Retirement Isn’t All About The Numbers

May 22, 2015

Once in a while, usually during a long cold winter in the Northeast/Mid-Atlantic area, my thoughts wander into a warmer place. I’ve joked that one of the requirements for my next home is that I have to be able to call the local Home Depot/Lowe’s and when I ask if they sell snow shovels, their answer MUST be… “NEVER!  Not a single day during the year do we sell snow shovels.” It was while discussing that philosophy with a friend that she pulled up this article on her phone to discuss her retirement dream. She would like to explore the world for a decade or so and then settle down in whatever place she feels like calling home. That sounds like a pretty cool lifestyle and one that a lot of people would love to experience. 

The people discussed in the article are all Americans who are “on a permanent vacation.”  One guy has moved to Mexico and has a much lower cost of living than he had in the U.S. One woman moved to Chile and is working at an international school there to maintain her visa. A couple moved to Portugal and now has culture shock when they come back to visit family and friends in the U.S. The last woman is spending about a month in different countries with the goal of hitting every country in the world and she has an online business teaching language and entrepreneurship to help fund her excursions.

Each story has serious appeal. I’m thinking…I could do this!  (The more of these stories I read about, the more I hope to remain single until retirement so that I only have to debate these ideas with myself before taking the leap.)

A lot of retirement planning conversations focus on number crunching. Can you replace 80% of your current income? How much money are you hoping to have in investment assets at retirement? What income sources will you have? How much more can you save now?

Don’t get me wrong. Those questions are all important but a lot of conversations (not the ones I usually have with people!) miss “the vision thing.” What do you want retirement to look like? On a random Tuesday morning at 8:30 am, what will you be doing once you aren’t scheduled to be in an all day meeting?

Last week, I met with someone who had enough investment assets on top of a generous pension and a Social Security benefit to replace her current income (plus some) and live to be 150. This woman was a phenomenal saver and investor and she was a relatively new landlord too. She owned a home near her office and a beach house about an hour away, which was rented seasonally. She was almost breaking even with that. The rent was about $100 short of paying the mortgage and property taxes.

She also had a Florida home that she rented to “snowbirds” from the Northeast and that house almost broke even too. Each of her two rentals was on 30 year mortgages with between 20-25 years left to pay. She also thought that her current home was too big, now that the kids were all grown and gone, to be her retirement home. She wasn’t sure if she wanted to live at the beach, or in Florida, or in a smaller condo near her current house.

She wasn’t making money on the rentals and wasn’t counting on them as a source of retirement income. She wasn’t building equity quickly in them and had no intention to sell anytime soon. She couldn’t articulate a reason for purchasing either rental property.

It just seemed like “the thing to do” so she did it. The properties were neither producing income nor intended to sell later as a means of raising capital. She didn’t have a vision for the properties.

She didn’t have a vision for retirement, either. She had enough investable assets to retire today, but she wanted to work for a few more years…or maybe another decade. She wasn’t clear on her longer term goals. She had been so focused on having “the right behaviors financially” that she failed to connect the dots to having longer term goals.

I asked what she had been saving for and she answered “so I won’t be broke when I retire” but she couldn’t answer what retirement looked like. I may have made a mistake when I shared this article with her because now she has even more ideas running around in her brain. We are going to meet again in a few months and I gave her a homework assignment to complete between now and then.

She has to develop a bucket list. What are some things she wants to do after retirement?  Does she want to live in one place or several? Does she want to travel and if so, where and how often? Will she feel like she has to work or volunteer somewhere or can she just relax into retirement?

Her assignment, developing a vision, is something that we should all do. Can you answer the question about what your vision looks like for retirement? What kinds of things will you do? Why are you working so hard to save money? Why are you funding your 401k and investing to build up your asset base?

If you can develop your vision of retirement, then the number crunching exercises that we, as financial planners, LOVE to engage in can become even more useful. When you merge the numbers with your vision, your retirement plan can become more than an abstract concept. It can eventually turn into reality.