November 4, 2013

How To Retire Without A Million Dollars To Your Name



According to many retirement advice experts, $1,000,000 is the minimum you need in your investments accounts to have a satisfying retirement. Others say you need something north of $2 million to rest easy.

As regular readers know, I tend to push back against such generalizations. How someone can draw a line in the sand and tell you what you must have or must do without knowing you and your situation is poppycock (I love that word!).  I offer suggestions and advice based on my experiences and feedback from readers, but I hope I am never guilty of telling you "my way or doom."

That being said let me offer some thoughts on how the non-millionaires among us can still retire and enjoy a fulfilling and stimulating life. Again, I will say these are thoughts from me. They may not work for you, or you may have even better ideas which I sincerely hope you will leave as comments below.

In the interest of full disclosure I will state that with all my assets, minus my almost non-existent debt, Betty and I are technically millionaires. But, I have never thought of myself that way, and honestly, I live my life denying that fact. I live my retirement years on a nest egg that I see as several hundred thousand dollars below that figure. Why? To give me a safety net if everything starts to fall apart and to keep me from making the mistakes that I see too many others making: living for wants and instead of a balance of needs and wants.

How to retire without a million dollars is really quite simple: adjust your lifestyle to what you have to work with. That includes any 401(k) or IRA accounts, any other investment accounts, Social Security, the value of your home or other real estate, projected inheritance (if any), and part time or full time income.

Specifically:

1) The vast majority of us can substantially lower our everyday expenses after retirement. My book, Living a Satisfying Retirement, includes a section on this very topic. The average of those surveyed  is much closer to folks living on 50% of their pre-retirement income. Betty and I are closer to 40%, even though we live well and are much happier than when my salary was into six figures. Possessions and things don't motivate us nearly as much.

2) For unexpected emergencies and expenses set aside enough to live for 6 months, or pay for a large emergency. Remember, even if you have insurance for whatever the problem, you will probably have to fight for that money and/or wait months or years to be reimbursed. The worst scenario is to max out credit cards or a home equity loan.

3) Simplicity and retirement can often go together. Most of the retirees I come into contact with, both in real life and through the blog, have downsized both possessions and desires. Less really is more: more time, freedom, and flexibility. Keeping up with the Joneses becomes very unimportant.

4) Adjust your expenses based on two things: changes in your investments and changes in your lifestyle. This is rather obvious. When my investments were earning 8-10% my income and spending options were different than they are with something closer to 3%. And, Betty and I are very happy with simple meals, simple pleasures, and simple living.

5) Accept that the condo on Maui and the world cruise are out. Rejoice in all you can do. With a nest egg of less than $1,000,000 and upwards of 30 years left to live, your ability to live the large life is not likely. So, rejoice with what you do have and what you can do. Even if you live almost solely on Social Security and must count every penny, remember you are still better off than at least 80% of the rest of the people on this planet. We have so many opportunities and blessings we can lose sight of how good we really do have it.

6) Aggressively protect your health. As I age I realize how incredibly crucial this is to the rest of my satisfying retirement. Taking shortcuts now in terms of foods I eat, exercising, and regular health checkups will cost me later, and I don't just mean monetarily. I mean in my mobility and freedom to do what pleases me. I mean in how much of a burden I place on loved ones.


It is hard for me to express, just in words, how much more fulfilling and satisfying my lifestyle is today on 60% less money than I once earned. As soon as I adjusted my mindset to living and not spending a load was lifted and my life took on a whole new depth and sweetness.

How much do you need to achieve this same state? I have no idea and I'm not going to give you a figure. That is for you to determine. But, I will tell you the experts are wrong: you can be happy and productive without achieving whatever is the latest magic number they are promoting.


32 comments:

  1. I can't wait to share this post with my husband! His company is offering a retirement incentive right now & he gets the "magic number" for his lump sum distribution this Friday. This article may give him the confidence he needs to take the plunge. Thanks, Bob!

    ReplyDelete
    Replies
    1. Best of luck, Glenda. With proper planning and lifestyle adjustments anything is possible!

      Delete
    2. Bob, I agree.

      The financial key to my retirement planning was to identify and financially separate my wants from my needs. With the mortgage paid off, I've developed an $18,000 annual "core" budget to cover my needs. My wants I pay for as they arise out of a discretionary FUND, where income in excess of that yearly $18,000 accrues (and accrues).

      Working from a discretionary FUND instead of a discretionary (yet mentally semi-obligatory) budget gives me maximum flexibility in case of unexpected expenses or income drops -- and hopefully voids the need for core lifestyle adjustments.

      Delete
  2. Going to forward this to my 45 year old son. I have seen his priorities change over the years and I want him to see that not just his mother feels this is good advice. I, too, like to know that I'm not the only one who believes this. Sadly, I see many of my friends still unhappy and broke with lots of "things" (trips, big houses, etc) but no joy in their lives. Thanks for the post.

    ReplyDelete
    Replies
    1. You are very welcome, Susan. I was never knee deep in the consumerism mindset, but I certainly spent way too much money on things that didn't bring me happiness. It took retirement and a fresh look at my motivations and goals to finally get off that train.

