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I love going to bed. There’s something comforting about lying in the darkness, wrapped in the sheets and blankets, knowing the wider world is unlikely to intrude. What bad could possibly happen? To me, there’s no safer place.
No doubt others feel differently, finding a sense of security elsewhere—in their SUV safely separated from other drivers, in the hefty balance in their checking account, in their large house fenced off from their neighbors, in their modest monthly financial obligations, in the fairly predictable stream of dividend income that flows each quarter into their brokerage account, in their collection of firearms, in their detailed financial records listing assets and expenses, in the wealth of possessions they’ve amassed over the years, in their pantry, refrigerator and freezer full of food. We all want to feel secure, but we all find it in different places.
This is clearly linked to the well-known phenomenon of loss aversion, which is our tendency to get more pain from losses than pleasure from gains. What is it that we need to feel safe from losses? How we answer this question drives how we manage our money.
For instance, I don’t budget or closely track my expenses. I don’t have a separate emergency fund. Indeed, I don’t keep much in cash and bonds, though I’d likely stash more in conservative investments if I wasn’t continuing to earn enough to cover my living costs.
But at the same time, I avoid debt and I look to pay bills as soon as they arrive, because I don’t like owing money. My desire to feel safe also drives my day-to-day reluctance to spend, though these days I’m more willing to splurge on trips and eating out, one result of my cancer diagnosis.
What we need to feel safe feeds into our risk tolerance—a notion usually associated with how much investment risk we’re willing to take. But our risk tolerance shows up in multiple ways:
I used to think that there were “right” ways to manage life’s financial risks. But I’ve come to realize that what folks need to feel safe varies widely—and, if the financial cost isn’t too high, who am I to quibble?
That brings me to today’s question: What do you need to feel financially safe?
15 times minimum expenses in safe(r) assets split into mostly liability matched buckets. 40% in cash and ST Treasuries, 40% in a a 2-5 year treasury fund, 20% in TIPS.
I need my checking account to have least $8k to feel financially safe,
Good question. I think I agree with almost everything you mention that you do, except I do not own a firearm. I also don’t have a mortgage or car payment. I now hate to owe anyone money, although I know it can be a good thing at certain times in your life, and I’ve had mortgages and car payments when I was younger.
“Secure” can mean financially secure, or something more. I’ve felt financially secure for a long time, and reached that point when I realized there was almost no way I would outlive my money.
But when I think of “secure” as being something more, I also think of having someone to love and who loves me (which could be a significant other or children, or both) and also feeling safe, taking into account where I live and my health. Has your assessment changed in the last year? And doesn’t facing end of life make you take a different view of what “secure” is – perhaps even a metaphysical view that looks are our place in the cosmos?
At this late stage, “feeling secure” isn’t on my radar screen. I’m much more focused on tidying up loose ends, doing good work and enjoying each day as best I can.
Jonathan – this article provided me with multiple insights around the motivators behind my almost Sisyphian daily pursuit of financial “security”.
Indeed, I suspect that for some HD readers, trying to tangibly define what security means will be akin to that adage on trying to define what pornography is: you’ll know it when you see it.
Thank you for yet another great article, sir!
”Sisyphean” – what a great new word for me! It definitely applies to me as well. Thank you!
Jonathan,
Thank you for writing such a great article /piece of advice.
The title implies that security is based upon perception.
What do I need to feel financially safe? Having the dubious achievement of a negative or zero net worth four times in the most recent 30 years, I have a straightforward answer. It touches upon that other perception which is “having enough.”
For 30 years I’ve run my numbers each year, with literally thousands of items accounted for. At one time this was via spreadsheets, but I gradually automated this, reducing the effort and time required. I now spend a couple of hours a month doing data entry and paying bills. My purpose was to increase the certainty of a desired outcome. I wanted to know, year after year if my plan was working and if not, then I needed to make changes. Without the data and resulting calculations it would have been like driving a car with the eyes closed. I do somewhat trust in the save and invest process. However, process control engineers might say that if you can’t measure it, you can’t control it. Generalities aren’t that helpful to me, and generalities provide a range of outcomes. Some undesirable.
I feel financially secure knowing that my spouse will be cared for and financially okay for the rest of her life, no matter what happens to me. There is no debt, adequate savings and there is Long Term Care insurance, etc.
