I’m 60 years old, divorced and have retirement at 62 in my sights. I have about $150,000 in retirement savings, about $2,500 in monthly Social Security retirement income starting at age 62, and I plan to move out of the country. Right now, I make about $5,200 per month after taxes, but I feel like I only need about $3,500 per month in retirement. To be fair, I still spend everything I make right now. And for what it’s worth, I don’t mind working a bit in retirement, especially if it’s selling the pottery I make for a few hundred bucks here or there. Is any of this making sense?
I know your question is about you, not me, but questions like this remind me why I love financial planning so much. Because, on the surface, you don’t have the “right” amount saved for retirement. You spend too much money right now, and the prospect of international, intermittent pottery sales has you feeling optimistic.
Yet, I like it. I like all of it. With the proper game plan over the next two years, I believe you can make this work.
Your retirement won’t be the type of retirement depicted in television commercials during Sunday golf matches, but I get the feeling you already knew that. A $150,000 retirement account balance will provide nothing more than supplemental income at retirement, and your Social Security retirement income will be your core income, as opposed to your safety net. This, however, isn’t unusual, as more than 50% of retirees receive the majority of their retirement income from Social Security.
Like millions of other Americans, you will need to supplement your core income stream with various other income streams. For instance, your $150,000 should be able to produce $400 to $500 of monthly retirement income. You should be able to produce another $1,000 of retirement income by working somewhere 15 to 25 hours a week (depending on your hourly wage). And to be honest, I have no idea how much your pottery will sell for. I made my mom a pottery pencil holder when I was in second grade, and I guess it to be somewhere between worthless and priceless. She still uses it, for what that’s worth.
I’ve just pieced together more than $4,000 of retirement income for you, without too much effort.
But your biggest chance of success will come in your ability to shrink your deficit from the other side. If I’ve said it once, I have said it a few thousand times: Most Americans’ best chance at retirement success will not come from their having a lot of money; it will come from their not needing a lot of money. In other words, if you spend the next two years reducing your dependency on your income, you will undoubtedly have a beautiful retirement.
The fact of the matter is, you don’t need $5,200 per month to live. You said as much. You spend more than you have to because you don’t have the proper plan in place that would redirect some of your discretionary income into something more meaningful. I’d compare it to eating because you’re bored. We’ve all reached for a bag of chips or a cookie, not out of hunger, but out of boredom and a lack of nutritional purpose.
According to your email, you don’t need $1,700 per month, which you’re currently spending. That’s about $425 per week. Can you really reduce your spending by $425 per week? What would that even look like? It’s about $60 per day.
Are you really blowing through an extra $60 per day? I can understand spending $60 more than you want to a few days per week, but I’m not sure I can see it happening seven days per week, unless you have a nasty golf habit. I think a more realistic habit would be cutting spending $250 to $300 per week.
I would not even consider retiring until your spending matches your projected retirement income for at least six months. Otherwise, you will find yourself in the worst game of “could’ve, would’ve, should’ve” you could possibly imagine. You must prove to yourself that you have the ability to make this work. You can’t simply cross your fingers and hope it works.
If you can stay focused on the right points of action over the next two years, you could have a lovely retirement. The stakes are too incredibly high for you to keep guessing. Know your numbers, and success will follow.•
Dunn is CEO of Your Money Line powered by Pete the Planner, an employee-benefit organization focused on solving employees’ financial challenges. Email your financial questions to email@example.com.