If you are like most Americans, you’ve probably asked yourself the question, maybe on more than one occasion, “Will I outlive my money?” With the perceived complexity involved in answering it, and the distractions of daily life, most people never take the time to fully address the question. This is unfortunate since, in our experience with clients, knowing the answer often brings a great deal of inner peace to their financial lives. At the very least, knowing the answer will inform your thinking about how to allocate your money and make important financial decisions.
It Doesn’t Have to Be Difficult
Most people never take the steps necessary to answer the question because they fear the “process”. They have a misperception that the process to answer the question will require a lot of their time, or be difficult because they do not keep precise records of their spending. Some folks become anxious because they fear the results will force them to live by a strict budget, and this couldn’t be further from the truth (we don’t use the “b” word around here). These misperceptions or fears are not warranted, and the process to answer the question doesn’t have to be difficult.
When we help clients address this question, we begin by having a conversation about their financial goals. In this case, setting goals is easier done than said. For example, a financial goal could be as simple as, “I want to maintain our standard of living from now until the last of us is no longer here.” Or another, “We want to travel for the next ten years at the same pace we do now.” That was easy. Now just put some numbers to them: if it costs you $5,000 a month to enjoy your lifestyle, then that’s the number.
We’ll take those retirement goals and do the heavy lifting that reconciles them with their current and future resources, which include income and savings. Using a variety of retirement planning tools, we analyze their projected income from sources like Social Security, pensions and annuities, and determine how much they will need to withdraw from their savings and investments to achieve their goals.
The results of our analysis culminates in an answer to the question based on academic rigor but didn’t require a lot of effort from the client. The answer may be surprising, but for most knowing their likely outcome provides a sense of relief.
Now You Know
Having an answer to the question of outliving your assets can be empowering. Clients who have gone through the process now can begin asking other questions. For if example, they might ask, “If were are not going to run out of money, what affect would increasing our spending have?” With all of the input completed, a foundation for answering retirement’s what-ifs is in place for the future. As the client’s financial planner, we now have another metric for providing personalized advice in the achievement of their retirement goals.
If you are not sure you will have enough money to reach your financial goals, we encourage you to give us a call. It is our mission to help you make smart financial decisions and avoid costly mistakes. Don’t let misperceptions about the process prevent you from answering the question, “will you outlive your money?”