      Delete
  3. Still saving - I have a "Magic Number". We will see if I can get to it. I have 17 years to work towards it.

    ReplyDelete
    Replies
    1. 17 years is plenty of time to achieve your goals. Good luck, Rake. You are well on your way.

      Delete
  4. Good insight.
    We are not millionaires, but we do have a great pension.
    Saying that, it is very possible to do what we want to do. We simply look at the possibilities and choose- making a budget to fit. That is not different then when we were younger and living in the working world. We are more limited by money- but less in time.

    ReplyDelete
    Replies
    1. Getting Social Security checks every month was like a wind in our sails. It is the first time we have had anything even resembling a pension and it is nice to know it is there the second Wednesday of every month.

      Limited by money and not time...a good description.

      Delete
    2. Janette, if you project out the future value of your pension, you are likely millionaires. Depending on your pension amounts, someone without that luxury would likely have to save well over $1M to equal your pension receipts..

      Delete
    3. Like Janette, I receive a a pension (and widows social security). I agree, I suppose at somepoint I should figure out what the pension payouts are in total. Most of us have to live on a budget of some point. the only difference with a pension is that number remains the same month by month, meaning we need to keep the savings in place as opposed to drawing it "out".

      Should people save for retirement? Of course. but if we don't make our magic number, whatever it is, we find other ways.

      Delete
    4. "We" is loose in my case. My husband has a great pension---which makes him a millionaire. As long as he is alive - I am a millionaire as well. When he passes---I will no longer have a pension of any great value (about $300 a month). We balance that with an untouched nest egg.
      He desires to live to 100 (which would give him a pension for 50 years). 89 is my target. If he outlives me- the kids are going to have a very good time with the nest egg! We shall see.

      Delete
  5. I just discovered your blog and have added to my daily must read list.

    Now, I want to comment on this post. A million dollars in retirement funds is way out of reach for many of us. My husband and I married after divorces and children from previous spouses. Our wages were always quite modest. We have less than 20% of that amount in retirement funds.

    However, we did everything possible with what we had. Paid off the mortgage before retirement by downsizing. Never, ever pay any interest on anything and living frugally. And we currently have more income than we ever had in our lives, due to Social Security and a pension. We have yet to tap into retirement savings. We travel constantly and take the grandkids places.

    We should definitely encourage people to save towards their later years, but I think we do a disservice when we talk about one to two million dollar retirement funds. It is overwhelming to many and isn't necessary to a rich and rewarding retirement.

    ReplyDelete
    Replies
    1. I agree completely about those arbitrary dollar figures that web sites and financial experts like to bandy about. There other figure that can scare people is the you need to plan to live on 80% of your pre-retirement income. We live, quite happily, on 40%.

      There are very few financial absolutes in retirement. Figures that keep people from assuming they can ever retire don't help one bit.

      Thanks for finding this blog and welcome to the family, Anne.

      Delete
  6. We have several pensions and we try to live on those rather than tapping into other assets.

    ReplyDelete
    Replies
    1. With the stormy Pacific NW weather you talk about on your blog today, you can stay home, read, and live just fine on good books and a fireplace!

      Delete
  7. The financial goals discussed are partially based on 1) what your current needs are and 2) what the financial advisor's income needs to be per client. The advisor just can't give you much time if you don't bring in much income from commissions. But, if your "current needs" can be revised at a lower figure, the amount you "need" can be lowered as well. I can't fault our financial advisor; she worked with us despite the fact we did not have the ideal portfolio. I'm sure there are many like her and would love to pass out this blog of Bob's.

    ReplyDelete
    Replies
    1. There is a difference between a commission-based advisor and a fee-only advisor, isn't there?

      My investment guy/stock broker and I have been together for close to 20 years. He knows my risk tolerance and knows what I won't consider. He is fee based in the sense that he gets something when I buy or sell, plus a small yearly amount that goes to the firm. But, I have never felt he is churning or bringing me suggestion for the commission. If so, I'd be long gone.

      Delete
  8. As one of your readers who is blessed to have a pension & is learning financial responsibility as a retiree (yup, a little later than some folks, I know) the real life experiences you & other readers have shared has been invaluable for me.

    Thank you to EVERYONE; my retirement has been satisfying beyond my expectations (& those expectations were high because I'd loved my job, so I figured I'd enjoy retirement even more); when I retired, one concern I did have was my money managing skills, which are improving. That is a politically correct way to say those skills needed A LOT of improving! :) I agree with the comments above; I was a single mom, who realized I had no hope a getting a seven figure nest egg for retirement & basically gave up on saving. It didn't occur to me then that anything I could put aside would help me later because I thought if I couldn't make the $1,000,000 there was no use trying. I'd also like to hand out this blog to everyone so more folks have a reality check. Small changes CAN make large differences but I'm not sure that information always gets out to folks trying to save for retirement. I am very, very lucky in that while my pension is not large at all, we can make it adequate for our lifestyle. Life still happens, factors spin outside our control. The washer dies, a car breaks down, there will be no condo in Maui, no world cruise, but it is still a wonderful life, with plenty of time to enjoy the sun in California, time to read books and enjoy our families and friends. There is so much to be thankful for!

