December 3, 2018

Retirement and Financial Security: How Much is Enough?

The quick answer is, no one knows, including you.The amount you need to retire comfortably and live a satisfying retirement lifestyle is dependent on so many variable that a definitive answer is impossible. That doesn't stop all sorts of web sites, blog posts, financial advisors, and others from giving you their opinion. I caution you to use what you learn in this manner only as a piece of the total puzzle, not the ultimate solution.

It shouldn't be surprising that I am not going to give you a hard and fast number either. But, I am willing (or foolish enough) to take a look at some of the factors that will help you arrive at the "magic" number for you.

What is First?

The first step is to assess your expected income. While many of us lived our working lives spending more than we made, that was dangerous then, and fatal now. Once you retire, if you spend more than you have resources to support you could be in big trouble. Why? Simply because you cannot predict the future: what will happen to your income stream, your health, even how long you will live.

Retirement income comes from several sources. For most folks your pension, 401(k), IRA, annuities (a contract between an individual and an insurance company promising lifelong income in exchange for an upfront payment), and other investments will be an important source of financial support. Take the time to figure out exactly what you have and what they are likely to produce for you on a consistent basis. If you are unsure, now is the time to get a firm grasp on your assets, and make any adjustments as needed.

Based on those sources, you can use a basic retirement withdrawal calculator to predict how long the money will last if you withdrawal a certain amount each month. As you do so, don't forget to factor in your best guess for inflation, whether you want to leave money to family, any tax consequences, and appreciation of hard assists, like art or classic autos.

Social Security is another pillar of your financial house. The government web site provides a calculator that allows you to predict what your monthly checks will be, depending on when you begin accepting checks. If you missed it, read a post from a few months ago , How To Decide When To Start Social Security

Do you expect any inheritance from a parent or relative? While I strongly suggest you don't count on this money for part of your planning, knowing it may be there for you at some point in the future allows you to make "what if" plans.

It is Budget Time

Next, as I wrote about 6 weeks ago, develop a retirement budget. You will have certain expenses that continue whether you are working or not.  If you own a home property taxes aren't about to cease. Cars will probably be needed well into your satisfying retirement; remember to plan for both repair and replacement. Food, utilities, vacations, health care costs, clothing...these things will continue.

Note: In Monday, December 3rd NY Times Business section, see the excellent article on the reason to budget.

What will take some real thought on your part is the shape you want your retirement to take. Do you have plans to travel extensively or buy a vacation home near that favorite lake or ocean? Do you want to see family members on a more regular basis which means more travel? Is an RV and the open road calling you?

Or, are you anticipating a simpler lifestyle, one that keeps you closer to home. Are you content to explore opportunities to become involved and volunteer in your own backyard? Are you thinking of downsizing your living space to save expenses and work?

What about adult children or parents? Will they be part of your life both in terms of time and expenses? Should you budget for extra money in case your parents end up needing substantial financial support?

Obviously, a large factor is deciding which of these retirement lifestyles (or a combination of them) you plan for is determined by your income. I've always wanted an RV, but the budget to buy and maintain one didn't exist for several years. I'd spend my summers in Flagstaff but not wanting to be away from family that long makes even that 3 hour distance not feasible at this time. I retired before my financial foundation was where I expected it to be. Through a conservative lifestyle and prudent budgeting things are just fine. But, I determined early on the champagne lifestyle wasn't going to happen on my beer and wine budget.

Things Change: Plan For It

Importantly, my desires for that lifestyle changed. It no longer appealed to me. Being home, with family and friends is what makes a satisfying retirement for me now. Volunteer work with Junior Achievement and the Friends of the Library  and the simple pleasures of reading and enjoying all Arizona has to offer are what I aspire to now.

The bottom line for you: pick the lifestyle you think you want to retire to and budget for it. If the numbers work for you, great. If they don't figure out where you can prune while still maintaining what is most important. But, don't be surprised if your goals change as you move through this stage of life. It is the rare person who can predict at the beginning of retirement what his or her interests and desires will be 10 or 15 years down the road.

One more hint: I believe there are three retirement lifestyle phases. If you love to travel and explore you are much more likely to do that in the first decade or two of retirement. If you want to scuba dive the ship wrecks off the coast of Bermuda, don't wait too long (I've done that and it is a blast!). That means your budget will show dramatic shifts over time. What you set aside for travel in the early phase will taper off, to be replaced with higher expenses in health care or maybe dining out.

