You Will Never Save Enough Money to Retire
You have 10 years left to live.
Could go sooner. Probably won't go later.
You know with near certainty that these last 10 years: That's all you get.
After that, you're done. Finito. Kaput. Party's over.
So. 10 years. What do you want them to look like?
Do you want to spend your remaining time on Earth working? Longing for evenings and weekends so you can run errands and watch TV? Making a dime so someone else can make a dollar?
If so, that's very generous of you. I'm sure the person signing your paychecks will consider the possibility of sending your family flowers when you're dead.
Or how about this:
Do you want to relinquish all your money and freedom to live in a facility? Letting someone else decide your days for you? When you eat, what you can do, where you go? Waiting idly for friends or family to visit you out of obligation or guilt?
If so, well, I'm sorry. You might already be dead.
Of course, these aren't the only options you have for spending your last 10 years...
But imagining the next 10 years will be your last?
You have to imagine that you will not be around for the people you care about or care for, except for these 10 years.
You have to imagine that all the things you want to do and see and feel…
Well, you only have 10 years to do all of it.
Makes you rethink your priorities a bit, doesn't it? Kinda adds a tinge of desperation?
At least it does for me.
So now that we have the taste of desperation in our mouths, let’s back up a bit, because we probably have MORE than 10 years left. Lots more.
The situation I just described is the position most elderly folks find themselves in. Especially in the U.S.
Of course, what I’m getting at is the R word.
I’m trying to talk about retirement without using the word “retirement.”
Why avoid the word?
Two reasons.
Reason the first: Because retirement planning is not fun! It’s boring and it sucks! The moment anyone mentions retirement planning strategies, people’s eyes glaze over. And any retirement plan is tough to make and stick to.
Even tougher if you’re 1) distracted by financial hardship or 2) distracted by financial abundance.
People would rather do anything else other than doing the hard work necessary to prepare for retirement. They do not realize that they probably will not have enough money to spend the last 10 years of your life the way they want to, for reasons I’ll prove to you in a moment.
Reason the second: We’re ultimately talking about being empathetic with a future version of yourself that you don’t know yet.
Imagine yourself as a kid... imagining your life now.
Different person, right?
Just look at how these kids imagined their life at 40:
Ridiculous, right?
But if you’re 40, you’re as far away from “retirement age” as these kids were from your age.
And that’s what’s so tough about this. Over time your values change. Your family changes. Your lifestyle changes.
If you’re 50, you have no clue how you’re going to think or feel at the age of 75.
And if you’re under 30 years old? You’re statistically more likely to say some dumb thing like “I probably won’t live past 30” or “I’m going to live to be 110” than you are to sit and think about the quality of your life and the lives of loved ones who aren’t in your life yet.
So let’s not talk about retirement planning.
Let’s call these final years “The Back 10.”
I guarantee that if you start thinking about how you want to live your Back 10, you’re going to start living differently. You’re going to make different choices. Doesn’t matter who you are or what you do.
And the whole point of thinking about living your life with 10 years left is to light a fire under your ass without the end being so close that you simply abandon hope.
Humans are bad at wrapping their heads around quantities...
So think about the quality of life you want to have in your remaining years.
And to that end, there are only three things to consider to get the most out of your Back 10:
The quality of life you WANT
The money you NEED to achieve that quality of life
And what you must DO to get that amount of money
How Do You Want to Spend the Back 10 of Your Life?
We touched on this in the beginning of this issue…
Many folks are not at all ready to face the realities of retirement.
We've all heard the average life expectancy in the U.S. is about 79.
But you probably don't know that the most frequent age of death is actually 87, according to one study.
You’re going to need to see a doctor every few months. Actually, according to Forbes, you’re going to be in a health care setting 17 to 25 days out of every year.
About 30% of the U.S. homeless population is over the age of 50. About 6.5% of the elderly population live in nursing homes or institutions. One study even showed that by 2025, 9.5 million elderly Americans will not have the money to afford enough food.
Did you think it was going to be playing golf or gardening every day until you died peacefully in a hospital bed, surrounded by people who love you?
Over 40% of seniors are lonely. More people are dying alone than ever before, and this number is increasing.
Is this how you want to spend your Back 10?
Listen, this isn’t meant to depress you.
The way to avoid a lot of these quality of life problems comes down to how you live when you’re younger and how much money you need.
And the quality of life you want is probably going to cost more than you think.
USA Today suggests that the typical retirement-age American spends $50,220 a year, but this varies greatly by state and can even reach $74,000 a year.
Want a little luxury, you’re going to need $120,000 a year, not including the cost of assets like your home.
This might seem mind-boggling to you, considering that the median personal income in the U.S. was $35,977 per year as of 2019, the median retirement account balance is $65,000, and the average Social Security benefit is currently about $18,516 per year.
So you have three things you can adjust when it comes to how you WANT to spend your Back 10...
You can change your quality of life expectations.
You can change your cost of living by moving to a cheaper location, like Mississippi, Alabama, or a country like Malaysia, Portugal, or Costa Rica.
You can change the amount of money you have.
(Or you can do some combination of the above.)
How Much Money Do You Actually Need for Your Back 10?
I asked some friends how much they think it will cost to “retire”…
Three of them said $500,000. One said $1,000,000. One said $10 million plus. And another crossed out $3 million and wrote “1 Gorillion Dollars.”
(The internet is strange sometimes.)
The real answer is actually pretty easy to calculate…
Take the annual cost of living to achieve the lifestyle you want...
Multiply it by 10…
And then factor inflation in.
I did a two-parter on inflation in the Chart of the Week segments here and here.
But if you want to guesstimate, expect between 3.4% and 6.3% per year. We’ll say 5%.
You can use this calculator.
Where it says “Present value,” just put the number you plan to live on times 10 (you can just add a 0 to the end of your annual cost of living). Where it says “Number of years,” put the number of years until you plan to begin your Back 10. Finally, for “Compounded,” select “Annually” and hit Execute.
That’s it. That’ll give you the total amount you need to live the last 10 years of your life the way you want.
If you plan to spend $50,220 per year, you’ll need $502,200.
Adjusted for inflation, that’ll be $818,000 in 10 years… $1.7 million in 25 years… and $5.7 million in 50 years.
If you plan to spend $120,000 per year, you’ll need $1.2 million. That’ll be $1.9 million in 10 years… $4 million in 25 years… and $13.7 million in 50 years.
Let’s just say, for the sake of simplicity, that your Back 10 will cost, total, $4.1 million.
That’s probably more than you expected, isn’t it?
And again, we’re just talking about your final 10 years of life. You want to think about your Back 20? Your Back 30? You’re going to need a lot more.
Is There Any Hope?
You’re probably starting to see why the subject line says “you will never SAVE enough money to retire.”
Max out your 401(k) at $19,500 per year for 25 years and you'll have $487,500 saved.
Max out an IRA ($6,000 per year) and you'll have $150,000 saved.
Now, are you saving this much money?
I doubt it.
And even if you were, you'd still come up hundreds of thousands of dollars short. Even with the help of Social Security.
But hope is not lost.
You’re going to live a long time. Longer than you think.
So you need to start thinking about your final 10 years now, before you only have 10 years left.
The subject line does not say “you will never HAVE enough money to retire.”
But to drill into the heart of that, we’re going to need to drill deeper into what you must DO to get enough money for your Back 10…
And more, because let’s face it: you probably don’t want to wait until you’re 77 to retire.
So if you want some ideas about what to do, you’re going to want to read next week’s issue of Finance Daddy.