Snow finally strikes and budget/retirement continues

It was only a matter of time until winter finally struck central Illinois, we were definitely living on borrowed time. We have had some bitter cold, windy days, but had been fortunately to avoid any accumulating snow falls.  Until yesterday.  We ended up with 5-6" of snow, which wouldn't be bad, except the wind was howling all day so the snow is drifting.  Some places only have an inch of snow, others 1-2 feet.  Here is a shot from my slow drive home last night:

Other than the weather, we've had a pretty uneventful week.  We're going to have to spice things up a bit so I have some stuff to write about! 

I did want to submit a quick follow up regarding my divergence into savings and early retirement in my last post.  I've been doing some more reading and research and I ran into some interesting numbers regarding saving and retiring. I pulled this info off of one of the money blogs, it is a "formula" for living on a certain percentage of your salary and then investing the rest and how that percentage relates to when you can retire.  Of course, the less you live on now the quicker you could potentially retire. I haven’t fully researched how reasonable this really is, but for entertainment purposes here it is:


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Ask yourself this question: If I live off of X% of my salary and invest the rest, how many years will it take to retire?

Assuming the following:

a.  2% inflation

b.  8% return on investments

c.  living off of 4% of your investments (that leaves a 2% buffer for taxes, etc.)

d.  You have $0 in retirement today

Live on this percentage now=years until you can retire if you save the remaining amount

90% = 50 years  (Yikes!)
80% = 36 years
70% = 28 years
60% = 22 years
50% = 17 years
40% = 13 years
30% = 9 years
20% = 6 years
10% = 3 years
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I’m going to go ahead and rule out living on 10%-30% of your income, because unless you make a ton of money or already own your home outright, there is no way that you can do it. (I could be wrong on that, but I don't think so) Also remember that this doesn’t take into consideration any potential retirement income from social security (I doubt it will still be around for me) or retirement/pension from your employment. I will be the first to admit that it sounds pretty good in theory, but can it really be done? I think the 8% gains that they are using are a little optimistic, but maybe my current retirement investments are going into the wrong funds and 8% is entirely possible! Can you see yourself being able to do this?

Personally, I don’t see a single person being able to pull this off, unless they make a good bit of money or own their home. However, I do think that a couple with reasonable incomes could probably pull it off. With a joint income family, it definitely could be possible to live off of half of  your combined income; according to this theory you could retire in 17 years.

Lets look at this for a moment: 17 more years of working would put me at 53 years old.  I will admit that, on paper, this is worth digging into further. Heck, even retiring in 20 years sounds good.  After pondering it over a couple lunch breaks, I do have a couple questions that need answers:

1.  What about taxes? There is no way you can accrue large quantities of interest, which you would if you are investing 40-50% of your income each year, without taxes becoming an issue.  As we all know, our high spending government will want their share of the interest that you earn, fair or not. How can you do this and minimize the taxes?

2.  Where/How do you invest the money to try go get good returns without losing sleep every night that it is all going to disappear?  Putting it into traditional retirement accounts (401k or Roth IRA) will limit your access to it until you are older, so I know that is out...  Although I guess you could put some there...