An interesting article at Plaid Zebra cites work done at Harvard that says instead of believing that success leads to happiness, being truly happy is what leads to success with some data to back up the assertion.

I believe embracing this mindset can also pertain to the accumulation of assets as part of a retirement plan. There has long been a huge obsession with getting to “your number.” Investment and insurance companies have launched famous ad campaigns around this concept leading people to obsess over achieving their number and lamenting when they don’t or maybe feel with ten years to go they have no shot at their number.

If you want a $100,000 income in retirement you probably need a nest egg of $1.5 million which assuming the 4% rule would hopefully generate a sustainable $60,000/year which when then adding Social Security (depends on your particulars) could be close to $100,000/year.

How old are you (as an advisor, how old are clients)? Do you have a number, if so, what is it? How much do you have accumulated? Between now and when you think you want to retire how much more are you likely to add to your accumulation? Will that get you to your number? Some of that is knowable but some of it isn’t.

For many years in these posts I have consistently said that having a goal can be useful but your number, your actual number is what you end up with, not what a website or advisor told you 30 years ago. What you end up is with your reality. If you’re 66, have $788,000 and want to retire, then can you make that work? Great if you can but if you can’t then something has to give. Either you don’t retire, you downsize your lifestyle, or you take a middle ground of working one way or another in retirement.

In today’s dollars, could you get by on $5000/mo…if your mortgage was paid off and you were old enough for Medicare? How about less or more per month? That is what you need to figure and then back into covering that nut with Social Security, portfolio income, other income sources if you’ll have any and then finally some sort of earned income (monetizing a hobby, monetizing a volunteer endeavor, some sort of seasonal gig, consulting in your career field).

Whatever number you come up with as your monthly fixed expenditure, I would pad it by $1000 to cover the type of one-off expenses we discuss here all the time like large home repairs, expensive car repairs, unexpected veterinary bills and so on. Younger retirees also have the tendency to travel frequently. If that is something you can afford or might be able to afford then you need to factor that in as well.

You should be in touch with what your expected Social Security payout will be and depending on your age, you should assume a 23% haircut (this would pertain to me) based on what is being said about benefits being cut in the 2030’s. If I take it at 67, my FRA, I would be due to receive $2800, less the 23% would be $2156. If I wait until 70 then I would be due $3400, less the 23%, would be $2618. As a side note, I believe in waiting to take it, if I die young, my wife would then get a bigger payout.

If my wife starts taking it at 64 (this is when I turn 70) I figure her benefit to be about $840 so a total of $3458, less our Medicare premiums would be $3100. You can do the same calculation in just a few minutes. Where does that stand in relation to what you think is your expected monthly need?

Looking at the $6000 above ($5000 for regular lifestyle expenses plus $1000 for one-offs), if you’re only $3000 away, that starts to look much more manageable then being told at 40, you need $2 million dollars. Assuming the 4% rule and a $3000 monthly gap between Social Security, that would mean a portfolio needing to be at least $900,000. Is that feasible? That of course depends, but it is a simple framing of the situation.

For some reading this, $5000 will seem like a lot of money every month and I agree. Our fixed monthlies are nowhere near that high but there is probably very little chance of getting around that $1000 figure for one-offs. Various utilities, groceries, insurances and a few other things, with some work on pruning I bet could be whittled down to $3000 (still more than our expenses). Remember there is an assumption that the mortgage will be paid off at retirement. Plus, then the $1000 for one-offs and $500 or maybe $1000 set aside for fun (trips).

The gap now could be down to $2000/mo making the portfolio size required to be $600,000. A $2000 gap then becomes easier to make smaller with some sort of income or exploring some sort of alternative living situation (in past posts I’ve talked about relocating to another country as a young, healthy retiree living off of positive cash flow from renting out your house or doing something similar with a tiny/small house). If that still doesn’t get it done, then something else will have to give.

This is a challenge to overcome and your circumstance likely lends itself to at least a couple of different solutions but you need to put the time in to figure those solutions out.