Once again, Jacob of Early Retirement Extreme gets me thinking. Assuming that the oft-touted 4% withdrawal rate from your savings/investments will likely last forever(?) and will accommodate inflation, Jacob points out that you can take an expense, multiply it by 25, and see what you need to amass in order to support your lifestyle.
Here is what he says on food, obviously a need.
What about food expenses? These can range from less than $50/month per person to more than $500/month per person.
Required savings for $50/month:
$50/month = $600/year food expenses. This needs $600/0.04 = $15000 in savings. Whereas $500/month = $6000/year needs $150000 in savings. That’s a lot!
Aiming for the lower figure of $15000 is doable in a foreseeable number of years. After saving $15000 one NEVER needs to worry about food again. One is financially independent of the food expenses.
I like this model, because it tells me that I can save for retirement bit by bit, accommodating first NEEDS (shelter, food, utilities, transportation, healthcare) and then wants (too many to mention here, mostly revolving around TRAVEL).
It also might make me think twice about the many small purchases to which I succumb. Recently, for instance, I have NOT bought a Greek wool hat (for Mr. FS), a Chico's linen shirt, a really nice comforter, and STOP...this is getting embarrassing.
Even though each of these things is ONLY around $3.00, if I forgo, say, 5 a month, I will have eliminated $4500.00 from my retirement needs. Not to mention, the clutter that comes from bringing in 36 new items per year.
Do you think it helps to "multiply expenses by 25" to see what a retirement plan amounts to, or do you think it a silly gimmick?
I love it, myself.