Build A Comfortable Retirement
Does a pawn shop worker from small town Georgia overcoming a bad case of kidney stones to win American Idol seem unlikely? Yes, but not for the reasons you think. It is unlikely because there simply aren’t very many small town Georgia singers working in pawn shops and suffering from kidney stones. It was more probable that the profile of the runner-up, a high school student from Southern California would win; not because of talent, but simply because there are far more singing high school students in SoCal.
This is something to think about when you are making financial decisions as well. The likelihood of being able to retire comfortably is a culmination of many big and little decisions over your lifetime. Surprisingly, it may have less to do with how well you have done investing and be more about how much you have saved, how long you have worked, and what your definition of comfort is. Investing appropriately matters, but so do these other things.
Saving money is trading some portion of your lifestyle today for one tomorrow. Retirement is not about replacing income, it involves replacing spending. Since you want less today, you will most likely want less tomorrow.
When you retire, you will live at least partially off of what you have saved. For each year that you work, a few things happen – you add to your investments and your investments have a chance to continue growing. Even if you choose to only earn a little bit of money when you retire, you are relieving the pressure of living off of your assets.
But most important, how you define comfort will have the largest impact on your perception about retirement. We recently had clients who built a single level, twelve hundred square foot, eco-friendly home for their retirement. The architect who first drew up the plans added about 40% more square footage than what they had wanted. My suspicion was that he was operating off of his idea of comfort rather than theirs.
This definition of comfort is most likely going to be a result of the next twenty years of little decisions that you will be making. Most people are unable to abruptly and dramatically change their lifestyle in retirement. So the key to a comfortable retirement is to spend your money on the things that give you the best chance of being comfortable. Trappings trap you. A large life is self-perpetuating.
To create a definition of comfort that will increase the likelihood of achieving it while still enjoying today, consider these two ideas:
- -Spend your money and time on things that regenerate – experiences, nature, health, family, friends and philanthropy.
- -Pause a few days before any purchase that is more than 5% of your monthly take home pay. This will stop your impulse purchases that unwittingly increase your definition of comfort.
While this year proved that anyone can win American Idol, the odds of building a comfortable retirement are far more in your favor.