For each year of the past 30 my numbers have indicated starting net worth, regular income, investment income, unrealized gains, realized gains, total income, expenses, net income, funds added, funds removed, ending net worth and percent change Y-o-Y. I also know the compound annual growth rate CAGR. I know the numbers if adjusted for inflation, or not. This data and the 30 year trends have been useful for annually determining my holistic approach to saving, investing and spending. It indicated of I was on target to meet my financial goals.
My biggest security unknown was how much income would I need for retirement? There seemed to be hundreds of advise articles and books with answers. I ended up using a premise from my job in manufacturing. The premise is when looking at a process, where human behavior, machine time and organization of flow influence the overall time, the one thing that you shouldn’t try to change is human behavior. Behavior is the hardest thing to change. I took that lesson for our spending behavior.
So, instead of trying to follow a budget (which both my wife and I are terrible at), I tracked our monthly spending over a few years, and realized we’re pretty consistent over the long term. I figured our behavior wouldn’t change after retirement, so that became the income goal.
Since retiring 3 years ago, I still track monthly spending. Some categories have changed, but the overall sum is still pretty close. I feel secure because the biggest variable is travel (around 25%), which is purely discretionary. Travel has become the one item that we truly discuss as a budget item each year. Seems to be working.
No Debt, with SS and RMD yearly, greater than spending. I had to save in IRA’s to make my own pension. A bank account to tide over any big expenditure and a stock market downturn. I, like Buffett believe in the S&P 500 to work for me over the next 20 years of my lifetime. Continued discipline not to overspend, but rather over save. I would like to leave a legacy for my children.
Recently I read that anxiety is almost always the result of uncertainty AND our underestimation of our ability to cope. To mitigate that anxiety, remember and recognize all the times we’ve adapted and survived difficult circumstances with resilience, innovation and courage.
In peace I will lie down and sleep, for you alone, Lord, make me dwell in safety. Psalm 4:8
I, too, am a product of parents who survived the Great Depression. They loved God, loved each other, lived responsibly, and raised six children to do the same. Their legacy is that they demonstrated their trust in the Lord to direct their paths and did not lean on their own understanding (Proverbs 3:5-6). They practiced wisdom in decisions, both small and large, but many things were not in their control. They worked together in life goals of loving God and each other and were faithful in modeling that before us as their family. I am the product of God’s grace in that family setting. We were poor in the eyes of men, yet so rich in the safety and security we knew at home, which then translated into the peace we were able to pass on to our own children. I have now been happily married for nearly 40 years and have raised five children of my own, with 10 grandchildren thus far. We, too, have often been poor in the eyes of men, yet I have slept in peace for a lifetime, knowing that my security does not come from things that are always “measurable” in our bank account or other investments. We have lived responsibly, and sought to be faithful stewards of what the Lord has entrusted to us, whether that be little or much. As we now approach retirement, we are debt free and have a humble home and property and feel “secure” in our anticipated income for the future. We have all we need. We have enough. We are content, and have blessings to share with our children and grandchildren now, and likely for their futures, as well. I trust that our legacy will also just be living faithfully in the Lord with what we have been entrusted, in our faith and our good works. To God be the glory, great things He has done!
How financially secure I feel is an ever-changing thing. I’ve come to realize the impact that my childhood has had on me makes feeling secure for any length of time challenging. My early years (ages 5-12) were spent suddenly moving from town to town, for reasons that were never explained to me. I recall starting over in three different towns/schools in the 6th grade until my stepfather was killed in an automobile accident that year. Consequently, I was able to graduate from the last school. Not surprisingly, we lived in a state of poverty for most of my childhood and never owned a home or even had a bank account until that final move.
The benefit of that start in life is that I became independent at a very early age and committed myself to making a life that was the antithesis of what I had experienced. I sought college/job/career opportunities that allowed me to increase my earning potential and I saved, saved, saved.
So now I find myself in my mid 60’s still seeking that sense of financial security. As the steward of our investments, I realized that it was creating too much stress for me to continue to manage our portfolio on my own so we decided to use a fiduciary advisor last year, which has helped me emotionally.
