Anyone who comes to Accidentally Retired, is probably thinking…how is that possible?
Well it is possible. And here are 5 tried and true rules to finding yourself in an accidental retirement situation.
Rule 1 – Earn, Save and Automate
Everyone already earns, so this is an easy rule.
But, where there is usually a huge difference is in the amount saved. As ESI says, saving is just as important as earning.
There are lots of ways to budget and save. That is important, but not as important as following my rules to achieve accidental savings:
- Max out your 401(k), 403(b), most 457 plans (if you have access to one). Otherwise max out your IRA account (and your spouses).
- Further automate any additional savings into a taxable investment account, so that you never see the money in your bank account.
- Lastly, pay yourself the remainder into your bank account and live off that.
You may be thinking – “but if I max out my 401 (k) I will have nothing to live off of”. My advice to you, is run the numbers, create a spreadsheet to actually calculate it out. It is very likely that you will reduce your taxable income enough that you will not need to withhold as much in every paycheck.
And even if you cannot do the max, that is fine. Do what you can and try to stretch yourself as much as possible. Automate.
Rule 2 – Invest in Low-Cost Index Funds
This rule is pretty simple. Invest in Index Funds or Index ETFs. I have personally, fired my former Financial Advisor, and moved everything into low-cost Index Funds and am following Bogleheads Three Fund portfolio approach. We are investing in the following Vanguard funds:
- Vanguard Total Stock Market ETF (VTI)
- Vanguard Total International Stock Market ETF (VXUS)
- Vanguard Total Bond Market ETF (BND)
That is it.
Do not overcomplicate it. These ETFs are saving us over 1% in fees. Here is why fees are a big no no.
Rule 3 – Ignore it all (KEY RULE)
Once you do the above, ignore your entire portfolio. You’ve automated 401 (k) or IRA investments, you have automated taxable investments, you have selected low-cost index funds. IGNORE IT ALL.
It doesn’t matter. The stock market always go up. You are invested for the long-haul, so it doesn’t matter on any given day if the market goes up, or down, or crashes. You will still end up accidentally retired.
Rule 4 – Pretend Your Money Doesn’t Exist (see Rule 3)
Just keep on ignoring it. Check on your portfolio maybe once a year, but absolutely do not sweat it. It’s not real.
Rule 5 – No Seriously, It Doesn’t Exist (see Rule 4 and 3)
If you made it this far, there is nothing more to do.
Your money doesn’t exist.
You are working hard, and you are continuing to max out your 401 (k) taking advantage of any Employer match, etc.
On top of that you are saving more money directly into you taxable investment account automatically.
You are on your way to your Accidental Retirement — and one day you will check your portfolio (blatantly ignoring your rules, and realize you are Accidentally Retired).
Great Post – What asset alocation do you have between the 3 funds?
I read “If you can” by William Bernstein and he said split equally among the three… total US stock, Total US bond and Total International.
Just curious if you subscribe to the same asset allocation?
Thanks! Since this was initially posted, I’ve made a few changes to the defensive portion of the portfolio. Our asset allocation is roughly:
– 50% US Stock
– 30% International Stock
– 20% Cash, Bonds, and Alternative
We have a rather small amount of bonds at the moment, and that is because I am using a cash bucket to manage our withdrawals and sequence of return risk!