A lot of attention is being paid these days to your “number,” in other words, the magic amount that you’ll need to have when you retire to sustain you throughout your retirement. It’s easy for the media and the financial services industry to come up with a number that’s frighteningly high – the press usually starts at $1 million and works up from there. One article indicated that if you have a mere $5 million, you’re only “beer and pretzels rich.”
We Americans love easy solutions to life’s challenges. That’s the attraction of “the number.” But life’s not that simple, particularly when dealing with something as complex as a financial projection that spans several decades. The best run corporations in the world don’t do much forecasting beyond the ensuing few years. Some enlightened foreign governments are so bold as to do serious five-year economic planning, but none of these institutions has the capability of forecasting decades into the future.
Rather than becoming obsessed – and upset – by your number, focus instead on how you can control the various factors that ultimately boil down to your number:
- The money you save for retirement,
- How much Social Security and pension benefits, if any, will cover your total retirement income needs,
- How much income you’ll need when you retire,
- Your age when you retire, and
- How well you invest and diversify your retirement resources.
One person’s $1 million number is another person’s $200,000 number. The number varies a great deal, and a lot of decisions you make between now and the time you retire and after your retirement will have an enormous bearing on your number. Incidentally, I’ll wager that a satisfactory number for you is quite a bit less than you fear.
Smart Money Tips
- IRA contributions are worthwhile even if the stock market is down. Don’t use a depressed stock market as a reason to forego an annual IRA contribution. The timing of the contribution is even better when the market is down because the money will buy more shares of a stock fund or exchange-traded fund at a depressed valuation than it would if stocks were flying high. If you lack the courage to buy now, put the contribution into a money market fund where it won’t lose value and invest it when you are more comfortable with market prospects. If you have made your 2022 contribution already, good for you. Consider making your 2023 contribution in early January.
- If you’re retired or soon-to-be retired, don’t hang on to a big house just to have space for children and grandchildren to visit. Retirees are finding that downsizing their homes can be a financial windfall. In fact, many pre-retirees are downsizing before retirement. On the other hand, some resist downsizing out of concern that a smaller home won’t offer enough room to accommodate visiting children and grandchildren. But holding onto a large manse for that reason could be a big financial drain. With the money you can put in the bank by owning and maintaining a smaller home, you can afford to put the kids and grandkids up at the Four Seasons (or the local equivalent) when they visit. That’s a win-win situation. After a long day with them invading your home replete with little hellions running amok, you and they would both welcome the opportunity for them to spend the night at a hotel.
Food for Thought
Thought when planning your end-of-year charitable giving:
Money is like manure; it’s not worth a thing unless it’s spread around encouraging young things to grow.
-Thornton Wilder
Money Can Be Funny
Where there’s a will,
I want to be in it.
-Seen by Jonathan on a bumper sticker
Word of the Week
jactance (JAK-tahns) – Boasting; vainglorious speech.
Origin: From the Latin noun jactationem meaning “boasting,” which in turn comes from the verb jactare meaning “to discuss, brag, or throw about.”
His tedious self-promotion and jactance irritated all who met him.