Can Frugal Living make a difference in how soon you retire or is it just a waste of time? Let me give you one example of the power of frugal living as it specifically pertains to your retirement.
How Much Money Do You Need to Retire?
First, let’s calculate how much money you need to retire for a moment.
Most retirement planning projection systems don’t adequately show the impact of frugal living in retirement estimate calculations—probably for good reason. Most people aren’t frugal!
However, the average person has rarely been shown “The Power of Frugal Living” regarding retirement calculation below. You may become a convert to frugal living when you see how frugality speeds up your retirement plan.
A Retirement Rule of Thumb
The general rule of thumb in Retirement planning is to remember that for every $300,000 in investment savings you can safely expect to generate about $12,000 dollars in income.
The generally accepted safe withdrawal rate is 4% of your investment savings (I am currently challenging this “safe” assumption with other personal finance geeks throughout the country).
Four percent of $300,000 is $12,000 dollars.
Building Savings is a Huge Hurdle
It takes a long time to save $300,000 dollars for most people I know. The average person has a tough time saving $300,000 dollars over their entire lifetime. And the $1,000,000 dollars that many planners recommend is too huge a number to even consider.
Good luck saving $1,000,000 dollars if this is your main retirement strategy