Perhaps the most common question I hear from new clients is: “Do I have enough to retire?”
The problem is that they’ve never done a concrete analysis to answer that question. Why? Many fear the possibility that by digging into their number, they will discover that they’re not even close. The dread is often palpable. Because they are afraid to know the truth, many people have been relying on educated guesses discovered via back-of-the-envelope calculations or simple website calculators to determine the answer. Obviously both are inadequate. Your retirement is too important to trust to what amounts to a wing and a prayer.
You Need a Financial Plan
To determine whether you have enough, you need to create a financial plan. This will be your blueprint throughout your retirement, the working document from which all further decisions should be based.
Your financial plan is likely to be as complicated as you are. You’ll find that the inputs, from your expected medical expenses to the amount that may be required to help your children through life’s challenges, are far beyond what can be calculated on the back of an envelope. Because simple calculations are likely to be more misleading than helpful, you cannot afford to skip this step.
Of course, financial plans aren’t perfect, either. Think of it: You don’t know how long you will live, the impact of inflation, or the investment returns you will generate. With so many important unknowns, financial plans are as much about probabilities as facts, and you’ll need to update yours every year. But a good financial plan can provide an essential roadmap to get you on track.
Focus on Spending, Yuk!
The reality of financial plans is that the question of “Do I have enough?” is less a question of your assets at retirement and more a matter of how you spend them down afterward. Spending is the critical lever, the element that makes or breaks a financial plan. If you’re willing to cut enough from your current spending and your projections of your future spending, you probably will have enough.
Both how long you work and how much you spend can have a meaningful impact on a financial plan, since changes tend to last for years on end. Those are the two levers to focus on, though admittedly, neither are very pleasant to consider – especially spending!