The word “Retire” means something different to every single person. Some people get misty-eyed when they think about “The Golden Years” ahead. Some people retire and fall into depression as their professional life fades away.
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- Earning, Spending and Looking Ahead
- Building an Emergency Fund
- Employer Matching Contributions
- Paying Down Expensive Debt
- Setting Big Goals
- Preparing to Retire
- Seize the Day!
At BodesWell, we have a flexible version of retirement. We call it “Financial Independence” – the life situation where working for a salary is a choice, not a requirement. It can take place at any age. It can last forever, or just a few months.
In BodesWell, we reflect progress towards that moment in your “Plan Status”. Given everything that you’ve told us about yourself and your goals, we project your estimated net worth at whatever age you choose. Just below that, we estimate your target net worth for financial independence.
We’ve got a long post on how we calculate that target net worth number. But the shorthand version is that your target is 25 times your expenses at the age you’ve selected.
If your net worth will be more than 25 times your expenses, if your cash flow is good, and if you have enough surplus to afford your goals, your status will say “Looking Good!” There’s more detail on your BodesWell status here.
Most people don’t want to work for the rest of their life. Even if you do, it’s instructive to put those goals on your timeline and see what’s possible. That’s what Step 6 is all about.
First, choose when you plan to retire. We then help you estimate your Social Security benefits. Finally, we help you estimate your longevity. All good things come to an end. In retirement planning, the most important goal is to make sure that your money lasts longer than your life.
If, after putting those goals and events on your timeline, your projected net worth exceeds your target, congratulations! You have completed Step 6.
If not, we’ll help you calculate and “Save for Retirement” in a goal that lets you choose a destination account and an amount to put away. This amount is in addition to the employer match amount that you calculated in Step 3.
Try a few different numbers and see how your projected net worth changes. Even small increments will make a big difference over long periods of time.
It’s worth noting that BodesWell reports all these numbers as “real” or “inflation adjusted” meaning that your projected net worth will be shown in today’s dollars. There’s much more about how we handle inflation on this post.
The other big lever that you have of course is your expenses. Since your “Target Net Worth” is calculated as 25 times expenses in your chosen year, if you reduce your expenses, your target goes down too.
As you would imagine with any process called “7 Steps”, by the end of the 6th Step, you have a pretty good picture of how the whole thing works.