Kimmunications Blog

Thinking about Retirement – How Much is Enough?

People worry about having enough money to carry them through retirement years. Even people with investments of $3 million have sought out financial experts to deal with this problem. Theoretically, they could draw down 4% of their investments or $120,000 per year and have their money last for the rest of their lives. But they are still worried.

The details of financial planning for retirement are many and complicated. They can be mind boggling, especially if one is getting a spiel from an annuity salesman.

Still we need to start somewhere. So how should we think about retirement? Here are a few general ideas for beginning.

Think about retirement as the time when employment becomes optional. We have enough steady income and investments that we don’t have to have a paying job. This may occur at a specific age, such as 65, but it is not likely.

Actually, we don’t want retirement money—we want a retirement lifestyle. We want a collection of activities that will occupy us for the remainder of our years.

• We want to have adequate food, clothing, shelter, transportation and medical care. It may be more or less than we have now, but they are essential to living.
• We want to do special things such as travel, play golf or work with a church.
• We want to help our children and grandchildren when they truly need help.

You can – and should – make your own list.

A retirement lifestyle costs money. So we need to put a price tag on it. There should be an income and spending plan for retirement. Here we list where our money comes from and where it goes. It doesn’t have to be precise to the nearest penny, but it should cover the key elements.

Let’s start with spending.

• Priority spending is the first of three general categories. This is money that has to be spent or something bad happens. Don’t pay the mortgage? You lose your home. Don’t pay the car loan? The repo man takes it. Don’t pay the electricity bill? It gets dark quite suddenly.
• Essential spending is the minimum needed to sustain life. This includes food, shelter, clothing, transportation, medical care and communication. We may not need a high-speed Internet connection or the premium cable package, but a telephone and TV set are essential to stay connected.
• Everything else is optional. A trip to Paris would be pleasant, but we can live without it.

A good first step is to record current spending. You have a lifestyle and probably would like to continue it in some form or other. So what do the various components cost? Using the three general categories, list each item and what you are spending on it annually. This will take some time, and there will be many changes as you think about things. Do it in pencil.

Spending will change as we age. Medical costs will go up. Long-term care will be needed by 50% of the population. The house will have to be painted every 15 years or so. As you put your list together, talk to others to find out what changed in their lives.

Income in retirement has three components too.

• First are pensions and annuities. These provide a steady stream of income for the rest of the pensioner’s life. There may be some other benefits, such as partial medical care. If you are eligible for a pension, talk to someone in Human Resources about how much you can expect to receive at various ages.
• Social Security should provide a steady stream of income. You can make an estimate from the annual report sent by the Social Security Administration. You might want to talk to your local SSA office to get a better estimate than you can do yourself.
• Investments. Here the rule is simple: plan to withdraw 4% of the total investment each year. If the annual return averages 8% and if inflation is 4%, then only 4% to 5% is available for withdrawal over a long period of time.

Now subtract total spending from total income. If there is a positive number, congratulations you have reached retirement. If it is negative, then you have some work to do.

• First of all, scrub the spending side of things. To have a surplus for optional spending, you need to keep priority and essential spending under tight control all of your lives.
• Increase saving for retirement. Scrubbing spending should make money available for this.
• Get rid of any debt and avoid it in the future. Debt repayment is priority spending. Scripture tells us, “The rich rule over the poor, and the borrower is the slave of the lender.” You don’t realize how true this is until you have repaid all debts.

At this point you have the big picture. Don’t fall in love with your numbers: things will change.

Bryan's rule about an uncertain future: the average is interesting but it's the standard deviation that gets you.

As a general rule, pilots try to land about 1,000 feet from the approach end of the runway. As you can see from the black tire marks, they don't always hit that point. So they have to deal with the possibility that something will happen causing them to miss it substantially. (The more interesting tire marks are those starting precisely at the end of the runway. Even more interesting are the two ruts short of the runway.)

Planning eight to ten years into the future is an iffy proposition. You can make a precise estimate, but it is going to be wrong. Like flying the plane all the way to touchdown, you have to manage the process all the way to retirement. Then you have to manage the roll out, that is manage money through retirement. There’s no automatic pilot for finances.

There’s no guarantee that you will get 8% return on investment every year. So you need to be ready to make adjustments as you go along.

The next step is to refine the numbers and become an informed investor. This will take time. You may need to find a good Certified Financial Planner to help with the next step.

This is a journey, not an event. Start moving now, and things should be better in the future. 

Skip Bryan has been a private investor for about 35 years. After retiring from the Air Force in 1983 and business in 1992, he became a Certified Financial Planner at American Express Financial Advisors. His specialty was developing comprehensive financial plans for clients. He “retired” again in 1999. He has been a Snider Investment Method practitioner since May, 2005.

Now he spends his time teaching Biblical principles of financial management. Did you know the Bible has more than 2,350 verses on money, property and related matters? He also helps individuals get their finances in better shape.

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.