Hello folks! Hope you are having a good one! I wanted to spend a little time today contemplating a question I often think to myself and that is how much money I would need to retire lavishly? I have already gone to lengths thinking about our retirement lifestyle and how that would likely evolve over a multi-decade retirement lifespan.
However, the premise behind that post was retiring comfortably. The focus was more in terms of replicating our current comfortable lifestyle and estimating changes after major life events like when we become empty nesters, etc.
That’s all fine and dandy. I’m not a lavish person by nature. I fall into the category of being a frugal millionaire after all. But what if…
- What if I do decide to chase the dream of owning a mansion house?
- What if I do decide to buy a Tesla? (I’m such a Tesla fan-boy, but even more of an electric car fan-boy…it doesn’t need to be a Tesla but I do want my next car to be electric.)
- What if I decide I want to take my two little boys and wife to the Super Bowl, college football national championship game, the Final Four and the NBA Finals just for the experience?
- What if I decide to spend a summer slow-traveling?
You get the idea. I’m reminded of the book by James Collins and Jerry Porras titled Built to Last: Successful Habits of Visionary Companies in which the concept of “BHAG” was introduced. BHAG? Yes, BHAG…a Big Hairy Audacious Goal.
Adapting that to my personal life and how I envision retirement to be may be a hypothetical quandary, but it might be a helpful exercise in framing my retirement number.
Sometimes having a retirement number is nice, but it may not be the final answer. As I’ve discussed before, $3 million is my target retirement number. I could get by with less, but in order to maintain a nice comfortable lifestyle with reasonable assurances it will last for such a long retirement timespan, that is the retirement number baseline. That is my “fat-FIRE”, so to speak…
Having a sense of that baseline is a great starting point, but let’s go a step further. And at this point I should give credit where credit is due. While this is a concept I often think about to myself, this post was also motivated by a question that Rob Berger recently discussed on his Dough Roller podcast.
Have you given him a listen? He’s great, by the way. I just stumbled across his podcast in early 2017 and am now a regular listener. And I think I’m safe to say he is a fellow $wanigan with interest in the FIRE movement as I was recently honored to be a guest on his podcast discussing my FIRE journey. Dough Roller episode #285!
The Financial Independence Range
Anyway, one of his listeners asked Rob how much money he thought he would need to retire comfortably and also the magic retirement number he would need to retire lavishly and allow him to do anything he wanted to do in life?
It is a great question and one that I think is probably on the minds of many folks in the personal finance / financial independence community.
Since I already have my baseline of $3 million, the question becomes what would it take to make my comfortable lifestyle lavish? An interesting thought experiment that really allows you to question what you value the most and would want to spend on endlessly and lavishly.
Where I draw the line though is unnecessarily throwing money at things; that’s just ridiculous and it defeats the point. For instance, yes having my own pool in the backyard would be nice, however in my view it would be completely unnecessary since we have a neighborhood pool we belong to as part of our homeowners association.
The Lavish Lifestyle
Where I would be willing to spend more on a lavish lifestyle is in a few discrete places.
We currently live in a very nice, comfortable 3,000 s.f. home in Charlotte. We are about 15 miles away from city center so it is relatively affordable. We have plenty of space for our family of four. While we will consider downsizing once we are empty nesters (in 18 years…) we would also consider a nicer, albeit smaller, home. So all in, it may be cost neutral.
If we were going to go the lavish route where money didn’t matter, I could see this expense doubling. That would mean not only the one-time investment in a nicer house, but also the real estate, insurance, and home maintenance annual expenses may double.
Assuming a 3.5% withdrawal rate to afford the incremental annual expense plus the incremental home value investment, my retirement number would need to be nearly $500K higher.
Kids Activities / Entertainment
If we were living lavishly, we’d most certainly spend more on kids’ activities and entertainment with the kids. For instance, I grew up golfing and loved it. While golfing as a hobby for me has fallen by the wayside over the years, I would enjoy picking it back up and getting the kids into it. Going from a comfortable lifestyle to a lavish life would include such things as a country club membership as opposed to just the occasional golf outing.
Similarly, I always loved going to college and professional sporting events growing up. If I were living a lavish lifestyle, I would consider getting season tickets to a team or two.
The golf membership may run $5K or more per year and same for a couple season ticket packages. Rounding up to an incremental $15K per year (beer is expensive inside the stadium…) and using the same 3.5% safe withdrawal rate assumption would mean I’d need roughly an incremental $430K in my retirement accounts.
Travel is another major category that we’d love to spend lavishly on. Granted it is a category that could be endless in terms of how much you can put into it. Not only in taking more trips more often, but a lavish lifestyle could also entail first class seats and 5-star hotels.
We wouldn’t go that far with it, but if we were going to spend lavishly we would certainly travel a little more luxuriously and with greater frequency.
Hard to gauge this bucket, but an incremental $10K budgeted to travel should do the trick. That would mean a couple more big trips per year. Of course that doesn’t factor in the reality of travel hacking which we’ve gotten fairly proficient at.
Suffice to say though that a lavish travel budget would mean our retirement number would need to be roughly $285K higher.
While our home, our entertainment, and our travel budget would increase quite significantly when factoring in a “lavish lifestyle”…requiring an aggregate increase to our retirement number of $1,215K in just these three categories alone…we would likely also vary our routine consumption patterns.
A broad brush stroke across such budget items such as food and dining (it would be great if a vegan restaurant opened up nearby…), personal care expenses (Lucy wouldn’t mind regular mani / pedis…) and other miscellaneous items would also become staples of a lavish retirement.
How much would that run me annually? Tough to say, but would $5K seem sufficient? Maybe $10K? Let’s go with $10K just to be safe. Dividing by 3.5% means we’d need another $285K in our retirement accounts.
The Lavish Lifestyle
Going back to the question at hand…what would it take to make my comfortable lifestyle lavish…my answer is another $1.5 million, or a 50% increase over my comfortable retirement lifestyle baseline of $3 million. Such an even number is purely a coincidence, but it seems fair.
Breaking this down a bit further, based on my expected investment returns and ongoing contributions to retirement accounts, the question is how much longer would it take to work to save up that extra $1.5 million? Taking a rough swag at it, for me it would mean an additional 3 to 3.5 years of working.
Is the tradeoff of time for money worth the lavish lifestyle? Maybe. Now that I have a BHAG number in mind to shoot for, it is something worth considering.
At the very least though, the exercise of running this hypothetical quandary has certainly helped frame up my retirement number better. My ideal retirement range is now $3 to $4.5 million…anything over that would just be gravy (or extra gravy…?) 🙂
Questions for You
What turns your comfortable retirement lifestyle to lavish? Any idea how much that would cost? Are a few more years working worth it to you? Let me know in the comments below.
For more on this topic, check out my post on how you’ve been herded.
Thanks for taking a look!
The Green Swan