Retirement Reality: Needs, Expenses, and What’s Guaranteed

By Gary Silverman, CFP®

Last time we looked at some findings from a survey on retirement savings. As you can guess, it didn’t look good. Most Americans aren’t saving enough and about a third of them are saving nothing. But this time instead of piling on and telling y’all to get your act together, I thought I’d look at when saving nothing (or next to nothing) for retirement can work.

First it is probably a good idea to ask why we save for retirement. I’m guessing that “affording it” is high on the list. There are two main facts when we begin to look at affording retirement. The first is how much it costs to live during your retirement and the second is what income you are going to get during it to pay for that cost of living.

The first part, how much it costs, is not the easiest thing to figure out. Let’s just say that it takes more than multiplying your current income by 50, 70, or even 110% as some articles suggest. You are not a thumb, so no matter what thumb rule you apply it would be almost impossible for that answer to be the correct one for you. But as this article isn’t about how to determine retirement cost of living, let’s pretend that you ran all the numbers and it will cost you about $70,000 a year, in today’s dollars, to pay for, well, you.

The next part, what income you are going to get, is where the savings/investing comes in…maybe. First we want to look at guaranteed income streams. Now, nothing in life is truly guaranteed (okay, I’ll give you God’s love, but let’s stick to non-celestial here). Still some things are more guaranteed than others. Take Social Security and pensions: Some large entity has promised to pay you a certain amount. And while the government can renege on its promises and employers can fail, generally these items are considered guaranteed.

Then there are the non-guaranteed income sources. I’m thinking royalties on your oil and gas wells, rent as a landlord, and investments. After all, oil and gas income fluctuates with the energy market and the wells eventually depreciate. Real estate is a great investment, but it is a job if you manage and maintain the properties themselves. Rental income can also be a problem if a major employer goes away, leaving your rental empty. Something like a cracked foundation can cause a positive cash flow to turn negative rather quickly. Then there are investments…we talk about them often enough that you should know the vagaries with them. (And if you are astute, you’ll notice that the royalties and rentals are actually forms of investing.)

So back to the purpose of this series of articles: Can you retire without saving for it? The answer is yes. The key is to match your cost of living with those guaranteed income sources. More on that next time.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing