible without knowing what your life actually costs.
Many people who want to “someday” retire cannot tell you, with any real accuracy, what their monthly and annual living expenses are.
Tracking expenses by category is a game changer. It builds financial discipline. More importantly, it creates control, certainty, and confidence.
Once you know your numbers, the math becomes much easier, and much more reliable.
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2. Retirement savings
A useful starting point is to multiply your annual expenses by 25.
Without getting into a debate about the 4% rule, this is simply a baseline — a rule of thumb to understand the scale of retirement savings required.
For example, if your monthly expenses are $5,000, that equals $60,000 per year.
Using the 25x rule:
$1.5 million becomes the initial gross baseline retirement savings target.
If your expenses are $10,000 per month, or $120,000 per year, then the 25x baseline would be $3 million.
The point is not that the number is perfect. The point is that it gives you a starting point.
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3. Cash flow
From there, retirement becomes a cash-flow exercise.
Examine every available, sustainable, and reliable source of cash flow, including:
- Public pensions
- Company pensions
- Part-time work
- Consulting
- Rental income
- Other recurring income
For every dollar of reliable annual cash flow, you can reduce the required savings target by roughly 25x that amount.
For example, if a couple has $40,000 per year in reliable pension income, that may reduce the savings target by approximately $1,000,000.
So if their original baseline target was $3 million, that reliable pension income may reduce the net savings target to approximately $2 million.
Again, this is not meant to be a perfect formula. It is a practical way to understand scale.
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4. Planning
Once you understand your expenses, savings target, and cash-flow sources, the next step is to turn it into a detailed budget, retirement plan, investment plan, and financial plan.
You can do this by hiring a qualified financial planner or by building your own plan using software.
But either way, you need a plan.
You cannot successfully build a house on time and on budget without detailed construction, costing, and project plans.
The same is true for retirement.
I have managed billion-dollar projects, billions in operating budgets, large corporate clients, and large businesses employing thousands of people. In every case, planning was the key to success.
Retirement is no different.
Plan to succeed, or fail to plan. It really is that simple.
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We log our expenses daily. I track our investments weekly. My wife and I reconcile our credit card and cash expenses monthly. We update our retirement plan quarterly and our budget annually.
As a result, we have as much certainty, control, and confidence as one can reasonably have.
Discipline is what makes the difference between hoping for the best outcome and knowing that the best possible outcome is highly probable.
The above we started in 1997 with the intention of freedom 55. We achieved our goal 15 years later on paper, but didn’t pull the trigger until 25 years later when access to professional financial planning software became available to confirm success rate and detailed multi-variable planning.
Suffice it to say, the software confirmed 100% success rate and multiple factor of safety.