How much money is enough to retire comfortably? The simple answer is enough to allow you to live the way you would like to at each stage of your retirement lifestyle tempered by the reality of your financial foundation.

The real answer is not one really knows, including you, until you are in the midst of it. The best you can do is plan well, adjust as needed, and be happy with what you have. The most miserable risk in retirement is not running out of money, it is running out of the joy and satisfaction that retirement can mean for you.


  1. Bob, I totally agree with your bottom line: "Pick the lifestyle you think you want to retire to and budget for it." For a full two years before I escaped from the work force, I tracked every single household expenditure. It was a tedious chore but it provided a very clear picture of where our money was being spent and it formed an excellent foundation for a retirement budget. Although I had done this at several different points during our married life, this time the eye-opening exercise provided critical and extremely useful information for the next chapter of our lives. This simple piece of planning and the knowledge it provided allowed me to feel secure in our basic retirement plan and make adjustments along the way to get to exactly where we wanted to be. It was well worth the effort.

    1. As your lifestyle changes over the time of your retirement, it is much easier to adjust if you have done the hard work of getting a solid foundation first. AS you note, Mary, feeling more secure is an important byproduct.

  2. "The most miserable risk in retirement is not running out of money, it is running out of the joy and satisfaction that retirement can mean for you".

    I think this point is the most important you have made, Bob. When it comes to money most of us, at least those who have worked, invested, lived within our means, and had to budget all our lives, can adjust accordingly to those changes that life throws at us. If we find ourselves with less than anticipated, we change our spending to accommodate that shift, period. Those unable to do so will likely have a miserable existence as they push for more monies to be taken from those who anticipated their retirement needs properly, and be given to them. Good luck with that strategy.

    But to lose a zest for life, whether due to identifying completely with work that is no longer there or some other reason, is much more threatening than running low(er) on money. It is so threatening that it could cut years off a normal lifespan. I worry about all those people who cannot transition in their minds to the retired life since it will not get easier in many cases as time goes by.

    We are getting ready to take off Saturday for thirteen straight weeks at our favorite timeshare resort. I remember meeting a gentleman from PA last year who still actively vacations at such places, oftentimes bringing his children and grandchildren along, at the ripe age of 93. He is my hero and I hope to be doing the same as him in the decades to come, since he had a real zest for life that is lacking in some people decades younger than him.

    Best wishes to you and Betty and your readers, many/most of whom should agree with the points in your blog today. It's a great time to be retired!

    1. I agree, Chuck. Few things are sadder than contemplating a retirement that is just "filling time" between work and death. Living without happiness, joy, and a purpose reminds me of the previous post and Jimmy Buffett's quote: "I'd rather die while I'm living, than live when I'm dead."

      You and Deb have a great winter break!

  3. In my experience the amount of income you'll need in retirement is probably less than you think. If you've been financially responsible (and I'd bet that most people that post here are) then you've also been saving regularly, paying down your mortgage, raising kids and paying for their education, plus when you are working there's payroll deductions and work-related expenses and so on. Even when working I bet most people are living on less than 40% of their income for most of their lives.

    By the time you retire all that has ended and with a lower income even your tax income is reduced. Unlike while you were working in retirement essentially all your after-tax income is for spending. Of course, as Bob says, you'll need some money for home and car maintenance (and you'll likely be driving less too) but overall, I think you can live on much less than when you were working and certainly less than the 70% number you read about in the financial press. In fact, unless you had a defined benefit pension plan that generates a replacement rate in the 70% range, to have 70% of your final year's salary in retirement it would be impossible to have 70% of your income available while you are working because you'd be saving so much.

    I understand the anxiety giving up your full-time job and income when you retire. I had that anxiety too and in fact I missed my penciled in retirement date by almost 2 years. Heck, if you get it wrong for most of us there's no going back. Do all the numbers or whatever it takes to feel good about retiring but I think it's like having children -- you'll never feel fully prepared.

    Four years ago, we made the jump to retirement and now I wonder what I was worried about. My wife and I retired on about 40% of our final year's income (slightly less than that actually) and I find that we are living better and travelling more than we ever did when we were working. Life is good.

    1. We are living on something around 50% of my retirement income but are aware that number can (and does) rise and fall from year to year depending on travel or other expenses. As I type this our house is being painted and in January we are taking 8 people for a week to Disney World. Those expenses will affect our budget, but are one-time only aberrations.

