October 7


Faulty Way Of Thinking About Retirement: Part 2

I had many people email me about last week’s article.  Several people expressed the same question:  “Dave, it was very interesting to see what thoughts are going through the mind of a normal retiree.  In fact, I have had many of those same thoughts.  BUT, I was left wanting more!  Can you give me an idea of what a retiree’s thinking process should be after he gets all the facts?”

Absolutely.  If you missed it last week, click here to catch up…


Below you will find the same “internal dialogue,” but this time I am going to show you realistic and healthy thinking.

The following conversation took place between Mr. Jones and his brain shortly before his retirement.

Name:  John Jones

Age:  65

Savings:  $400,000

Married to Jane Jones, also age 65. 

<Begin transcript here> 

Hmmmmm…..  my last day of work is next week.  It looks like I will get my last paycheck next Friday. 

Ok.  With Jane’s social security and my social security we should be bringing in about $3,000 a month.  I had better put a budget together to get a real handle on my cash flow needs for each month….

<after spending a couple hours on a detailed and accurate budget>

It looks like over the past year we spent $49,400.  That comes out to $4100 a month.  I’ll round it up to $4500 a month to give myself some room. 

Ok, so if I need $4500 a month how is this going to work?  Where is the other $1500 a month coming from?

Hmmm…After reading David Kennon’s insightful articles, I know that I need to keep my retirement savings working for me.  I know that while it is impossible to predict the financial markets in the short term, between now and the day I die, we have a very good idea of where the markets will go.   

Ok, so from the $400,000 I will start withdrawing $1500 a month.  Outside of the economy experiencing another Great Depression, that withdrawal is a reasonable and sustainable amount of money to start with. 

Ok, that puts us right at $4500.  I guess I can still go work part-time at the golf course.  That sounds like fun, and it would get me out of the house.  That income can be our “vacation fund.”

Sure, nothing is guaranteed in this life.  I guess there is always a small chance that we will experience something as bad as the Great Depression in the next few years.    But what a terrible way to view my life!   I don’t want to spend all my time worrying something that has such a small chance of happening. 

Hmmmm…. I hope one of us doesn’t get Alzheimer’s and require comprehensive 24/7 medical care.  Maybe I try to spend as little money as possible for the time being.  That care would be really expensive, and I don’t want to run out of money.

 Wait a minute!  There is only a 10% chance of needing round-the-clock care for five years or more in a nursing home.  Most people die shortly after entering a facility.  I refuse to live the rest of my life preparing for a 10% possibility.  I am going to focus on the 90% probability that I will live a long and healthy retirement. 

Whew. I feel better.  I need to get back to figuring out what I want to do in my retirement.    I’m going to take out my money each month from my investment accounts, spend my social security, and trust the process.  I’m going to turn off the financial news channel, stop my subscription to Money Magazine, and tune out the inflammatory fear-mongering around me. 

It’s time for Jane and I to enjoy the fruits of our labor.  I refuse to live scared and die rich!

<End Transcript>


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