Following HD articles and discussions has shown me all the things I didn’t know that I didn’t know and has taught me a great deal. I’m so grateful for that. The most recent evolution in my financial thinking has been around the utility of single premium immediate annuities and how thinking of SS as an annuity may help me delay filing for benefits. Again, I’m grateful to HD contributors who continue to educate me.
So although true financial security may continue to be elusive for me, I see glimpses of it from time to time and I know that I can survive on very little. And for the financial security of us as a couple, I will continue to fight against the urge to move every couple of years, which seems to me to be my subconscious replaying early life patterns.
I cannot imagine ever feeling fully financially safe. It seems like everything can be taken away in a moment at any time. Technically my portfolio has hit the magic number that I should need to retire, but I spent so much of my life struggling financially, that I can’t bring myself to believe it. I see homeless people on the street and fear that could be me — and the orange loon toying with the economy unchecked like its one of his bankrupt companies doesn’t help.
Like R Quinn mentioned, knowing (and seeing) our pensions direct deposited into our bank account on the first of each month provides me with a great sense of feeling financially safe. My wife and I both had long careers with organizations that provided meaningful and robust pension benefits upon retirement. In my wife’s case, working for a large governmental organization that was sometimes “trying” to thrive in, she calls it her “combat pay”. Knowing that these payments will continue throughout both of our lives (we activated them both with Joint survivor benefits) and with small COLA adjustments to handle a large portion of our monthly expenses is very reassuring. We recently “turned on” my wife’s Social Security benefits at a year past FRA and are waiting a bit longer to activate mine. Having these monthly “paychecks” in retirement is a great feeling, especially during volatile market times recently, to know we have time to ride out the storm until accessing most of our assets.
Many of our friends have No Pensions and we feel the stress (and financial constraints) that they experience, having to Cobble together monthly inflow in retirement to meet their spending needs.
I’ve already exceeded my “number” and I’ll have a passive income flow in retirement that exceeds my burn rate. I have zero debt and don’t really want to buy much, maybe a pair of new shoes, a new merino wool T shirt or an occasional biz upgrade on a flight > 5 hours. My great joys are eating in restaurants (some Michelin) and reading books. These things are what make me feel financially safe.
William Housley said it best for me when he mentioned living under the protection of the Almighty. This has been true for Spouse and me, from our early married life together until today in retirement. God has always taken care of us. We have tried to live our lives as managers of what we have been given. We didn’t know a lot, but God put education in our lives so we could learn. Some of that education includes what I have learned here at HD.
Practical things that have made me feel financially safe are having a savings account, paying off our house, and having our kids close by. This was a great post, Jonathan, and I loved reading all the comments. Chris
Thought provoking article and good list. I can point to several things on the list that certainly contribute to feeling financially safe. But isolating which are the things I need is different.
Years ago, my wife and used to say that whatever happens, we own our house free and clear. In saying so, we made that a major element of feeling financially safe. Now we not only don’t own a home, we have no fixed abode to scamper back to, owned or otherwise. We still sleep well at night.
One thing that’s important and not on this list is knowing we are and will be safe from major fraud or cognitive decline. That last is a tougher one to insure against.
Financial security has been crucial in providing stability to my life,by bringing peace of mind, and protecting Assets . By prioritizing financial security I have enjoyed the benefits of flexibility and opportunity.
it is important in a relationship and also means we can continue living comfortably During tough times.
That brings me to today’s question: What do you need to feel financially safe?
This question reminds me of a period in my life when I did not feel financially safe. I was age 47 when divorce proceedings began. Paying all the bills for our marital home as well my own living expenses was a bear. Arthritis and planter fasciitis forced a change in occupations, followed by a several years of subpar earnings. I was depleting savings; something not natural to my personality.
Now a tax preparer, I earned nearly all of my income between 2/1 and 4/15. Then I’d watch the money dwindle until the start of the next busy season. Eventually things got better as my business grew. I finally felt safe and secure.
Having a good life partner is paramount to my feeling financially safe. Meeting Chris turned out to be a second chance for me to get things right. Our goals, financially and otherwise, line up about as well as I’d ever hoped for. Together we have created a lifestyle that allows us to live the way we like while staying within our means.
Unlike many parents whose adult kids need help, my daughters have never come to me for financial help, and I doubt that either will have a need for my legacy. This helps tremendously with my feeling financially safe.
