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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:

1. 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.
2. 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.
3. 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.
4.  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.

We live in a world where people think it’s a smart idea to put bombs in their underwear. That’s why I’m particularly grateful to have the benefit of someone with real wisdom in my life. The eighty-something lady who lives next door to my father’s house always has something quiet and wise to say and I try to be smart enough to listen up. So, the other day she made me listen when she said, “Many widows are house rich and cash poor. Not a good way to be.”

It got me thinking about real wealth, and the difference between being rich and having a high income. Not at all the same thing. Plenty of financial advisors have met with clients with six figure incomes and no money in the bank. People who live in multi million dollar houses who would face foreclosure if they had a stroke.  People who own a house free and clear, but have no other income but social security. Not a good way to be.

So, let’s think about housing and retirement. How much house can you really afford, not now, but when you actually retire? First big mistake is building on or upsizing when your kids are in high school. Sure you’re tired of tripping over hockey sticks and skateboards, clearing ten tubes of lip gloss off a bathroom sink and no house is big enough to accommodate your kid’s shoe size. But guess what? God willing they’re going to be filthifying a dorm room in a few years instead of your “great room”. So don’t saddle yourself with three extra empty bedrooms that need to be weather stripped and vacuumed, or a Great Room so big you need a GPS to find your cat.  You could have a month in Milan instead. Once you box all that junk up and send it to Goodwill or their first tatty apartment, you’re going to have a lot of echo space and money invested that you’ll wish was sitting in spendable mutual funds instead.

But maybe you’ve been smart and haven’t overbuilt you house to the extent that your neighbors drive by when they need a good laugh. Maybe you’ve even retired that mortgage before you turn 90. That still doesn’t mean you can or should afford the house. Take what the house is worth. Let’s say $500,000 for a nice round number. That’s not what you paid for it, but say it’s what you could actually get if you sacrificed it in today’s market. Invested, that amount of cash would give you at least $20,000 per year in conservative income withdrawal. You do need to live somewhere, but could you find an acceptable place to rent or buy with a total monthly cost less than $1,667/month? Or look at it another way. Is $20,000 equal to or less than 28% of your retirement income?  That’s the percentage of income that used to be considered prudent to allocate to housing. For that (I’ll do the numbers) you need an income of around $71,000, or approximately $1,275,000 in invested assets including the house (assuming a Social Security payment in addition of around $2K a month). Take off the house, whether cost or loss of potential income, and that amount gives you a safe withdrawal rate (4%) of about $51,000 a year in income + $24,000 of Social Security. Do your own numbers. If they look okay, great. Otherwise, your house is too expensive. The same numbers apply if you’re still making the payment when you retire—28% of your income, or it’s probably too expensive.

You don’t have to go very far to find people in their fifties living in million dollar houses with $50,000 in their retirement accounts. Too expensive. Dump the manse and get a plan. Move when you can still afford it and are healthy enough to do it. Don’t wait until your kids have to hold a distress sale to pay for your long-term care. Freedom is really all about the ability to make choices for yourself, not wait until others make those choices, in crisis, for you.