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HOW DO WE KNOW we’re ready to retire? When I posted a link to Mike Drak’s recent article on HumbleDollar’s Facebook page, one commenter offered three questions that those approaching retirement should ask themselves:
1. Do I have enough? This, of course, is the question that gets asked most often. Do we have the financial wherewithal to carry us through a long and comfortable retirement?
2. Have I had enough? This may be easy to answer for folks who are lukewarm about their work, but much tougher if we enjoy our job, including not just what we do each workday, but also the folks we interact with and the sense of identity that our job offers. An added issue: If we quit and discover we’ve given up something we love, it’s unlikely we can get our old job back.
3. Will I have enough to do? Even in retirement, we need a reason to get out of bed each morning. What will give us a sense of purpose once we quit the workforce? My hunch: If we struggle with question no. 2, it’s especially important to have a good answer to no. 3—because we’ll need to replace the satisfaction we got from our job with retirement activities that we find equally fulfilling.
I’ve always enjoyed reading about personal finance and Jonathan you were a big part of that dating back to your Wall Street Journal days. One thing I would love to see are articles or comments from actual people who have retired, how they live and how much money they needed to live their lifestyle. It would be so much easier to compare your lifestyle to theirs and place a number on how big a nest egg you need rather than formulas such as 26 times your salary.
Question 3, “will I have enough to do” is really important but often under emphasized. I like to refer to it as “what will I do after breakfast?”. Life needs purpose and for many that is much more than just leisure activities, especially high achievers who had busy careers.
I struggle with #1, but also wonder if I have too much? How much is truly enough?
Its so hard to know because of the huge error bars around things like inflation rate, tax rates, market returns, possible cuts to social security. Looking at market returns alone – when I run the Fidelity model Monte Carlo analysis, I end up with a 32X difference between the amount that may be remaining when I die, depending on assuming significantly below average market returns vs typical market returns. Thus, if we want to be protected against multiple bad scenarios occurring at once (increased taxes, low market returns, especially early in retirement, high inflation, needing LTC for a prolonged period), those of us without a good, inflation adjusted pension are forced to save huge amounts if we want to be really sure we won’t run out of money. We amass significant assets, and then still dare not spend too much. Then in then end, we may end up leaving our heirs a life-altering sum – which may not be the best outcome either.
Three simple questions to ask but so complex to answer.
For myself, the most difficult to answer is #1. On the surface, it feels like I’ll have enough, but the ‘what ifs’ are what keep me up at night. I’m sure some people will say if I have ‘what if’ scenarios that cause me stress, then I don’t have ‘enough’. But I’m pretty sure my ‘what ifs’ will always be there, regardless of the size of my net worth.
Questions 2 and 3 aren’t difficult for me to answer. I can’t wait to leave full-time work behind. It will finally allow me to have some time to start working on that ‘to do’ list I’ve been creating for the last 30 years.