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Ever heard the saying “call a dog a good name”? The theory, I suppose, is that then the dog will live up to it. It works when thinking about retirement, too.
Many of us past 50 regret that we didn’t save enough, or bought real estate at the wrong time or made any one of a variety of (in retrospect) bad life decisions that cost us a ton of money. But, as every talk-show psychologist will re-affirm, you can’t change the past. Also, you don’t have total control over the future. I’ve been lucky enough to have some really wise older people in my life, and I try to listen up. Here’s what I’ve learned:
- Focus on what IS. Coulda’, shoulda’, mighta’ been is totally unproductive and depressing. Imagination is always better than reality. How many people have you heard say, I have this terrific idea for a novel, which never gets written. It’s because making something real requires discarding other possibilities and getting down to the work of it all, which isn’t so fun. The happiest elderly people I know are people who are happy with what they have, and usually, possessions aren’t the first thing on their list.
- Stuff isn’t important at all. If you need any confirmation of that, try cleaning out the possessions of a person who has died. You can hardly give away the furniture, the electronics, the clothes.
- It’s never too late to save. Maybe you can’t save tons of money for retirement, but anything helps. $5,000 stashed away can pay for several trips to see the grandchildren, or a decent amount of gardening assistance or…well, in retirement you’ll think of something. Have you EVER heard anyone say I’m sorry I had that emergency fund? An article in a recent AARP newsletter mentioned a guy who even saves during retirement—he budgets so he can squirrel away a little in an emergency/travel/one-time purchase account. It’s a good idea to keep up the habit.
- Start lowering your expenses NOW to what you can reasonably expect to spend in retirement. Let me give you an example: you’re making $500,000 a year, you have $1,000,000 saved and you’re 58 years old. Sure, you’re never going to retire–seriously? You’re still going to toddle into the law office at 85 after a knee replacement and a mild heart attack? So, unless your name is Warren Buffett, humor me. You need to retire sometime, and it’s true that the longer you put it off, the more chance you have of not outliving your money.
Judging from your level of savings (in the example above), you’ve been spending quite a chunk of your income, but your portfolio is only going to generate about $40,000 per year as a safe withdrawal. Add, say $3,000 a month in Social Security (we’ll assume you’re married) and you’ll have a total income of $76,000 a year—quite a change from living large on $500K. You can either hope for a heart attack or take some serious, helpful action. Cut your expenses now. Start putting away 20% of your income (in this case $100,000) for the next 12 years and you’ll achieve several things. You’ll find a way to live on less while it’s still a choice, and you’ll rack up another $1,600,000 (assuming 6% interest) to improve your retirement income. Now we’re at $104,000 a year in income beyond Social Security. Find a way to make it $200,000 and you’ll have about $3.4 million which added to the $1 million of your savings gives you $175K a year in withdrawal income. Reduce now and you’ll have a far easier time later. Not making $500,000? Add or reduce zeros as needed.
It’s about as difficult for most people to lower their lifestyle as it is to lose weight. More people lose weight when they’re facing serious health issues, so we know it can be done. If there’s a yawning gap between your savings and your current spending levels, you’re facing a serious issue! Rule of thumb—you need at least 12 times your annual income to retire anywhere near your current lifestyle, and that’s a pretty tight amount that assumes you’re been saving about 20% (not spending it) and getting Social Security. For example, a person earning $60,000/year would have $720,000 in savings for a retirement withdrawal of $28,800 plus Social Security of, say, $18,000=$50,400. The less you make, the more likely Social Security can replace a significant portion. Once you get used to living on or making more than $100K, the gap must be filled bywithdrawal from investments. Without significant savings, the richer you live now, the more you’ll feel the pinch at retirement.
So, maybe you need to make the hard decisions—sell the house and invest any equity, lower your payments, reduce the number of cars, downsize the restaurant meals, respect you kids enough to let them stand on their own two feet.
You can call it miserable or you can call it liberating—simplifying your life while you are still in charge of the choices is freedom, in my book. Problems don’t go away just because you don’t face them. Facing them allows you the power to choose the changes and re-shape your life into something that can work for you.