Regarding risks and safety…
Before my semi-retirement, I arranged international internships for young people—sometimes in regions not known for their safety.
Parents often asked me about the risks involved. I would tell them: “There is no place in the world where safety can be guaranteed—not New York, Los Angeles, or even that familiar part of town where you live. Ultimately, the safest place to be is under the protection of the Almighty.”
I believe the same principle applies to finances. There’s no investment, strategy, or location where your financial future is completely secure. That’s why I think the wisest course is often the simplest: stick to what’s easy, common sense, and uncomplicated.
I say amen to what you said about the safest place to be [with finances too] is under the protection of the Almighty. Well said! Chris
For many years I had a camper van. We used it (too infrequently) to travel up and down the West Coast, to park at beaches and redwood campgrounds and just by the side of the road, cook something on the little propane stove and sack out for a great night’s sleep.
It also felt like a strange kind of financial lifeboat. I got an odd sense of safety out of knowing that if everything went to hell, if it all was gone, I could still live in the van, park at the beach every day, eat cheap, shower at the gym and sleep in locked-in security. Even dreamed about it once in a while.
I finally sold the van a couple of years ago — used vans were wildly overinflated then, and I got back 2/3 of the purchase price from 17 years earlier — and used the proceeds to buy my wife a new SUV. I guess that means I feel secure enough to not need that lifeboat in the driveway.
In addition to all the ideas mentioned, I feel more secure having long term care insurance, a robust estate plan and making sure surviving spouse is financially taken care of.
Reminds me of the famous story of the investor who approached JP Morgan and told him he couldn’t sleep because of his stock portfolio and asked Morgan what he should do. Morgan said, “sell to the sleeping point.” I love this advice for risk management.
Thanks for asking, Jonathan. I feel blessed in having always felt finanically safe, even in my younger years with little income.
Early on, I derived safety from keeping a rainy day fund and feeling resourceful enough to weather a job loss. That changed as my accounts grew, to the point in my mid-50s where I knew I could walk away from work and draw as much income from savings as from working (I worked instead another ten years). Now in retirement, safety is having a potential “paycheck for life” in 403b savings that could become an annuity and provide for more income than I would use. That the funds are in fixed income investments contributes to the feeling of safety; if other investments fail, I would most likely still have these. Thoughts of succumbing to scams as I age and losing cyber security, however, are definitely creeping in; converting to the annuity at some point may help ease them.
Good thoughts about the scams as you age and cyber security, JoBo. Chris
I’m glad you narrowed the question to “financially” safe because I don’t think there’s such a thing as feeling completely safe in an existential sense, whether it’s fear of illness or disability, loss of loved ones, wildfires or hurricanes, mass shootings, etc. As the Book says, “In this world you will have trouble.”
Financially safe, though? That’s pretty straightforward for me:
Agree with what you wrote, Dana. Chris
Answer: Enough.
And I’m there.
This is a concise summary! No matter where you are!!
For me it’s knowing I have a reliable income stream from my wife’s and my Social Security and several annuities. Additionally, our net worth has increased dramatically since I retired 15 years ago (I’m now 80). However, nothing can compare to falling asleep wrapped in the arms of my wife of 57 years.
Me too, Bob. Unfortunately due to our dramatically different temperature preferences in bed (she says I’m too hot), we don’t do it all that often!
Even though I’m a night owl and definitely hit the sack much later than you, Jonathan, I look forward to bed and fall asleep quickly. Today I woke up knowing that I will receive some birthday cards and online wishes. Beautiful flowers from the kids came yesterday. Regarding financial security, finally I will disclose that I don’t manage my own money: I pay a pretty high fee to a full service financial firm. Why? Shortly after Doug’s death five years ago, one of my kids told me that Doug wanted me to place our funds with that child’s employer after his demise (he was a planner). I was very surprised – up till then everything had been with Vanguard. But I knew, as Doug did, that in a roundabout way, a tiny amount of my fee would accrue to our child’s benefit and from his executive position, he could keep an eye on my account if he so chose (though he would have nothing directly to do with it). I knew that our child trusted his employer, and that trusting how my money was being managed would give my only financially savvy offspring some peace of mind, so I made the switch. I check my accounts once a month and meet with the planner annually. So far, so good. So that’s where my financial security lies, and I’m able to sleep well at night.
Many happy returns, Linda.
