The Real Goal of Retirement: Creating a Comfortable Life

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In the last post, The Real Purpose of Having Money: Living Life on Your Own Terms we challenged the idea of financial independence being a specific number – usually a very high one – and focused instead on specific financial conditions that give you the kinds of options that enable you to live life on your own terms. That seems like a more worthwhile goal than reaching a specific financial target.

The Real Goal of Retirement: Creating a Comfortable Life
The Real Goal of Retirement: Creating a Comfortable Life

In this article, I want to take a similar position specifically on retirement. We’ve all seen the retirement guides and blog posts recommending seven-figure retirement portfolios, and how to get there. But should that be real goal of retirement? Or is it, as I believe, merely creating a comfortable life?

When viewed from that perspective, not only does the financial objective change, but both the definition and the strategies involved in retirement are fundamentally different. What’s more, we can come around to the realization that retirement isn’t all about money.

Having Enough Money for Retirement

Despite what I believe to be an overemphasis on the accumulation of money, there’s no doubt retirement requires a certain amount of it. Even if your overriding goal is creating a comfortable life, there is a dollar amount that will be necessary to make that happen.

One of the issues that causes people to overreach is the notion that you’ll be entirely dependent on your retirement portfolio for survival. If that were true, very few people will ever retire.

Naturally, crunching numbers for retirement should start with Social Security. Yes, I realize a lot of people believe Social Security will go “bankrupt”. I’m not one of them, and I’ve explained the reasons why I don’t think it will. Now that isn’t to say that benefits won’t somehow be reduced or inflated to some lower real value. But it will be there in some amount.

Any monetary discussion of retirement should start with checking your benefit using the Social Security Retirement Estimator.

Now that doesn’t mean you should plan to rely primarily on Social Security benefits. But it is a starting point.

Calculate how much you’ll need to live comfortably on monthly basis, then subtract your estimated Social Security benefit. The difference will be the amount you’ll need to provide from other sources.

If you have a pension from a current or previous employer, that’ll fill at least part of the gap. But if it doesn’t, you’ll need to rely on either investment income, a post-retirement career, or a combination of both.

Working an Example of Retirement Income Needs

After crunching the numbers, let’s say you determine you need $5,000 per month to live comfortably. A check of the Social Security Retirement Estimator shows you can expect a benefit of $2,000 per month.

Your task will be to find an additional $3,000 per month.

If you plan to do that entirely through retirement investments, you can use what is known as the safe withdrawal rate. It’s a theory that holds that if you invest your money in a balanced portfolio of stocks and bonds, and withdraw about 4% per year, you’ll never outlive your money.

You can do this using a mathematical equation. $3,000 per month is $36,000 per year.

If you divide $36,000 by 0.04% (4%), you’ll come up with $900,000.

That’s the amount of money you’ll need saved and invested by the time you retire to enjoy a full-time retirement.

Obviously the vast majority of people won’t have that kind of money. And that’s why you may need other strategies for creating a comfortable life.

Plan on Working in a Reduced Capacity after Retirement

AARP reports that 32% of people age 65 to 74 will be working by 2022, up from 20% in 2002. It also reports that 11% of those 75 and older will be employed, compared to 5% in 2002.

Whether by choice or necessity, an increasing number of people in the traditional retirement years will remain employed. We might even suspect those numbers will be higher if the economy experiences yet another episode of the “worst economy since the Great Depression” recessions.

The point is, it may be worth it to build some sort of post-retirement career planning into your retirement plans. In fact, no one even questions if their lives will  even be happy doing absolutely nothing. Many do lose their sense of purpose after retiring completely.

Taking the example from above to the next level, if you need to make a $3000 per month in additional retirement income, and you only have $300,000 saved (generating $12,000 at 4%), you may need a plan to earn an additional $2,000.

Creating a Post-retirement Career or Business

Most people planning retirement face that consideration with dread. After all, retirement and working in any capacity are contradictions in terms.

But once again, we have asked the critical question: is retirement about no longer working, or merely creating a comfortable life? For millions, not working at all won’t be an option, so creating a comfortable life becomes the default Plan B.

But if you will need to continue working, begin planning now so you can work on your own terms.

There are several ways you can approach this:

  • Identify work you actually like to do, so it won’t be so emotionally taxing.
  • You don’t have to continue with your current career, you can do something completely new.
  • Plan to work no more than part-time. Semi-retirement is better than no retirement at all.
  • Consider starting a post-retirement business, which can enable you to do work that you like, and on your own schedule.

Even if you haven’t been able to do anything like this up to this point in your life, you may be able to once you reach your 60s. After all, at that point you’ll have no dependent children in tow, the major expenses will be behind you, you’ll have more control over your life and expenses, and you’ll have at least some income from other sources, like Social Security, pensions, and investments.

