When people start saving for retirement, the question is usually, “How much do I need to save?” It seems like there ought to be a fairly straightforward answer. Shoot, you can open up any AI tool or financial calculator found on the web and find out “an” answer.
My client base is filled with a large range of people, PhDs to teachers, firemen to nurses, business execs to business owners… and everything in between. Smart people—these people have come to me at different stages of building their retirement bucket… why would these smart people talk with me? I mean, they can get “that number”—right?
Multiple Numbers In The One Number
The issue for almost everyone, whether they see it or admit it, is there isn’t one number. My wife and I moved to New Jersey one year out of college. We loaded up 3 boxes 3×3 in size… that and the suitcases we took on the plane was all we moved back east with.
After four years back east, 9/11 happened and something changed in us, pushing us back to California to “move to the family” stage of life. This time we had a bit more than 3 boxes and a few suitcases. We loaded up our Durango to the hilt. Had a roof rack filled and a tow-behind uhaul trailer—you know, the one that looks a bit like a horse trailer—that one.
When we left New Jersey, I said, “Babe, this is how our life should be. We should be able to fit it all in a van and a trailer.” Today—well, it’s different. I will say I don’t pay rent at a storage facility (that isn’t to shame you if you do).
What is different about all of these is what it costs to live. When Erin and I moved to New Jersey, I was still looking for a job. I think her starting salary at the new gig was around $60k. The $900 a month apartment was $50 over the amount I had budgeted for us—but it had a view of the World Trade Center, so my wife was able to sell me on splurging to rent that place.
Fast forward 4 years—we both were employed, and what we could afford had drastically changed. We went from 4 meals of macaroni and cheese a night to eating out 4 nights a week.
Our number (the pot of money we needed to retire us) when we moved to New Jersey was close to $1 million… 4 years later, that number was more than triple that. And that was just in four years!
Retirement is not necessarily this in reverse. I recently had a couple come to me close to retirement. We ran their “number” and found out they were there. But then, as the time got closer, they talked with friends they would be traveling with. And you know what happened? The number moved. What they thought was a good “travel” budget was half what they needed to travel with their friends.
There lies the reason people are not so ready to retire based upon the number ChatGPT gave them. They see that the number is going to have to serve a lot of different masters—travel, charity, general living expenses, upkeep or upgrade on the house. Add in a spouse, and that number can become even more complex. What I want to do in retirement may be different than what my wife wants to do in retirement.
And this right here, this junction point of not really knowing what goes into making up what the number has to account for, is at the center of what keeps many people from retiring.
Getting The Ideas Out In the Open
Suggestion? Years before you retire, do a few things:
- Try on the travel you have in mind. Take a few trips and find out what the hotels, restaurants, and travel style you actually enjoy will cost.
- Figure out what your house needs. Price out necessary repairs and nice-to-have updates, then decide what you want to tackle before retiring.
- Compare your retirement with your spouse’s. Each of you should put numbers next to what you want to do, then see whether you have been budgeting for the same retirement.
- Put a number on helping family and giving to charity. College, weddings, gifts, and donations need amounts and timing—not just good intentions.
- Price an ordinary week at home. Eating out, golf, clubs, and hobbies can look different financially when you have more time to enjoy them.
- Plan for the things you will eventually replace. Put cars, appliances, and other large purchases on a rough calendar with estimated costs.
- Price a move before assuming it will save you money. Look at actual homes, moving costs, taxes, insurance, and association fees—not just the difference in purchase prices.
- Give your retirement budget a trial run. Try living on the planned amount for several months, including setting money aside for expenses that don’t show up every month.
Now, if you look at this and think—shoot, that is a lot to do—you’re right. Worse, what happens when you know that you likely don’t have enough to do everything on both of your lists and the negotiations start to happen?
Now you’re starting to see why people come see me. Many of my clients call me their marriage therapist. Look, I am not going to help your husband pick up his socks off the floor (my wife hasn’t gotten me to do that yet. I have gotten to the point of throwing them in the direction of the hamper. It’s one step at a time! 🙂 )
But Wait, Is There a Number?
I can hear half my clients right now, “Wait, so you’re saying there isn’t a number?” No, there is a number. But as a first step we need to figure out what will be needing to be spent during retirement (there are other steps to finding out the number – what other money you will have coming in (pension, social etc), but for the purpose of this article, we are talking about the elements of the number that are often unknown and not talked about.
So the point of the exercise of “getting the ideas out in the open” is to through it all out there, then start peeling back what is possible based on what you have saved up… and how much more you can save before you reach retirement. I have had plenty of clients go from the “dream house in Hawaii” to increasing their travel budget and staying in their current residence. It gave them more flexibility with travel while not adding years of additional savings for their “dream house.”
Professional Help and Purpose
So my last suggestion—well, it should be my first suggestion: tackle these items above with a professional. Someone who can help dig into the questions, hear what each of you is trying to say, and put numbers around the choices. Sometimes that means being the person who has to say, “We can do this, but doing all of it would require something else to change.” Often I will have a client say, “Mike, I say the same thing, but they hear it different from you”—isn’t that the case with much in life? You hear something from one friend and you dismiss it because of the way they explained it, then another comes by and it makes sense and you buy in.
The calculator can give you an answer. The work is figuring out whether that answer accounts for the retirement you and your spouse actually want—and what you would change if it doesn’t. Once we understand those costs and what income you will have coming in, we can get a much better idea of what your savings need to provide.
There is another part of being ready to retire. You may know what the vacations, the house, and the everyday expenses will cost and still not know what you want your days to look like. Or the “Monday morning question”: What happens that Monday after you retire? There is no office to go into. No co-workers to chat about the weekend. No one needing the particular skill you have to solve a problem. This leads us to that big word “PURPOSE”—what is my life—outside of the traveling, etc.—about when I retire? We will dig into this in the next blog.