Faith and hope can take many forms.  In the current moment of belief in computer algorithms and “big data,” it’s easy to think that if you have enough hard data, the truth will emerge.  We see this regularly when people expect there to be a simple, technical answer to how much money they need to save in order to retire.  They don’t know how to estimate the impact of inflation on their spending, and they don’t know how much money they can safely withdraw from savings monthly and still be assured they won’t run out of money or be unable to finance end-of-life care. 

If there was an easy answer, of course, everyone would already know it.

Key Assumptions for Retirement

The road to your financial truth in retirement depends on assumptions in two key areas:  first, how much ongoing income is required to support the life you want to be living?  And second, how much in savings do you need to provide that income?

Most people assume there is a complex but technically calculable answer, and they just need to find the right program on the web, or the appropriately capable professional, to tell them what the number should be. In fact, any such technical analysis needs to be proceeded by an honest assessment of personal priorities.  Many dreams have been deferred “until I retire” or ‘until the kids are launched” or simply “until I have more time.”  While many people enjoy their busy lives, they haven’t practiced articulating their true life objectives, and haven’t gone through the exercise of generating a strategy to get there.  Instead, they keep the limitations of their schedule front of mind and exercise patience and denial to get them to the moment they can begin to focus their lives differently.

Understanding Your Priorities

The time is now to understand your priorities. 

Indeed, we do a lot of calculation of just this sort for our clients, but the framing of the questions and the input to the calculations are never identical – and that’s why “big data” or the perfect algorithm can’t provide a useful answer.  Financial planning and integrated investment management are at their cores really about individual decision making, which in turn relies on a set of personal, clear-eyed assumptions about your future. 

Tips on priorities & financial planning

  1. If you know you’ll be unable to reduce or stop spending in some area of your life when you retire – gifts and support to children and grandchildren, extensive and ongoing dental work, travel expenses, hobby purchases – then it’s best to plan for the reality you know will exist, and not use a formula or rule of thumb that you can happily live off 80% of your pre-retirement income.
  2. It’s easy to think you need a lot of money to follow your dreams.  After all, if it was cheap to live your ideal life, you’d already be doing it, right?  Revisit assumptions about how much you really need to spend for your ideal vacation destination or activity – from new discount airfares to Airbnb or elder hostels, there are lots of ways to keep the cost of going to a desired destination reasonable.
  3. Track, track, track your spending.  If you don’t know how your credit card balance got so high – take a look at every single charge.  You need to know what you spend money on in order to even consider changing your decision making around expenditures.