How to value a Lifetime Supply of Everything You Buy
Retirement is like buying a lifetime supply of all the things you need to live, because you will need the cash on hand or income streams to buy all the clothing, housing, utilities, food, etc. for the rest of your life. In effect you buy free time to not work in exchange for cash. It is hard for most people to calculate what a lifetime supply of toilet paper, clothing, or utilities cost.
However, math is your friend. Take a good/service you will need, in this example I will use utilities. The cost of my utilities (water, trash, gas, electric) each month averages about $150/1 month. For other items like hot dogs take the cost of the hot dogs/days between purchases.
Now we figure out the cost per year of the good. $150/month * 12 months/year = $1800 amount spent yearly on utilities
Next we figure out the size of the nest egg needed to sustain 4% withdraws indefinitely to support monthly utility purchases. $1800 * 25 = $45,000 cost of a lifetime supply of utilities at current cost.
The formula wrote in one line: (Cost of good)/(period in days between purchases) * (365 days/1year)*25(safe 4% withdraw amount)= Cost of a lifetime supply
As you can see lifetime supplies cost a bunch of money. For every $1 spent per month in utilities I will spend indefinitely, I will need $300 of investments to support that spending. Now that you know how expensive every $1/month spent is, what steps would you take in reducing costs? If you could permanently reduce your monthly cost by $100, for example cut cable TV, you would need to save $30,000 putting you over a year closer to retirement on a standard salary. Is cable worth a year of your life?
What lifetime supplies interest you most?
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