Chris Carosa, Senior Contributor
May 21, 2021
You’re retired. Congratulations.
For decades, during most of your working years and especially at the end of your career, it’s all been about one question.
“The most common question asked by pre-retirees regarding their financial situation is ‘At what age should I plan to retire?’” says Ann Martin, Director of Operations of CreditDonkey in Pasadena, California. “The best answer is no earlier than the full benefit for Social Security, which is currently a little over 66 years old and rising.”
Actually, depending on who you ask, the answer can be a little bit more complicated than that.
Greensboro, North Carolina based Tiffany Lam-Balfour, Investing and Retirement Specialist at NerdWallet, says, “The answer differs according to each person’s situation as there are many factors to consider. The earlier you start to plan, the better. As the transition nears, conducting a full review of your situation and stress-testing different market environments and scenarios (change in retirement age, life expectancy, when to draw Social Security, etc.) can help you gain peace of mind or discover if any trade-offs might need to be made. Oftentimes, pre-retirees put off analyzing their situation and retirement planning, which is a big mistake as this can lead to stress and worry or possibly have unintended consequences such as needing to work longer than planned to cover expenses in retirement.”
But you’re past all that now. You’ve earned your Golden Ticket. You’ve bravely sat through the retirement dinner. The sendoff is complete. You can now sleep in every morning.
Yet, lingering deep within your heart remains a question unanswered. It’s a question that, if it remains that way, can eat away at your retirement comfort with sleepless nights and anxious days.
If you thought the pre-retirement question was complex, just wait until you get to this one.
The most commonly asked question of retirees is this: “Do I have enough money?”
There are many variations to this basic question, but they all point in the same direction.
“‘How long will my money last?’ is a frequent question,” says William A. Stack, Owner of Stack Financial Services LLC in Salem, Missouri. “The answer is most meaningful when considered as part of an overall financial inventory of your situation, general health, and insurance information. After determining an appropriate amount of income you need to be comfortable and applying estimates for taxes and inflation, it becomes a simple math equation.”
Or does it? In a way, yes, it is simple math. In another way, however, the math doesn’t always add up to the same conclusion.
“It all depends on the expenses and projected expenses of the retirees,” says James O’Donoghue, Financial Advisor at BCG Securities in Cherry Hill, New Jersey. “Some could have $250K in retirement assets and never have to worry about money. Others with $2,500,000 won’t be able to retire at 67 because they spend so much.”
How do you go about determining where you fall on this particular scale? Michael Foguth, Founder of Foguth Financial Group in Brighton, Michigan, says, “The best answer is how much do you need, how much do you already have coming in, and what is the least amount of money possible to give you the most amount of income during your retirement?”
You can also think of this question as “Will I have enough to live the lifestyle I want?”
“As with many things in life, that depends,” says Linda P. Erickson, Founder of Erickson Advisors in Greensboro, North Carolina. “It is the job of the professional to answer that question truthfully, and sometimes to say, ‘You need to spend less this year, then we can assess next year.’ The answer to this question will change annually, even when the question persists.”
Or how about asking it this way: “How long will my income last?”
“This is absolutely the most common retirement question, and unfortunately, it is also one of the most difficult to answer,” says Syed Nishat, Partner at Wall Street Alliance Group in New York City. “There are so many factors that have to be analyzed before an answer can even be approximated: How long is your longevity expectation? How much do you think you will spend? What is the realist rate of return? What type of medical expenses do you expect? Once there are projections to these variables, then an estimation of how long an investor’s money may last in retirement can be determined.”
“Enough is different for everybody,” says Ben Soccodato from The SKG Team at Barnum Financial Group in New Rochelle, New York. “You need to quantify your lifestyle today, your desired lifestyle later in retirement, and gauge based upon the assets that you’ve managed to accumulate, if you have enough. A simple balance sheet will not tell the whole story, you need to understand your cash flow to gauge the real answer.”
Stopping here, however, may not be in your best interest. For all the sophistication of the math used, you are still relying on making a guess. Because of this, it might better prepare you for your future if you don’t limit yourself to just one guess, but a series of guesses.
“This number is not necessarily the most helpful tool for retirement planning,” says Nishat. “It is often better to create a few scenarios that take into account some different paths retirement could go, such as an increased spending possibility or lower returns than expected. Being able to see this range gives a fuller picture of how to plan and what to factor in, which is ultimately a more conservative, proactive approach than basing everything on a single number.”
No matter which way you ask it, it all comes down to the same thing: “Do you have enough money?”
“The best way to answer the question is to go through the financial planning process and review the analysis before making any permanent decisions,” says Jason Field, Financial Advisor at Van Leeuwen & Company located in Princeton, New Jersey. “Having enough money can mean different things to many different people. Some people want to spend all their money and leave nothing left, where others may want to leave money to family or charity. Everyone is different and their retirement needs reflect that difference.”
Can you see how complicated this can get? Who thought you’d have to work so hard in retirement? Well, if you’re lucky, you don’t have to do it alone. And this, ultimately, may answer your question in a way that avoids all that turmoil.
“The reason why many retirees seek advice from a financial professional is that it is not easy to answer these questions without special expertise and tools,” says JJ Jeffries, Principal Consultant at Capco in Charlotte, North Carolina. “Without professional advice retirees may overspend and jeopardize their retirement financial security or live more modestly when their resources could actually support greater spending.”
You’re unlike anyone else. Why would you expect a simple answer to your number one post-retirement question? You’ve got your own priorities. You always have.
That’s why you retired in the first place.
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