Last week we examined the thoughts of a soon-to-be retiree. I argued his thoughts were faulty; worrying and stressing about questions which have good answers. Missed the article? Click Here
Below you will find the same internal dialogue, but this time I am going to show you a realistic and healthy way of thinking.
The following conversation took place between Mr. Jones and his brain shortly before his retirement.
Name: John Jones
Retirement Savings: $400,000
Cash in the bank: $30,000
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 on 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?
If I divide my $400,000 in savings by 20 years I can pay myself around $20,000 a year. That gives me about $1500/mo. That is cutting it close, and what if we live more that 20 years?
Wait a minute, after reading David Kennon’s insightful articles, I now realize my retirement savings can be invested in such a way that my nest egg continues to work for me.
It doesn’t make any sense to just look at the money and divide it by the number of years I expect to live. I’m leaving out the most important variable. My money will continue to grow once I am retired.
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 how a diversified portfolio will perform.
Ok, so from the $400,000 I can start withdrawing $1500 a month made up of the money that the money is making. By only taking the profits, it doesn’t matter how long we live, because we will always have the money we started with.
Ok, that puts us right at $4500. I guess I can still go to 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.”
If we have some unexpected major expenses like a new roof or air conditioner, I have some extra money in the bank to cover those costs.
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 about something that has such a small chance of happening.
I guess I should also worry about inflation. But wait! Social Security increases lock-step with the rate of inflation. If inflation goes up 2% for the year, my Social Security check will increase by the same amount. Not to mention that I’m sure Jane and I will be spending a lot less money in our 80’s than our 60’s.
Hmmmm…. I hope one of us doesn’t get Alzheimer’s and require comprehensive 24/7 medical care. Maybe I will try to spend as little money as possible for the time being. I can act like I am broke with lots of money in the bank. 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 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!
You see? It takes a little re-education, but very few retirees end up living in a van in the Walmart parking lot. The retirees you see bagging groceries generally are not doing it to survive. They are just looking for something to do.
P.S.- I’ve been having a difficult time getting people to share these articles on Facebook. If you believe these writings are fresh and encouraging, please pass this along to friends. They need to hear this side of the story.