I’ve received a lot of questions following my series of investing posts. Well, I received ten questions. Which is two more than I thought I had readers. So that seemed a lot.
Here are some of the questions I thought most important – and my rather cheeky (as the Brits say) answers. Hope they are helpful!
1. How much will I need in retirement?
The short answer is I don't know what you need. There are ways for you to figure it out. Here’s what I considered/did before setting my goal:
First, as far as numbers go, according to many financial experts I’ve talked to the general rule is to assume you will live on 70-80 percent of your current income. Honestly, I assume 90 percent -- because I know myself. So while I may have agreed to the 70-80 percent rule, with a financial advisor sitting in the room, it also became clear to me that not a single financial advisor I spoke to has any plans whatsoever to help me pay my bills – either now or after I retire. Shocking, I know. So quite simply - due to my financial advisors’ cheapskatedness, likelihood I’ll still have a few significant bills in early retirement, and not to mention my desire to spend, I assume 90 percent. Remember as your income changes, so must your goal.
Second, you need to consider inflation (what 100k buys today, it will not buy tomorrow). The Government says to assume 2 percent inflation. I don’t trust the Government, so I figure 3 percent. This is why it matters so much how far you are from retirement age.
Third, I didn’t assume any “additional” income. I don’t own a home anymore. We did. We sold them and invested the profits – which made more sense for us. Therefore, unless we decide on a place to live in the “long-term,” and buy a home there, I need to factor in renting a home as a substantial cost in future. I also don’t assume any additional income on the sale of a currently non-existent home.
Also, I don’t assume that I will receive any money from the Government (social security), my parents, my husband, or my neighbor’s cat. I can’t. The Government will likely be broke by then, and the rest of them could possibly all hate me by that time – especially the cat.
Fourth is the question of how many years until you plan to retire and how long you think you will live. I know I want to retire by 60, if not before. 17 years. So that's what I'm planning on. The further you are from retirement the bigger your goal will be - again because of inflation.
Now, how long I think I will live was a tricky one for me. I know my proclivities to “live fully” pre-retirement will likely come back to haunt me, and make living an additional 30 years somewhat unlikely. Still, I’d like to see myself tottering around in a diamante-encrusted, velour sweatsuit with a Manhattan in hand, sporting green plastic jewelry when I’m 90. So that’s what I am planning for - 30 years.
Most importantly is the question of how and when you will realistically achieve your goal. And that answer comes down to how much and consistently you invest, and the returns you garner both pre and post-retirement.
There are clearly a lot of variables into setting numerical goals, but even more in thinking about what we want our retirement to look like - and I don't think we spend enough time talking/thinking about that. It’s all a little daunting, I know. So I split mine into thirds. During the first-third of my retirement -- and outside of money needed for food, expenses, additional healthcare costs and insurances, and in my case a possible rental property -- I assume most of my money will be spent enjoying time and experiences with family and friends. Those experiences include two big trips a year. I know I will want to go back to Africa and ride elephants. I’ve also included a little more cash during this period - particularly because my son(s) may just be finishing college during that time. I also plan to buy a beach property as a way to guilt my sons - or perhaps even entice them - into visiting me.
The second-third includes less money for "experience expenses" because by this time, I assume I will probably be annoyed by most of the people I spent time with during the first part of retirement. I figure I will only need a couple of friends and my sisters, who I can attend jazzercise classes with, and take monthly sojourns to historical points of interests, or the outlets. I’ve also included a bit more for healthcare during this part of retirement. I figure if I’m still in good health and don’t need it – great, I will instead join the “Red Hat Ladies” or some other such group, and donate that money to good causes, (and bonus eat for free at our monthly luncheons!).
During the final third, I've included enough money to cover rising healthcare, a considerable amount to children's non-profits, afford my diamante-encrusted sweat suit, keep a well-stocked cupboard of Manhattans, and provide me with the ability to live in a decent retirement home that includes perks like Bingo Mondays. I also will make sure I have enough money left over to spoil my grandkids just rotten enough, and show up to see them as often as I damn please, taking great joy in their parents’ aggravation for doing so. And finally, I want enough money for my family to throw a huge party when I die, so they can cremate me, turn my ashes into fireworks, and shoot them off over the ocean.
So given all this, my retirement goal is pretty substantial. I think it is most important to figure out what you need to live and how you want to live. I suggest you figure that and cost it out, before backing into your retirement number. Besides thinking about it that way makes it a little less daunting and even a little bit fun. I suspect that you may find your goal is pretty substantial too.
2. I don’t feel comfortable talking about money. I don’t feel like I can.
Ladies, let me remind you that women developed language. This is true. Because of the way our minds are genetically hard-wired, women made it possible for the human race to verbally communicate. And if the scientific evidence doesn’t convince you, not too sound to crass or crude, let me also remind you that many of you have communicated to me (or others!) in explicit detail about how you pushed a baby out of your vagina. I don’t think I need to say more. You can talk about money.