Good health, good cheer.
Happy birthday, Linda. Chris
Great post Jonathan. What has given me, and continues to give me comfort is feeling I’m on top of our financial lives, meaning I have a good understanding of income and expenses, what’s on our balance sheet, what types of future expenses we might expect, and what options we have to address the future. I like knowing we have a margin of safety that gives us options should the need arise. I also get great comfort from knowing that our children and their families are thriving. That is a true blessing.
“What has given me, and continues to give me comfort is feeling I’m on top of our financial lives, meaning I have a good understanding of income and expenses, what’s on our balance sheet, what types of future expenses we might expect, and what options we have to address the future. I like knowing we have a margin.”
I’m like you Rick.
What do I need to feel financially safe?
As I have written before since we are living off of our assets prior to claiming Social Security at 70, calculating our net worth, both liquid and total on a quarterly basis. This gives me comfort in knowing just where we stand financially, ie that our financial boat is not taking in more water than the bilge pump can handle (a boating analogy for any of you boating advocates)
We calculate our net worth quarterly also, David. It helps. Chris
There are so many of your observations here that apply to me, including going to bed.
I need most of what you suggest, certainly no debt and paying bills before they are due.
I feel secure because of my pension and social security. I doubt I would ever feel secure living off investments, regardless of the amount.
That’s probably why I worked until (67) i met my unusual income replacement percentage, but I traded time for my peace of mind. For us it has worked just fine. It helps when you enjoy your job as I did.
I get stressed if our investments decline now even though they are just sitting there.
You’re right, there is no right way dealing with finances, but in all honesty, I do read about what other people do or don’t do and sometimes I say to myself, what are they thinking?
i think you’ve proven you are an example of the hyper conservative, but by virtue of your job you were facilitated in this. Many of course do not have such secure employment and gold plated pensions so will always have to go another route. You won by virtue of post retirement longevity but even some who are similarly prudent lose by virtue of immediate health decline post retirement etc.
It’s perfectly possible to be “secure” living off an investment portfolio – if you have $3m pot and necessary plus discretionary expenses of 2x $50k, most would argue that it is reasonably secure (ignoring taxes for the notional point). Worst case you would prune discretionary spend in rough early years.
Armageddon case of global financial system meltdown – who’s to say your pension or annuity insurers are still standing anyway.
Being secure and feeling secure are two different things.
Yup, you’re right. I suspect it was caused mostly by watching my parents all their lives. My father working 12 hour days six, sometimes seven days a week, being told he was no longer wanted on the job at 66 and in the end nothing to show for it. Products of the Great Depression and WWII.
I feel safe knowing my children are self sufficient, my income from SS and pension cover more than my monthly expenses, and my withdrawal rate is zero other than charitable gifts to children and church.
I think there are different levels to financial security. We can be secure in the day to day and the short to mid term without being completely secure against all the “neutron bomb” things that might conceivably undermine us.
Things like not carrying debt, budgeting or accruing in advance for major expenses, taking portfolio approaches all help.
I don’t think it is necessarily helpful to be overly prudent e.g. annuitising all one’s income. The cost of that in flexibility or legacy or opportunity foregone may be too high. And we still run the risk of provider failure which could at least administratively be a major stressor.
But for some it might be the right answer.
I know lots of people seem to live day to day during working lives close to the wire. Maybe that drives them to greater reward in the workplace. For me, the peace of mind of always having an escape hatch has I think enabled me to retain some equilibrium. The big question in retirement is how do you replicate that “escape hatch” comfort?
Good thoughts, BBB. Chris
G’day Jonathon, thanks for your thoughts, all the way from Australia. Our view on financial and risk management is very closely aligned with yours. We don’t track expenses closely, but generally are pretty frugal.
For us, financially safe would probably be knowing that our retirement savings can reliably provide a comfortable income for 30-40 years.
It would be great to read about Australia’s superannuation retirement system from someone who lives under it.
William, I’m a really big fan of the Australian superannuation system, and I think most Australians would have a positive view of it. Along with all working Australians, I have a super account which we have been lucky enough to build to a point where it will fund our retirement. But as an employer I also see that this is contributing to our employees retirement funds every month. Over time this will reduce our reliance on government funded retirements, and in my humble opinion, that is a very good thing.