The basic idea will be to create a sustainable post-retirement career that will be well suited to later in life. It may not be easy, but it is doable.

No Matter Where You’re at Now, Start Saving and Investing

We can probably think of building a retirement portfolio and creating a post-retirement career or business as being mutually exclusive ventures. If you won’t have much of a retirement portfolio, you’ll need to seriously emphasize a post-retirement career. But if you expect to have a large retirement portfolio, you’ll be less dependent on a post-retirement career.

I’ve long been of the opinion that it’s important to save and invest for retirement matter how old you are. That even includes saving and investing after reaching 65.

Any money you do have can produce at least some income that will make you more comfortable in life, if only by reducing your dependence on earned income.

For example, maybe you can’t save $900,000, or even $300,000. But if you could save $150,000, and withdraw $6,000 per year (again, 4%), that will be an extra $500 per month in income.

And even if you can’t reach $150,000, $50,000 would at least give you a large emergency fund. It may not be the kind of money you can retire on, but it will at least provide you with liquidity. For example, it will give you cash to cover short-term emergencies or a disruption in income. That alone could take away the urgency and panic that are intimately connected with financial difficulties.

While some people have fairly complicated investments, that often result in stress during financial emergencies, a nice cash cushion could keep you comfortable during such times – even if it can’t provide for you for the rest of your life. You may not be prosperous, but at least you won’t be poor.

Get Control of Your Living Expenses

Most retirement planning starts with what I believe to be a mistaken assumption. That is, the notion that you need to replace your current income, so you can sustain the standard of living to which you’ve become accustomed.

For most people, they’ll be a cruel fantasy. If you’ve been living on $50,000 a year during your working life, you may need to create a lifestyle that can be sustained on $30,000. We know it’s possible, because people do it all the time.

One of the first, best ways to do that is by getting out of debt. Too many Americans have come to live at peace with their debt, and are carrying it well into old age. But if you’re going to have limited retirement resources, debt will be your mortal enemy.

If that’s the case, one of your primary retirement strategies will be to begin paying down and paying off your credit cards, and even your car. In fact, a limited income may put an end to borrowing to buy a car. A $300 a month payment may be unsustainable on a limited income.

It’s also important to begin gradually lowering your expenses. Like most other things in life, spending is a habit. If you’ve been living at Level X most of your life, you won’t be able to suddenly drop down to Level Y once you reach retirement. If you even try, it’ll probably feel like a crash diet. And we know those don’t work.

Get comfortable living on less now, and your situation will be better when retirement arrives. But there’s an added bonus: by cutting your expenses now, you’ll free up money for savings and debt reduction. That’s a goal worth pursuing.

Housing Strategies

Housing presents a special problem. If you own your home free-and-clear, you may be all set, but if you still have a mortgage, particularly one with a big payment, that may need to change. If you’re not in a position to pay it off, you may have to consider selling your house, and moving to less expensive quarters. You may even need to consider a co-housing arrangement, which I believe is going to be the wave of the future for retirees.

When it comes to lowering living expenses, macro-frugality – lowering your biggest expenses, like housing and debt – is the more constructive approach. That will give you more financial breathing room with the smaller expenses, the kind that usually make your life more comfortable.

If you won’t be able to sustain your current lifestyle based on your projected retirement income, you’ll have to find a way to bridge the gap between expenses and income. That may be increasing income, lowering expenses, or a combination of both. And depending on your circumstances, the effort may need to be a radical one.

Creating a Comfortable Life – the Kind You’ll Want to Lead

As I wrote in The Real Purpose of Having Money: Living Life on Your Own Terms, I think there’s too much emphasis placed on having a certain amount of money saved for retirement. First, relatively few will achieve a $1 million+ investment portfolio by retirement. Second, not everyone is capable of reaching a mid- to upper-six-figure portfolio. If like the majority you’re in that group, you’ll have to have a way to work around that.

I think that starts with getting away from a number fixation. Rather, start by thinking about the kind of life you’d like to lead in retirement. Too much emphasis is placed on how am I going to survive, which has a very definite negative meaning.

The more positive approach is to concentrate on how you hope to live.

Start by assessing the advantages you’ll have once you reach retirement – nearly everyone has some. But it’s also important to set at least loose goals.

Maybe you can’t retire to the beach and play golf and snorkel all day, but maybe that’s not what you want anyway. Spent some time thinking about what you do want.

For example:

  • What do you want to do with your time?
  • Is there someplace else you want to live?
  • If money wasn’t the primary motivation, what kind of work would you do?
  • Who do you want to help (volunteering and other charitable activities)?
  • Who do you want to live with or near?
  • How do you want to manage your health?
  • What overall purpose do you want your life to have?
  • What are the financial implications to the answers to any of the above questions?
  • Are there provisions you’ll have to make now, to enable you to live the life you want?

