A common question we get here at Asset Preservation Wealth & Tax is, “How can I be sure I’ll outlive my money in retirement.” On the surface, that sounds like a hard question to answer. After all, some people pass away within months of reaching their full retirement age of 67, while others survive well into their second century. When all you know about the finish line is that it could come at any point, knowing when enough retirement savings is actually enough can be quite challenging.
Improper Framing
The first problem with that way of framing retirement is that it assumes retirement looks the same for everyone. You reach approximately age 67, then you stop working and live off savings for the rest of your life while golfing, fishing or playing bridge at the senior center.
That scenario is unrealistic for some and undesirable for many others. Those who haven’t done a good job of preparing for retirement may be unable to afford it. Others might have the means, but not the desire. After all, if you truly enjoy your work because it makes you happy and you look forward to doing it, why would you want to stop working simply because you’re “supposed to?” For some, quitting work creates a vacuum in their lives.
My own mother is 75 years old. She’s well past retirement age, but she loves her job. It provides her social interaction and a sense of fulfilment. Mom’s career is part of her identity, and she simply has no desire to quit. Take a page from my mother’s book: When assessing whether or not you are ready to retire, don’t ask when you can afford it. Ask when you want it. Only when you have that answer should you delve into how much you need to have saved.
There’s another problem with the traditional framing of retirement: the idea that saving for retirement is simply amassing a big hoard of money. That type of thinking can lead to two potential retirement problems: not having enough or not knowing when you have enough.
When Enough is Too Much… Or Not Enough
You often hear claims such as “you’ll need $1 million to retire comfortably.” As with most financial advice, generalized wisdom such as that may or may not be applicable to your unique situation. If you want to retire to Scottsdale, you’re going to need a lot more than if you choose Fort Wayne, Indiana. Your retirement lifestyle will play a big part in how much you need: Do you want to travel the world eating at Michelin-starred restaurants, or would you be happiest staying home and tending to your garden?
This is why at Asset Preservation, we don’t just look at retirement readiness as a set dollar figure. We use special software to run cashflow modeling scenarios of potential retirement choices. This can give us a pretty good idea of how long your retirement savings are likely to last. That not only helps determine when you can retire, but also what kind of spending you can engage in when you do.
Seek Professional Guidance
This is where we get to the “how much is too much” question. If the retirement lifestyle you desire costs less than what you can afford to spend, why keep going if you don’t want to? If you’re looking forward to retirement, why put it off when there’s no financial reason to do so?
A financial advisor can be of immense value in this planning. Rather than guessing about how much you need, how much you can spend and when you can start retirement, a financial professional can show you the most likely outcomes of any given scenario and help you retire with confidence and on time.
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.
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