    Pam

    Bob, thanks for taking the time to share your life & Betty's & my appreciation to all the readers who comment. I love the feeling of connecting to so many interesting virtual individuals right from my home to go along with my "real live" friends.

    ReplyDelete
    Replies
    1. You live in a beautiful part of California, Pam, so you have world class views around most every corner.

      Small changes are so important. We can be intimidated by big change, but that is nothing more than several small changes that move you forward.

      Betty and I were happy to meet you this past summer. It is so much more meaningful when real contact is made.

      Delete
  9. The $million number I'm sure is very discouraging to many.

    * Given that the stock market was at 11,000 in 2000 and was at about the same level ten years later. That decade did not see much pension growth.

    * The median income in this country has been around $40k for the last four decades and one-third made less than $25k/year.

    * In order to have a $millon nest egg after thirty years would mean that you needed to save about $2000/month or $24k/year year

    Even I can see that was impossible for almost half of us if we are expected to do that on our own. I was fortunate to have a pension and an IRA and live fairly well with that along with Social Security. Are we doomed to continue to be a nation of seniors many living almost completely off Social Security and therefore below the poverty level.

    Sorry for bringing this dreadful situation to your blog. I know you try to stay upbeat. But sometimes we need to look at the circumstances of those less fortunate than us. Everyone, especially those in one political party, say we must balance our budgets by reigning in things like Social Security. If we do indeed balance our budgets on the backs of the poor what kind of nation are we????

    ReplyDelete
    Replies
    1. Sometimes a splash of cold water is essential. No problem, RJ. I do like to stay upbeat but I don't bury my head in the sand.

      Delete
  10. does technical millionaire mean over one million in liquid assets + real estate?,,,or do you mean something else?

    ReplyDelete
    Replies
    1. I am using to it mean the value of investment accounts and home equity but not personal property.

      Delete
  11. If I had the choice, I think I'd take a decent pension over $1 million, esp. if you have count your house as part of the $1 million. You can't eat your front porch. (But I don't mean to cast aspersions ... if you have $1 million you're still doing better than most of us.) But I just thought of something: Wouldn't be great to have both!

    ReplyDelete
    Replies
    1. I could sell the house which I own completely and live and travel in the RV...hold it, I like that!

      As the post notes the $1million isn't real to me so how technically someone wants to define it isn't the point. I live on the idea of quite a bit less and expect it to outlast me. Next year my withdrawal rate will be 2% which puts me in excellent shape.

      Delete
  12. The longer I live on my pension and social security the happier I am. For me at least, the advantage of having the same exact amount a month versus figuring how much to pull a year and how long things will last is an advantage. Obviously this does mean developing my own savings plan and making other adjustments.

    ReplyDelete
    Replies
    1. The certainty is probably quite welcome. Like many others without a pension, I must readjust every year to make sure my withdrawal rate from my IRA isn't too much or I risk running out of money. On the other hand, when I reach 70.5 the government will tell me what my minimum distribution (RMD) each year must be. It is based on the value of the IRA divided by a standard life expectancy table. If I am reading the current table correctly I will have to withdraw something in the range of 3% or pay a penalty.

      Of course, I am free to take that money and reinvest any excess after taxes and what I need to live on.

      Delete
  13. Well, we were never millionaires, and honestly never aspired to be...well maybe in our 40's, but what did we know? Neither of us have been good money managers, but we made some good RE investments. We have recently decided to sell the city house and the beach house to move to ONE HOUSE in Cape May, NJ. I can't tell you how excited we are! Simplify, simplify, simplify! But, this move gives us enough extra to do some traveling, and that's something we both want to do.
    I've always been a believer in, 'All I have is all I need'. It's proven to be true more often than not!
    Good post!
    b

    ReplyDelete
    Replies
    1. It was never a goal of mine either and really isn't a factor in how we live. I guess it provides a certain level of security but isn't my mindset at this point in my life.

      Moving to Cape May from Philly? That should be a fascinating change of pace for you. I know you like the beach so this should be quite an adventure.

      Delete
  14. I'll be using the four legged stool method...pension, Soc. Sec., 401k and IRA. It won't be a million, but I'll be fine. I think that 1 million does discourage a lot of people from saving.

    ReplyDelete
  15. Easy way to compare your pension/social security payments to someone who gets their income from investments:

    First, assume that one can withdraw 4% from their investments and not reduce the principal. So, a monthly social security deposit of $1000 is the equivalent of a nest egg investment of $300,000. How so? 1000 x 12 months equals 12,000. Then 12,000 / 4% = 300,000.

    When you die their is no principal to pass on, or us for emergencies, but this concept allows one to compare their pension/social security with a nest egg of equities or similar investment. --WC

    ReplyDelete

Inappropriate comments will be deleted