Focusing on the Quality of Your Life, Rather than on the Quantity of Your Money

What we’re talking about here is really addressing quality of life issues. These are precisely what gets lost when the goal becomes mainly a money target. Or, we can buy into the myth that you need a lot of money to achieve a good quality of life.

Maybe. Maybe not.

The reality is that even without all the money you may need to have the TV version of retirement, your life is still worth something – and a lot more than you think. It’s even possible to spend so much time fixating on money that you never find your worth as a human being. That’s tragic.

But the people around you value you, and usually in a way that has nothing to do with money. And beyond your immediate current social circle, are other people out there who can benefit from knowing and interacting with you.

Perhaps the most important person to connect with however is yourself. If you haven’t done that up until this point, the retirement years will present the perfect opportunity. Perhaps by connecting with yourself, and with the things that are most important to you, you’ll find that better place in life.

Unfortunately, in our money driven culture, we’re programmed to put a dollar value even on finding our better selves. But you may be surprised to find that money has little to do with it – in fact, if you don’t have much money, you may even be devaluing yourself. That’s completely counterproductive.

Focusing on Creating a Comfortable Life, Not Your Bank Account

Maybe then the best strategy is to focus more on creating a comfortable life, and worrying less about reaching a certain dollar goal for retirement.

Some people will reach their monetary goal – good for them! But if you won’t be among them, you’ve got to have an alternative strategy. And you may just find it’s better than a money goal.

As the saying goes, you can’t take it with you. And if you can’t, the best money can do is make you comfortable in the meantime. And that may take a lot less money than you think, if you handle your life the right way. You can, if you think less about money, and more about creating a comfortable life. And that’ll be more about how you plan to live, and less about how much money you have.

I’ve known too many people who reach retirement with little or no money – yet live compelling lives – to believe otherwise.

( Photo by nordique )

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12 Responses to The Real Goal of Retirement: Creating a Comfortable Life

  1. After leaving a full time corporate job working 50-60 hours a week, I’ve found that finding my way in retirement has been a journey. I have no regrets about my working career – I was able to save a lot for one thing. But I have no desire to ever go back to that. For the most part now, I have a comfortable life. My friends and acquaintances are approaching it in many different ways – I find we’re at the stage where we discuss retirement and Medicare a lot – ha, ha.

  2. Hi Jackie – I’ve I was working 50-60 hours a week, I’d be looking to retire too! Good on you for saving enough to be able to make a full break. But I think you can tell this article is targeted at people who aren’t in that position, at least not yet.

  3. Might not fit in with this topic but yesterday I read that in at least 40 major or bigger cities in this country, between 16percent and 30 percent of the homes in these areas are underwater or people are 3 months behind on mortgage payments.

    These are bad numbers. There are so many hidden cancers in the financial system that tell a great story.
    Focusing on making the best life with little money in retirement will be mandatory for a lot of people.
    They will have no choice.

  4. I agree Tim (“Focusing on making the best life with little money in retirement will be mandatory for a lot of people”), and I think it does fit the discussion. I wonder how many of those underwater are over 60? That’s a new thing, people going into retirement with debt, including mortgages and student loans. But then you add to that the number of people taking these toxic, equity-stripping reverse mortgages, and a dismal picture starts to emerge.

    My thinking is if you’re late in life and the choice is to own with a mortgage or rent, you’re better off renting. It’s really the same thing because the renter is renting the house or apartment, while the “owner” is renting the money to live in the mortgaged house. And if there are major repairs, it’s on the owner. The renter doesn’t have that problem, but also has the ability to trade down a lot more quickly than an owner. And I think that’s going to become more common in the next decade as more people go the co-housing route, or move in with family to cut costs.

    Once you’ve taken coupon clipping and thrift store/dollar store shopping as far as you can, there’s no choice but to cut major expenses. Some sources are saying ride sharing will replace car ownership in the coming years, especially among retirees. It makes sense when according to AAA it costs an average of about $9,000 a year to own one average priced car.

    A lot of changes are coming down the pike while the majority are still looking back to the “good old days”. I think it’s more important to be clued into what’s going on (both good and bad), and be flexible and ready to roll with the changes.

  5. That would be interesting to see. How many over 60.

    The problem with most people is they really don’t realize how little money they really have or far it actually goes.
    When you live on monthly payments, home equities and credit cards you do not get any realistic idea how far money ( Cash ) goes.

    I can tell you because I’m one of these people. Who has zero debt. Money does not go as far as you need it too or think it does.

    I wonder what people do with the money?

    Anyway, I looked up that social security website. That is not going to take anybody anywhere, let alone be comfortable.

    The numbers are scary.

    I agree with you, that focusing on a specific number is a waste of time. However, focusing on taking control of your life should be a priority.

