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The physically demanding job required long, stressful commutes, which prompted Lucas Smith (pseudonym to protect privacy) to retire at the age of 62. But it was their good financial habits – namely, avoiding debt and staying ahead of major expenses – that laid the groundwork to make early retirement possible.
Although Smith has retirement savings in a 401(k) and individual retirement accounts, that money is earmarked for future expenses. For now, he’s living only on his $1,765 monthly Social Security benefit and $1,020 in rental income from an investment property. Here’s how he spends his $2,785 monthly income.
Also see the minimum savings required to retire in each state.
Accommodation
Smith has a small mortgage on his primary home. Their payment is only $500 per month. In addition, he contributes $200 per month toward the mortgage of the home he co-owns with his siblings.
utilities
Electric bills are a relatively small expense of $70 to $100 per month. Smith pays an extra total of $250 per month for cellphone, Internet and TV services.
transportation
The retirement is saving Smith about $40 a week in gas, making that expense negligible. However, he has to pay $500 a month on a car loan that he is working on paying off.
grocery
Smith was used to bringing lunch to work, so his grocery bill is now about the same as it was before retirement — about $400 a month.
investment property expense
Annual property taxes and homeowners association fees amount to approximately $400 per month. Smith keeps a separate savings account for those payments. He made those savings through his own kind of “savings plan.”
“Ever since I’ve owned the place, whenever I got rent money, I put that money back into the condo,” Smith said. With no mortgage to worry about, Smith uses the account for other expenses.
Travel and Entertainment
Smith didn’t have much time for entertainment during his working years, so he’s not used to just going out. He would prefer to enjoy free time at home or spend time with family.
Travel was another thing Smith didn’t have time for when he was working, other than vacationing at his investment property. He’s taking a wait-and-see approach to future travel budgeting.
Health care
One risk of fairly comfortable early retirement is that some expenses may surprise you. In Smith’s case, that expense is insurance. He paid for coverage through his employer but is currently uninsured and is exploring his options.
“I’m looking for a part-time job that provides benefits, something that will last me the next three years until I get Medicare,” he said.
Tips for Retiring on Less than $3K a Month
Smith credits his mother – a single mother who raised three children on a teacher’s salary – for teaching him good financial habits that allowed him to retire early on a modest budget, without having to tap his retirement savings.
The key factors that do this are things you can do to retire early on less than $3,000 a month:
- Eliminate credit card debt.
- Anticipate big expenses like home repairs, and set aside cash while you’re working or working.
- Be prepared to adjust expectations about what retirement will be like; It doesn’t have to be all-or-nothing.