retirement lifestyle

Can I Afford to Retire?

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Perhaps the biggest financial issue people try to understand is their own retirement situation. Will you have enough cash flow to live as you would like in retirement? Will you be able to retire at an acceptable age? Are you on track to retire when you want to?

We use a straightforward process to help people answer these questions. It isn’t rocket science, but it does take some thought. Our process has some fine points, but the basics are simple:

First, how much cash coming in every month will it take for you to feel like you have what you need?

Second, what will your sources of monthly income in retirement add up to? We are talking about Social Security or Railroad Retirement, pensions, rent, and other recurring monthly payments. This step does not include money from your portfolios or 401(k) type accounts.

Third, what is the monthly gap between your needs in Step One and your sources from Step Two?

Fourth, multiply that monthly gap from Step Three by twelve to get the annual shortfall. Then multiply that by twenty to understand how much permanent lump sum capital you will need in order to retire. For example, if you are short $18,000 per year, you’ll need $360,000 (which is $18,000 times twenty).

We like to estimate that you can probably earn about 5% of your investment capital each year in income and gains. So if you have capital equal to twenty times your desired income, you can potentially afford to take out 5% (one-twentieth) per year without having to spend down your capital.

About those fine points: we factor in the rising cost of living, we make estimates about future changes in Social Security and other monthly benefits, we make assumptions about rates of return. There are no guarantees on any of these things. But it always pays to take your best shot at it and plan accordingly. As retirement gets closer, your estimates will get better and better.

There are other factors as well. Sometimes spouses do not retire at the same time. Often there are plans to change residences or move. Retirement may trigger a lump sum purchase of a boat, RV, or second home. We strive to understand all the pieces of your puzzle, and plan for your specific objectives.

Clients, if we may help you improve your understanding of your retirement plans and planning, please email us or call. We love to work on this topic.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

No strategy assures success or protects against loss.

This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

Investing involves risk, including possible loss of principal.

Case Study: Home Sweet Home

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Quite a few clients are reaching the twentieth anniversary of starting in business with us. So the sixty year olds then are eighty now. A lot can happen in those twenty years!

Mr. and Mrs. Q retired successfully a few years into our relationship, a major transition that ended up well. Then they surprised themselves and me when they decided to build a home in a suburban community and leave their city home of more than forty years.

After thoughtfully considering what they wanted, the Q’s built a beautiful new home and never looked back. It was a great move for them.

A dozen years later, the home may not make the most sense for them. Senior living apartments with some services and meals may be a better option in the near future.

In every transition, we look at four kinds of numbers: lump sums coming in, lump sums going out, recurring monthly income, recurring monthly outgo. And we do the arithmetic to sort out how much invested capital will be available after the transition. Then we can figure out the size of ‘the fruit crop from the orchard.’ (By which we mean the cash flow from invested capital, of course.)

We have gone through this process three times for Mr. and Mrs. Q. First they needed to determine if they could afford to retire. Later, the home-building idea had to be framed up so they could make a good decision. Now, we are working on the next move.

One of the interesting parts of our work is that we never make decisions for you. Usually, the key part of a major decision is feelings, not arithmetic. We strongly believe in doing all the arithmetic that can be done. But no computer can decide where you want to wake up every day, or if you sense that maintaining a home has become too great of an effort.

Just as we never forget whose money it is, we never forget whose life it is, either. We will never kid anybody about the arithmetic, nor kid ourselves by thinking we can make better life decisions than you.

Clients, if you face a transition and want to begin framing up a better understanding of it, please email or call us.


Securities offered through LPL Financial, Member FINRA/SIPC.

This is a hypothetical example and is not representative of any specific investment. Your results may vary.

The Very Best Way to Retire

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Have you been reading those articles with titles like “Ten Best Places to Retire” or “The Best Investments for Retirement” or “Six Best States for Retirement Taxes”?

Being in the business of retirement, and voracious readers besides, we read all that stuff. And we talk to scores of people about their retirement plans, and scores of retirees as well.

There is one sure thing about retirement: no one but you knows your best way to live in retirement. The articles are useful only to prompt your own thinking about your own situation. Most retirements are successful, in the sense that people are happier with greater freedom to pursue their interests and control over their schedules. These people often say, “I don’t know how I had time to work” because they are so busy. One client told us that “work is way over-rated.”

Other retirements do not work out as well. We believe there are a few aspects of retirement that successful retirees thought out in advance.

Where to live? A minority of people move to retirement destination locations. Most stay close to friends and family. Others split the difference and travel in winter or adopt a snowbird routine. With planning, you can do what you want to do.

What type of housing? Residential living encompasses more choices than ever before. Some people enjoy yardwork or gardening, or like to putter in the garage or shop. Others can’t wait to give away the rake and mower. The amenities of a condo or apartment community like a pool or exercise facilities are attractive to some. A townhouse setup with exterior maintenance and lawn care is the right choice for others. Staying in the family home is perhaps the most common option. Where do you want to wake up every day?

What to do? There are as many retirement lifestyles as there are people. Some spend much time with family, attending ballgames and school events of grandchildren, helping with child care or errands. Others are busy with some combination of fishing, hunting, golf, tennis, hiking, traveling, exercising, boating or travel. Social clubs, meals with friends, bowling leagues, or card parties dot some retiree calendars. Part-time jobs are desirable for an increasing number of retirees, both for a little extra income and for the enjoyment. How do you want to spend your time?

A wise person once said, “Time is what life is made out of. Be careful how you spend it.” Your time, your life. Think about it. We are here to do the math; call us if you would like an office appointment or telephone conference.