I was having a conversation the other day about how different people come at deciding the age at which they want to retire, how different people's ideas are about what retirement consists of and how life sometimes throws a curve ball at our planning. Someone might sum themselves as "I am 55 today, want to retire at 66 with $1.15 million and I currently have $568,000." That sounds good and they'll probably get close to their dollar goal with a good savings rate and the benefit of at least one more bull market cycle before 66.
What are some ordinary threats to this potentially positive outcome? Obviously some sort of job loss a couple of years from now as it is very difficult for people older than 50 who do lose their job to replace their income in a new job. Another obvious threat is some sort of health event that one way or another impairs a person's ability to work. A third threat might be having a job that is the emotional equivalent of hard labor in a coal mine such that you wake up one day and decide you can't do it anymore.
With any of these threats there may or may not be a long runway where you might see this coming. If you get a Type 2 Diabetes diagnosis at 50 and it slowly gets worse you might have visibility then of an adverse outcome. You could however appear to be very healthy and have a stroke out of the blue, grim but possible.
If your hand was forced today, totally out of the blue, how much financial havoc would it cause? In our example, someone who was 18 months from their retirement date with $971,000 should be able to manage job loss or burnout pretty easily, they're just about there. At 58, with maybe $700,000 it becomes a little more difficult. Arguably, this person can retire but probably not have the retirement they envision or hope for. This might scuttle something like being able to travel and cause stress when the occasional one-off expense comes along. As examples, this year we are putting a new roof on our house, my wife's car is getting a $1000 fix as I write this post and my pickup truck is on the verge of needing new tires.
We all face these sorts of things and they make life/retirement more expensive than we usually plan for. As a matter of how to possibly plan for these sorts of things, I like the idea of setting aside something like $1000/mo and for something like a roof, we bought 20 year shingles so in about 18 years, we need to plan on replacing the roof again. Maybe it will last longer or not, but in the back of our minds, we'll need to do something with the roof sometime between 2037 and 2040.
The bigger picture solution is optionality. No one will care more about your outcome than you, as Joe Moglia might say. To me, this means a few things; taking care of yourself physically (diet and exercise), living below your means (this results in saving more and needing to replace less of your income if it comes to that) and continuing to learn new things.
Here is a link about a guy who is now 34 who went for broke, so to speak, on retiring at 30 with $1.25 million in such a way that he saved almost all of his income, let his health go (not permanently as implied in the article) and lost friends (as a function of not engaging in normal 20-something socializing). He says he has the $1.25 million but has created a very good income with side gigs including being a FIRE advocate. He talks specifically about learning new and potentially marketable skills. I am a huge believer in this on multiple levels. One is that it is important to learn new things, this sort of engagement promotes healthy and successful aging. I became an EMT in 2011 as part of my volunteer gig at the fire department and while I would hope to never be in a position where I had to rely on that for income (the pay is peculiarly low) it is a marketable skill. I have other interests I am pursuing on an auto didactic level that I might pursue in a more formalized manner primarily out of having an interest in learning more, but it is a potential backup to a backup to our backup plan....no one knows what the future holds and in the face of an uncertain future, increasing your optionality can only help.