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Friday, July 23, 2010

The Only Retirement Number That Matters

At a recent social event for work, I overheard a conversation about the topic of retirement between a handful of “seasoned” workers.

Each of these colleagues were in their 50s and agreed that they wanted to retire before the age of 65.

They all believed 65 was the magic number that offered a healthful quality of life, ensuring enough time to enjoy the benefits of their golden years including their grandchildren, travel or hobbies.

While a target number of 65 for a retirement age is great, I think it’s the wrong number to focus on. There is only one retirement number that matters and it’s not ages 55, 60, 62 or 65.

I hate to say it, but the only retirement number that matters is the total dollar amount in your retirement plan.

And the key phrase in that last sentence is – retirement plan. The idea of retiring at 55 is wonderful, but if you don’t have a plan in place it won't happen. 

Because once you’re on a fixed income (by definition “fixed” means unchanging) after retiring, that income had better be able to keep pace with a minimum three-to-four percent annual increase in the rate of inflation (cost of goods you purchase) – otherwise, the money will run out.

If you think it’s difficult finding work in the current economy, how tough will it be to land a part-time gig when your 80 regardless of the country’s economic health?

To avoid that dollar-doomsday scenario, talk to a financial advisor now. One of the best ways to find a money manager is by referral. Talk to a co-worker or family member you trust and that seems to be doing well. Ask them whom they would recommend.

A great resource to learn what to look for in a wealth manager is the Chartered Financial Analyst (CFA) Institute. The independent organization offers a list of investor tools that can help you get started.

Some of the questions you’ll need to ask yourself and your advisor:
  • Given longer life expectancies, will your retirement savings last until you’re 95 years old?
  • Can your savings replace at least 60 percent of your pre-retirement earnings?
  • Do you plan to have your mortgage paid off?
  • Can you cut your living expenses by at least 20 percent?
These are the questions that anybody who hopes to retire needs to consider – sooner rather than later so that they can rely on a secure retirement number instead of praying for a lottery number.


  1. Unfortunately, there are two factors that today eclipse inflation as a concern. And both are more unpredictable and uncontrollable.
    1. Political whim. There is nothing more dangerous than a populist or threatened politician. As we have seen in the past 18 months, by using taxing policy as a punitive device and using policy for radical social re-engineering, a misguided Congress can quickly render the best of plans unrecoverable.
    2. Systemic failure. A generation ago not even a "worst-case" concern, the financial meltdown, increasing oil wealth, China debt-buying binge, and (related to #1) unsustainable government debt and pension entitlements and healthcare costs poses possible, if not probable issues.
    At best, a plan is a guess based on assumptions. To the extent the ability to assume is significantly compromised, one could argue the best strategy is: spend it all right now, live the good life, because we'll all be in the same boat struggling for survival when it all comes tumbling down.
    I would surmise the reality lies between your guidance and the worst case stated here.
    But plan conservatively.

  2. @Jeff, that is sage advice and perspective. You are absolutely correct that the best laid plans usually blow apart despite our best efforts.

    It reminds me of a quote by Winston Churchill, "Plans are worthless, but planning is invaluable." I think your advice about planning conservatively wins the day! Thanks for the thoughtful guidance!