Rethinking the Economics of Retirement

If you ask anyone about money for retirement, you’ll probably get guestimates all across the board for how much you need. Some financial experts use a rule of thumb, like 70 percent of your working income or even as much as 100 percent of your working income. But this can be way off-base for many retirement hopefuls.

A more realistic approach to coming up with target numbers would be to think about what you want your life to include during your golden years. Do you want to travel? Do you plan to move to a new location? Are you planning to pursue an expensive hobby?

Someone who traveled for their career and doesn’t want to see the inside of an airport ever again might have more modest needs than someone who has put off traveling until they retire. Or consider the retiree who is finished with entertaining at home and wants to continue entertaining by taking friends to dinner or planning events where someone else does all the work.

Whatever your plan, just setting a target number for the value of your investment assets has its pitfalls. First, many people set an abnormally high goal that will allow them to feel comfortable. The trap is that sometimes people are reluctant to dip into that pot of retirement money because there is no guarantee that they aren’t putting future years into jeopardy by spending now. So they put off doing things and end up not doing it at all, or going on that once-in-a-lifetime trip but they waited so long their health interferes with being able to participate in the activities.

The Luckiest Guy in the World has a different approach. Create two pots of retirement money. The first is dedicated to covering the cost of basic living expenses that would ensure you are never dependent on someone else for financial support. He calls this Non-negotiable Needs. Between guaranteed income like pensions and Social Security, and a stream of income from investment assets, make sure that you will always have a roof over your head, food on the table, and other necessary expenses covered.

The second pot of money is what he calls a Guilt-free Spending Cookie Jar. This is an account where excess income is collected to be used for the “fun stuff.” This could be for dining out, entertaining, travel, hobbies, philanthropy, gifts, etc.

Worried that you won’t have enough to replenish your Guilt-free Spending Cookie Jar? This is where The Luckiest Guy in the World plays his wild card. Work. Yes, work can be the wild card that makes the impossible, possible.

Consider continuing to work at whatever level you want, e.g. a couple of days a week, a couple of hours a day, three weeks on, one week off…any combination you want. The key is to make this work something you love doing. If you’ve arranged your accounts so that your Non-negotiable Needs will always be covered, then any income you generate from working is your play money. This perspective can make working even more attractive.

The key is that you don’t want to end up like the couple on the trip to Antarctica who couldn’t go on the excursion to see the penguin colony because they didn’t think they’d be strong enough to walk up the hill to get there. They put this once-in-a-lifetime trip off until they felt they saw that magic number on their savings account and then found that their advancing years had affected their health. Had they started traveling sooner using a Guilt-free Spending Cookie Jar they would have enjoyed the trip much more.

The Luckiest Guy in the World has created a series of online courses to teach you how to create your plan for work and play and to take care of your Non-negotiable needs and feed your Guilt-free Spending Cookie Jar.

To learn more about our courses go here. The mission of Ray Loewe’s Discovery Sessions is to guide you through a process that will equip you with the tools you need to personally design the life of your dreams.

You’re invited to explore these retirement issues and more on my bi-weekly podcast, Changing the Rules. Find it on your favorite podcast site or go to Changing The Rules.

“Take control and plan your own life. If you don’t, someone else will”

by Raymond D. Loewe

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