  6. The Social Security estimator is scary Tim, but people need to have an idea what they’re going to get. I think most assume very optimistic numbers. But what ever the numbers are it’s best to know. That way we can plan to save X, earn Y, and live on Z in response.

  7. This topic has different meanings depending on the individual, but one thing people need to realize is that you need to have a spending budget set up prior to retirement from earning income because you will be working with an income that is stable as far as input. Despite my inner protests during the last 5 years of working, the fact that I had a “stable” income (no wage increase) made me cut out non-essential purchases and plan any big costs into my budget. I didn’t go overly frugal (that is too extreme) but I did eliminate cost that would have hurt me in retirement. (another reason I am not a travel freak). I can now predict my costs and have extra for the unexpected, most of the time. The only and big difference between pre-retirement spending cost and in retirement costs is I determine the change in expense. My biggest savings has been transportation costs (no more taxis) and fewer takeout costs.

  8. Hi MariaRose – You’re fortunate to have learned budgeting before retiring. One of the problems with people retiring is the assumption that they’ll continue to live the same standard of living. This is complicated by the fact that for many the years leading up to retirement are their highest earning years. Go to any expensive venue, but it a restaurant, sporting event, resort or entertainment venue, and it’s dominated by people in their 50s and early 60s, because they’re the ones who can best afford it. But when retirement comes along, and income drops, the transition can be a difficult one. I think it’s another reason so many return to work just a few years after retirement. When you’re used to living well, you can’t simply turn that off when you retire. There has to be some adjusting that takes place beforehand.

  9. It’s tough to understand but I never see anybody factor in the silent killer which is inflation. That’s why it is so hard to focus on a number.
    if you purchased an item for 100,000 dollars in the year 2000. That same item today would cost 147,000.

    The value of money goes down year over year. It makes it that much harder to focus on a long term goal as far as a dollar amount.
    By the time you get thirty years down the road what you think you would need becomes much less than you actually have.
    It might look good on paper but the purchasing power has dropped a great deal.

    If you have a stable monetary system it is much easier.
    We can all budget and scrimp all we want but the silent killer of inflation will kill your budget no matter how good it is.
    Unless you’re factoring it in and adjusting accordingly

    I do it but it’s can get complicated and I’m a bit obsessive with it. This is a hobby for me and I actually enjoy trying to beat the odds anyway.

  10. Tim you’ve read a number of my retirement posts so you know inflation is one of the core reasons I argue against full retirement. The numbers you cite of needing $147k in 2019 to buy what $100k did in 2000 is even optimistic because it’s based on rose colored official CPI numbers. The real inflation rate is much higher, and that’s why so many are struggling both in retirement and before it.

    That’s why I advocate a three-legged approach of Social Security/pension, investment income, and some form of continuing earned income. I think this need is going to become more obvious in the next few years.

    As far as getting the investment portfolio number “right”, it’s a fools game for most. Unless you’re already multimillionaire, and you know how to invest strategically for inflation and market declines, there is no magic number. And you’re right, you can’t obsess on it and drive yourself crazy. It’s like obsessing on catching the greased pig you never can get a hold of.

    The better strategy is to used a balanced approach with your life, your investments and your cost of living, and embrace a realistic attitude. Too many have been sold the “somewhere over the rainbow” version of retirement, that usually ends up being a lot closer to this side of the rainbow, a.k.a., real life.

    A brilliant someone once said something to the effect that reality is going to do what it will, in spite of our efforts and expectations.

  11. Yes, I believe it is much higher also. Just for writing or making a point I used the official numbers.

    This is basically the approach I take. I hope that people who read this do the same.
    This is why I have a hard time with financial firms or so called experts who make these big claims about handling people’s money.
    I read the twitter article you had a link to over the weekend. It was interesting.

    I stopped making longer term plans and basically go day to day now. I follow a basic approach like you mention but if I live to need it then great. If I don’t live long enough then it will go to someone else.
    I really just focus now on having my best day. Not week, month or year.

  12. That thinking is counter-intuitive Tim, but I think it’s healthy. Yes, make a provision for the future, but don’t obsess on it. We can’t know how long we have, what the quality of that time will be, and what will happen along the way – good or bad. That’s why I dislike these financial projections that have everyone living in the lap of luxury by retirement, or worse, early retirement. What’s wrong with just living life, and enjoying the journey for as long as it lasts? That’s closer to reality than all these pie-in-the-sky projections.

    Not to mention, pursuing those get-rich-or-die strategies can make life boring in the meantime, and super stressful. Then what happens if Reality derails your plans? They’re always based on perfect world projections – you’ll never lose your job, experience a health crisis, be forced to save less than 30-40% of your pay, or liquidate savings early. And of course, it’s all contingent on a rising stock market forever, even after retirement.

    Of course, some people do make it successfully, and enough to perpetuate the advice. But it won’t work for the average person living with real world circumstances.

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