Retirement Talk

WHAT to do with the rest of your life?


871 How Much is Enough

I’ve entitled this episode “How Much is Enough”

Last episode I talked about the question: “When should I retire?” This week I want to talk about the financial portion of that question. I want to consider the question: “How much money is enough to carry me through retirement”? And I want to preface the entire podcast with the firm belief that first and foremost you need to be lucky. 

Relativity is a word we commonly associate with Einstein and physics. Relativity is a word I closely associated with retirement. Of course the amount of money you need in retirement is directly tied to the way you wish to live. The wife of the owner of the Los Angeles Dodger baseball team asked the court for one million dollars a month in a divorce settlement a few years back so that she could live in a manner of which she is accustomed. We can assume she is used to living relatively well. Most of us would probably believe one million dollars a month to be more than adequate. You can live on a lot of money or you can live on little.

In considering retirement the choice of whether you can afford to not depends on how you want to live once you retire. Of course retirement costs are closely tied to how much time we have left to live.Will it be five years, ten or perhaps even twenty or thirty years? How much will that cost? None of us know. Do we?

Several friends of mine in Alaska had planned well for a long, comfortable retirement. They had invested carefully. They planned on traveling to exotic places. The investments and carefully researched exotic destinations didn”t help. One died within months of retirement in a car accident. Another within two years of cancer. They were in their early sixties.

Now my mother lived until age 92. Her only income was social security. She saved money every month. Health care was covered by Medicare. She lived in a house that was mortgage free. She didn’t own a car. She could walk to the grocery store, drug store, post office and doctor’s office. She led a very low keyed life focused on family, friends, church and community. It suited her. Financially, retirement was easily realized.  

When we retired we tried to let some basic financial numbers speak for themselves. There were two major factors to consider. First, how much money would be needed to live in a manner that would please us?  Secondly, how much money would we receive in retirement income? The question of how long we might live had to be estimated at best. We got out a piece of paper and wrote down some basic expenses.

Two major expenses were covered. We had just paid off the mortgage on the house and comprehensive health care would be covered until death by our retirement package (this was super important). Years later a financial advisor told us that we had the best health care package he had ever seen. 

We were lucky. We would still have to provide for taxes, utilities and upkeep. We wrote down what we considered a generous sum that would cover these costs. Then we wrote down food expenses for one month. Again we tried to be generous. Next we listed automobile and travel expenses. A few other factors were considered like education, entertainment and savings. It was easy to draw a line and see how much money it would take to live the way we wanted.

The next step would be to look at what our retirement income would be. The income bottom line was much larger than the expense bottom line. It was obvious that if we were to continue on working it would be for some other reason than money. We have always laughed at the reasoning that our comfortable retirement was provided by our decision to not buy a boat, airplane, RV or another new car. Not sure this conjecture is true but I think it has some validity. Those items just never appeared on our radar. I always thought the best financial advice I ever heard was, “Spend just a little less than you make”.

I know that when we were working and making more money the following year than we were making at the moment our spending always increased just enough to keep pace. When our income decreased our spending decreased right along with it. 

How did this all work out? It has been almost 37 years since we sat down to figure out how much money is enough for us. Our calculations seem to have been correct. We still save money every month. And I think our friends would all say that we live very well. We have never had regrets about retiring early. 

Luck has played a major role in our situation. There is no substitute for luck. We all need that. We never had a serious medical issue. We had excellent health care insurance. We never experienced a bad financial crisis like a divorce, lawsuit, bad investment or unexpected support for our parents or children. As I never tire of saying, “There is no substitute for good luck”.

The bottom line remains firm. You just have to spend a bit less than you earn. You might be surprised by how much pleasure can come from a walk in the woods compared to a cruise in the Aegean. I’ve done both and I would choose the woods every day. 

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