It’s impossible to overstate the role that money plays in the decision to retire. It is, after all, the thing that gives us permission. We need to cover the essentials and still have enough left over to pursue our interests. The latter will likely be greater than we think, since we have a lot of time to fill, and entertainment is expensive.
We all know we need an adequate supply, and so we worry. Before we retire, we’ll go over and over our income and expenses. We’ll talk to our accountants or financial advisors, because they can bring objectivity to what can be a very subjective issue. We’ll buy books on the topic — Amazon.com lists about 1,000 — or we’ll do a search on Google. One surfing expedition will get you about 435,000,000 hits on “retirement financial planning”.
So, just how much money is enough to retire on? Unfortunately, there’s no straightforward answer. Bad enough that it’s impossible to predict the course of the economy: will there be inflation? Recession? Will the stock market tank? Will there be a personal calamity?
But even if things go smoothly, which they won’t, there’s also a tricky element at play. Money has a perceptual component, and our sense of security is tied to what we believe. In other words, it’s not the amount of money that matters as much as a belief that whatever one has is adequate. Only then can we pursue our goals without feeling financially constrained.
However, that sense of security is elusive. For most retirees, money stays a concern well into retirement. I’m in my 12th year, and even though my assets are exactly the same as when I retired, I still worry, all the time, that I will end up homeless. Financial worries are shared by many retirees in all financial brackets — and the constraints they can cause on spending are widely shared as well. There’s more than one multi-millionaire out there taking advantage of blue-plate specials.
What’s at the root of all this is a lack of control. The absence of a paycheck puts many of us at the mercy of market forces, so we can’t be sure about how much we can spend without putting ourselves at risk. It’s scary to dip into savings or investments, because money is going out without a supply coming in.
With a lack of control comes anxiety, and while that’s justified for those whose funds are stretched near their limits, for others their fears can be irrational – I’m a case in point for the latter.
It’s important to understand which camp you fall into —are you needlessly worried about money or are your fears justified? If you’re not sure, consider keeping a running ledger of income and expenses to track your finances precisely. About 6 in 10 retirees use a ledger system, and those who do feel more comfortable about their spending.
Putting the numbers down on paper can help to clarify your thinking as to whether you are operating in the black or red. If over time you find yourself in the black, that is, your income is equal to or surpasses your expenses, you can relax: you can afford your lifestyle. If in the red, then you can make some adjustments.
And if at times you again start to worry about money, as you will, you can always refer back to your financial records to achieve a comfort level. Or, perhaps, discover that your situation has changed and you need to revisit how you live.
This is not to say that keeping a ledger, by itself, is a cure for money fears. But with a written record, your concerns are more grounded in reality, and can plan your spending accordingly.