As discussed in the prior review, we have read many financial books and a few I have kept on the shelf and periodically revisit. “Yes, You Can Still Retire Comfortably” by Ben Stein and Phil DeMuth is one of these books. We reviewed the companion book “Yes, You Can Get a Financial Life” in the previous review which covers the whole financial life cycle.
The book was originally published in 2005 and provides solid data to help estimate the proper savings you need for retirement depending on your situation. The data is focused on a more traditional retirement approach.
I used both these books to help establish my initial retirement plans long before we discovered the idea of Financial Independence. The retirement book is a little focused on the baby boomer. It has a slight negative slant about the future economic outlook circa 2005. There is also very good data for retirement planning we will cover in more detail.
The authors have a very similar ethos as the Financial Independence community including the “Coach Potato” investment portfolio, living within your means, and saving early and as much as possible. Similar guidance to what you also find in JL Collins “Simple Path to Wealth”. We recently read JL Collins and helped Mrs. FoF get fully on board with our Financial Independence plans.
The book is geared towards the traditional lifestyle of work to retirement age (or slightly beyond for safety) and retire with a good nest egg. Many of the principles helped us on get to where we are today and for us to achieve an Early Retirement in our late 40’s / early 50’s. Still later than many of you, but still awesome for us!
The great thing about these books are the detailed tables for checking your savings rate. They designed these against their conservative retirement assumptions to make sure you are on track for your plans. This book went into much greater detailed on retirement planning aspects of your financial life including much more detailed savings tables.
The Savings Tables
The following are some excerpts from the book which I have referred to over the years. This data is even programmed into our net worth tracking sheet to help set our traditional retirement goal.
These tables are based on similar assumptions to the “Yes, You Can Get a Financial Life” but go into a little more detail. The tables are derived not just from average investment gains and use a more conservative approach. They tested these for a 99% probability of success using only the lower 40% percentile of investment performance. This is much more conservative than just depending on investment averages.
Retirement Planning Assumptions
Assumptions did vary a little between tables, but here are the basics for their conservative approach. Again, this is geared to ensure you were successfully planning for a traditional retirement and had some conservative assumptions.
- “Couch Potato” Portfolio – Allocation adjusted over the person life cycle.
- 1% Fees on Investments
- Live on 82% of Final Salary After Retirement
- Retire at 70
- No Pension
- No Social Security
- Low (40 percentile) Investment Returns Until Retirement
- You might live to age 105 (1% possibility)
- Your portfolio in retirement has a 1% risk of failure
- Normal Career Path
Below, Table 3.3 in the book, provides the recommend savings rate at a given age based on your current savings to retire at age 70.
The second table, shows the recommend minimum savings to have at a given age for retirement plans at 65 and 70.
These two tables formed the basis of our retirement goals for many years. During our retirement planning these tables proved to be invaluable to gauge if we were on track. At least until we discovered Financial Independence!
How I used the Books for Our Retirement Planning
Ten years ago, I was already in my mid-late 30’s when I found this book. Up to that point we had done a decent but not exceptional job of saving for a traditional retirement. One issue is we really did not have a good way to judge if we were on track. We could look at average return estimated projections but that left a lot to be desired. This book helped me get set on a good basis for a traditional retirement plan.
In the graph below you can see how I used the tables to set goal lines for minimum retirement savings. This is our real data but normalized to a Financial Independence goal of $1M retirement savings goal by age 50, all the other values where then scaled to the same ratio to normalize the data. Our real goal is a little different.
Note: The star on the graph below is when Mrs. FoF and I were married, and we combined our savings. You can see a dramatic shift in our savings after this point. One of the many reasons I say getting Mrs. FoF to marry me was the best thing I ever did!
For my original planning, I had set a slightly early goal to retire by 60. At the time I thought this was aggressive, little did I know!
Not having my own simulation tools at the time, I simply extrapolated for my case and created the orange “goal” line. Based on the data from the book, this required a savings of ~16x income by age 60. We accounted for our income less any savings but did not do a detail income need assessment.
The savings goal seems low, traditional expectation for 4% SWR would be 20 times income. Since this is based on full earned income today and assumption that you only need to draw down 82% of your current income then it works out close to the 4% SWR.
When we first ran the numbers, we were behind the target. Our total net worth soon exceeded this line, at least since after the 2008 stock market crash. We had a small business we closed around this time which also stalled our progress, that is a story for another time.
Eventually even just our deferred accounts began to exceed the target line. At this time, based on the target data from the book showed we had a good plan. We were on track for a financially secure, traditional retirement. Not knowing about Financial Independence, we felt pretty good about this plan.
Today, I still believe the guidance from this book would have set us up for a comfortable traditional retirement if we didn’t change our goals in pursuit of Financial Independence.
Our New Goal – Financial Independence
A few years later we discovered the Financial Independence communities on Reddit. It was about the time I started getting tired of the 9-5 grind and office politics. Was it possible even at our later stage to pull in our retirement plans?
We started to review our budgets, our savings rates, and took a serious look at our projected income needs. We then projected the Retire Early savings line (red) on the graph based on a stretch goal of retiring by age 50. At this point we saw a big gap between our savings and the new goal of retiring by age 50.
We both always earned a good income leveraging our human capital effectively. Outside of our 401k, our savings habits were not great. We lived within our means but tended to spend most of our income many times on unimportant splurges. Around this time, we also started using You Need a Budget (YNAB) software. This allowed us to better manage our money, reduce spending on non-important things, and we began to ramp up our savings rate.
Moving from a HCOL to a MCOL area while maintaining similar income levels was a bit more aggressive change. We did this for reasons beyond just Financial Independence, but it helped our goals. We also had a good bump from the stock market over the last few years which also helped.
As of today, our total net worth exceeds our savings goal at age 50 almost a year early (even when we take out the value of our house). The deferred accounts are close to sustaining our retirement without touching our other assets. We are now debating if we “pull the cord” at 50. Retire in the next year or take another year or two to build some safety margin around our plan. The key thing is to not get too focused on any one number, stay flexible, and adjust as needed on your own path.
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Without finding the Financial Independence community, we would have still been in very good shape using the targets in the book for a traditional retirement.
We found the Financial Independence community later in life, but we were in a really good position to make some life choices. Reduced our spending and income needs and increased our savings to re-adjust our goals. I can honestly say without the principles and guidance of this book we would not have been in that position.
Overall, I still like this book and still refer to this book from time to time. I don’t use the tables as much since we have our own tools to estimate retirement goals including our own Monte Carlo simulation.
If your goals are a traditional retirement, then this book may be all your need. Once you get you basic finances in order, you may want to get more aggressive in savings and planning and pursuit your Financial Independence.
You may outgrow the advice in this book and need to look at other authors such as JL Collins “A Simple Path to Wealth” which is very popular in Financial Independence circles. This book that helped convert Mrs. FoF to thinking we could really do this. More on that later.