      We are expecting health care costs rising every year as we age but expect other categories to drop, so the net effect will be neutral.

    2. Bob, your "three retirement lifestyle phases" is important and something that many retirement software planning tools don't take into account.

      Spending generally grows in real terms between retirement and 70 or so, then begins to slow down for most of the next 20 years. At the very end, people will spend more, in their 90s if they get that far, because at that point in time you might need care. That said, everyone in both my family and my wife's family have lived in their own homes until very nearly the end.

      Personally I think what happens when you’re 88 or 90 years old is less important than what happens when you’re under 75. You’re not going to have the same quality of life you had when you were 50 or 60 or 65 or 70.

    3. George H.W. Bush showed what is possible as we age. But, he was the exception, I'm afraid.

  4. ddavidson5647 says, "Personally I think what happens when you’re 88 or 90 years old is less important than what happens when you’re under 75. You’re not going to have the same quality of life you had when you were 50 or 60 or 65 or 70." I'm not convinced that quality of life ever goes away as the definition of quality will change with time. Quality of life may not be enhanced by travelling, entertainment and dining out but certainly quality of life can be enhanced with supports that enable an aged, frail person to remain in their homes or live in accommodation that provides more than perfunctory care. There are many aides and services that can be paid for that enhance quality of life. Bottom line, quality of life is relative.

    1. Mona, you are right that quality of life is relative but I see so many people putting off fully enjoying their retirement because they don't want to spend the money "just in case". Often they end up leaving this life a large bank account of money that they saved for retirement but never spent.

      A recent Employee Benefit Research Institute study found that people in the United States who retired with more than US$500,000 in savings on average still had 88 per cent of it left 18 years after retirement. (Age 80 if they retired at 62.)

      People that began retirement with $200,000 to $500,000 also managed to preserve most of their wealth with 36.8 per cent of them having more assets 18 years later.

      The study found that even individuals with less than US$200,000 in non-housing assets immediately after retirement still had 75 per cent of their cash assets 18 years later.

      Statistics also show most people will not need care for long periods, not to say it doesn't happen, but most don't. When I look at my own parents and grandparents all of them lived into their 80s and 90s staying in their own homes until very nearly the end, most died at home in their own beds. It is the same in my wife's family as far back as anyone can remember.

      I so often see people being overly frugal in their early, healthy, retirement years worried that they will “run out of money”. By the time they’re 75 or 80, they may be a lot more confident their money will last but by that point in time they’ve lost either the ability or the inclination to fully enjoy the money they saved and so it just sits in the bank until one day it is distributed to their heirs.

      Of course we all have to make our own judgements on these things but for me I saved for retirement so I could enjoy my retirement not so I could die with it in the bank. That's my plan anyway.

  5. Not to be flip about it, and not that I'm recommending it, but if you die with $10,000 or $20,000 worth of credit card debt, and you're underwater on your mortgage and you owe thousands on your car, and you have a big medical bill, does your debt die with you? If so ... another reason not to worry!

    1. I am no expert but as far as I know there's no intergenerational transfer of debt. I am sure it makes settling your estate more complicated, I think the estate essentially declares bankruptcy.

    2. If there is an estate with any assets they will be used to satisfy an outstanding debt. If the person owes more than they are worth, somebody in line loses. If a spouse dies and you have a joint credit card (or any other financial assets), the surviving spouse assumes the debt.

    3. But, if both of you die- then the debt is rarely passed on to the next generation. Some states have even gone to protection for surviving spouses. This area is one that it is best NOT to live in a community propter state. Very mess. Another reason to go into late stages as fiscally responsible as possible.

  6. How much is enough is a good question. I saved carefully for retirement my entire working life, so now I find it hard to shift from an emphasis on saving and actually begin spending my retirement funds. Some of my parents’ siblings lived into their nineties, and my maternal grandmother lived to 100. So if I inherited those genes, there is a possibility of spending too much too soon. On the other hand, I have lived on very little at other stages of life and I think I could go back to a pared back lifestyle easily enough. My daughter, when I voiced these worries of possibly running short at the end of my life said, in an astonished tone of voice, “But Mom! We would look after you. Why worry about that?” What a sweetheart. Not that I have any intention of being a burden to my kids.