3. I don’t know anything about money or investing. I feel stupid compared to my spouse.
Well, you’re not stupid. You only don’t know, because you don’t know. You haven’t learned. In very much the same way your spouse hasn’t learned about coconut oil, or Common Core, standardized testing, child development, or Spanx. And you don’t hear him saying how “stupid” he feels. While you may not see these subjects as important as investing (but certainly education and child development are and there can be a great argument for Spanx as well!), all the more reason to learn….now. So tell “Sister Sabotage” your meeting is over. I don’t want to talk to her. And I don’t want you to talk to her, either. Instead, I want you to pick up a book, look at a website, check out your financial statements, ask as many questions as you want, and learn. Yes, you can.
4. We lost nearly half of our retirement. Now I feel really gun-shy around investing and haven’t done so in a while.
I’m not sure how to address this other than say losing money – and certainly half of your retirement - sucks. While I’m not sure of your specific situation, I can totally understand and empathize why you would feel gun-shy. But not investing at all isn’t going to make it any better. In fact, it will make it worse. I hate to be the one to say it, but it’s time to rip the band-aid off, sister. It’s kind of like when Goose died in the movie “Top Gun.” Maverick had to get back up there – start flying again. His instructor knew it, he knew it, and we all knew it. So you got your “Goose.” You crashed and burned. It happens – to a lot of people. But Mav learned from his mistakes, as will you. And you’ll have a smarter strategy this time. Be conservative with some money (check this post on a two bucket investing strategy one of my clients, Baton Investing, suggests), but the quicker you build back up your retirement, the quicker you get back out there, the better you’ll feel. Go, Maverick.
5. We use a financial advisor and he seems to be doing pretty well, although, honestly, I'm not sure.
OK, you know that part in the movie, “The Little Mermaid,” where Ariel gives up her voice for legs? If only she could have legs, she could get what she wants: to be human and marry a prince. Fine. She cuts a deal with a scary-looking sea witch, who promises her she can get the guy she wants using only her smile, good looks and body language. She then attempts to seduce said prince with the guidance of a singing frog. Oh, Ariel. Pretty as you are, clearly that glossy, red mane and righteous rack only got you so far.
So we all know Ariel didn't have to go through that, right? I mean honestly, had she thought about it first, she could have just cut the deal for a set of legs and then written the guy a note. Am I right?
I digress. I'm glad that you seem happy with your financial advisor. And I know a lot of good financial advisors - as well as a lot of singing frogs. But fact is, good financial advisor, or singing frog, no one is going to care about your money as much as you do. You have to be an active part of the planning and the doing. You need to think first. Know what your goals are. Know what you're invested in. Know what your returns are. Know the fees you are paying. Figure out the best way to get to your goal. And get it done. Mostly, educate yourself, first and don’t accept other people’s advice – sea witch, singing frog or financial advisor - as the God’s truth on the subject. There is probably more that you can do, and better ways to do it. You just have to think first and then do that.
6. OK, this is kind of a tough to share. I think my husband and I should get a divorce, but I don't want to leave him - mostly of because I'm too scared of what will happen financially - not just to me, but the kids too.
You’re right; this is a tough one – and especially tough for me to answer. All of my other answers have been kind of cheeky. Hopefully helpful, but cheeky nonetheless. Out of respect for you and your situation, I think your question deserves a more serious answer.
First, I have no idea what's going on with your personal life, so all I can honestly and genuinely say is that I wish and want for you to be truly happy, and at peace- whatever that means to you and your family.
With regard to your financial situation, although I have no formal statistics on this, I would guess that probably 90 percent of women married longer than 10 years have shared your same thought. I'm not sure if it makes you feel better, but perhaps there is some comfort in knowing you're not alone (I don't care what people admit). Still, getting divorced is devastating and scary, and I would think especially so, if you currently have no means of supporting yourself and your children. Not that I’m advocating for divorce or staying together - you need to make that decision - but if you do choose to divorce, also know there are plenty of women, and men, who are making it work, financially. It is possible. And in some cases, better.
I would suggest that you think about getting yourself more financially stable either way. Which – who knows – in the meantime -- may help your marriage, family and own feelings of self-worth. If you don’t stay together, it will certainly help you and your children in the long-term. But either way, while finances may continue to factor into your thought process, ultimately your decision will be based on other factors that are arguably far more important than money.
Finally, you should know I really try to stay away from giving advice on either parenting or marriage - as the longer I do both, the less I seem to know about either. So my last thought is that perhaps the one person you really need to talk to about this is your husband.
I wish you the best of luck.
Patty McDonough Kennedy is CEO of Kennedy Spencer (www.kennedyspencer.net) a marketing communication agency, and Human Works (www.humanworks.guru), a communication training company. She works with companies and individuals across the world to develop effective marketing, communication and speaking programs that measurably improve communication, raise awareness and increase sales. In her blog ((Laugh Lines)) she writes about business, parenting, life & money.
Note: She doesn't write about or promote products or services that she hasn't used - and liked - personally. She does accept contributions - stories, pictures, etc, from others, if they help inspire/empower women.