By Brad Thomason, CPA
It takes a lot of money to live a long time. You won’t know until the end exactly how much, because you don’t know when the end is going to be. We’ve discussed this before. But it stands to be a lot.
On the day that you decide to retire you will either have enough money to go the distance, or you won’t. The only way to know for sure (or at least something approaching certainty) is to have so much money that it is likely to last well beyond any remotely realistic life span. If you are 65 and can reasonably fund your lifestyle as you know it today for the next 60 or 70 years, then we can all pretty much assume that’s going to be good enough. Probably 30 years will be good enough (though more people live past 95 than you probably think; and it’s plausible to think even more will do so in the decades to come).
But the point here is that you will have enough money to “overwhelm the problem” (of ongoing expenses), or you won’t.
If you don’t have a high enough portfolio balance to play the overwhelm card, you are going to have to do something which you may not want to do. Here are your four basic options:
Option 1: Postpone your retirement date and keep working in your current career/position.
Option 2: Semi-retire. Either cut back on hours (if your employer is amenable) or switch to some sort of different position (or even field) for a few years when your formal career comes to its end.
Option 3: Take a more active stance as an investor, and in so doing take on more hassle and/or risk than is ideal (and maybe more than is even advisable…) in pursuit of higher returns.
Option 4: Gamble that you will die early enough to keep depletion of your assets from being a problem.
Yes, I know none of that is going to get labeled as feel-good information. But it is the truth. And given the title of the post, hopefully you weren’t expecting feel-good anyway. If you were, sorry to be a downer.
But in spite of all of the speculation, professional opinion and advice-giving that is an inseparable part of a modern retirement discussion, there are certain underlying realities, mathematical givens we might call them, that underpin all of it. They are utterly factual, utterly immutable, and as potentially harsh as any other aspect of the natural world’s fabric.
If the question is one of spending, then knowing what’s in the kitty will always be a substantial concern. And one number –projected outflow vs balance available - is almost always bigger than the other. A win or a loss follows therefrom, in the most mechanical, impersonal of fashions. Just the way it is. When faced with the proposition of a potential shortfall, the four items listed above are the most common responses; despite wide understanding that none of them are great.
Information of this type is presented to provide a jumping off point for decision making. If you haven’t retired yet, you can decide to enter these waters, or try to use your remaining years to drive your balances high enough to get in position to make the overwhelm card possible. If you are at or already in retirement, you can consider these various possible paths, and spend a minute contemplating which strikes you as the least of the evils.
Look, no one can realistically make the case that being short of funds is a good thing. So my take on it is, let’s not even try. Instead, I think better outcomes arise when we survey the landscape as it is – not how we want it to be, or in some abridged or fictitious way designed to spare people discomfort – and go from there. Solid ground is a good start for good decisions, even if the solid ground itself is unpleasant.
Plus, even if I tried to spare your feelings, you can do arithmetic as well as I can, and you would know anyway. Right?
So if you aren’t yet in this situation and don’t wish to be, you know what you need to do to try to affect the outcome. And if you are, now you know what your most likely options are.
OK. Now I’ll let you up for air. I’ll try to make the next post a little more cheery.
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