Expenses must at least match retirement income – Indianapolis Business Journal

Dear Pete,

I’m 60, divorced and aiming to retire at 62. I have about $150,000 in retirement savings, about $2,500 in monthly Social Security retirement income from age 62, and I plan to leave the country. Right now I make about $5,200 a month after taxes, but feel like I only need about $3,500 a month in retirement. To be fair, I still spend everything I earn right now. And for what it’s worth, I don’t mind working a bit in retirement, especially if it’s selling the pottery I make for a few hundred bucks here or there. Does this all make sense?

—Gordon, Indianapolis

I know your question is about you, not me, but questions like this remind me why I love financial planning so much. Because at first glance, you don’t have the “right” amount saved for retirement. You’re spending too much money right now, and the prospect of intermittent international pottery sales makes you optimistic.

Still, I like it. I like it all. With the right game plan for the next two years, I believe you can make it work.

Your retirement won’t be the type of retirement depicted in television commercials during Sunday golf matches, but I have a feeling you already knew that. A retirement account balance of $150,000 will provide nothing more than additional income in retirement, and your Social Security retirement income will be your basic income, as opposed to your safety net. This, however, is not unusual, as more than 50% of retirees receive the majority of their retirement income from Social Security.

Like millions of other Americans, you will need to supplement your basic income stream with various other income streams. For example, your $150,000 should be able to produce a monthly retirement income of $400 to $500. You should be able to generate an additional $1,000 in retirement income by working 15-25 hours per week (depending on your hourly wage). And to be honest, I have no idea how much your pottery will sell for. I made my mom a pottery pencil holder when I was in second grade, and I guess it falls somewhere between worthless and priceless. She still uses it, for what it’s worth.

I just put together over $4,000 in retirement income for you, without much effort.

But your greatest chance of success will come from your ability to reduce your deficit on the other side. If I’ve said it once, I’ve said it thousands of times: the best chance of retirement success for most Americans doesn’t come from having lots of money; it will come from the fact that they will not need a lot of money. In other words, if you spend the next two years reducing your dependence on your income, you will undoubtedly have a great retirement.

The thing is, you don’t need $5,200 a month to live. You said it. You’re spending more than you need to because you haven’t put the right plan in place that would redirect some of your discretionary income to something more meaningful. I would liken it to eating because you’re bored. We’ve all grabbed a bag of chips or a cookie, not out of hunger, but out of boredom and lack of nutritional purpose.

According to your email, you don’t need $1,700 a month, which is what you’re currently spending. It’s about $425 per week. Can you really cut your spending by $425 a week? What would that even look like? It’s about $60 a day.

Are you really spending $60 more a day? I can understand you spending $60 more than you want a few days a week, but I’m not sure that happens seven days a week unless you have a bad golfing habit. I think a more realistic habit would be to cut expenses by $250 to $300 a week.

I wouldn’t even consider retiring until your expenses match your projected retirement income for at least six months. Otherwise, you’ll find yourself in the worst game of could’ve, should’ve, should’ve imaginable. You have to prove to yourself that you have the ability to do this job. You can’t just cross your fingers and hope it works.

If you can stay focused on the right action points over the next two years, you could have a great retirement. The stakes are too incredibly high to keep guessing. Know your numbers and success will follow.•


Dunn is CEO of Your Money Line powered by Pete the Planner, a benefits organization focused on solving employee financial problems. Send your financial questions to [email protected]