How Much??? - The Surprisingly Simple Retirement Planning System That Shows Why You Need

Introduction

Almost Broke

“You have 273 days of retirement money.”

The pretty blue-and-white website page told me I had nine months of retirement savings. The major financial institution that held my employer’s 401k account had calculated how long I could survive on the amount of money invested with them. How did they know? Should I trust them?

The fine print below the calculator said that this information was for my convenience, but the company could not guarantee the accuracy of the days of retirement money they estimated. My income, expenses, investments, tax laws, and other factors could greatly affect any projections. In short, the accuracy was dependent on my expertise in knowing my personal finances.

At the time, I had just left my full-time job. I was in my mid-50s and desperately needed to take a break from work, rest up, and plan the next chapter of my life. To my dismay, I found that instead of 273 days, my 401k money lasted less than 180 days. I don’t fault the financial institution for their inflated answer, and I learned a valuable lesson. It was up to me to determine my future financial needs. Born out of necessity and desperation, I developed my simple Do-It-Yourself Retirement Planning system to easily calculate how much money I needed for the remaining decades of my life. I had experienced how underestimating the amount of cash I needed could potentially create a catastrophic result. I reorganized my life and committed to being prepared for my future.

For over 30 years, I was both a consultant and employee for major organizations, rescuing many an executive by saving firms millions of dollars. My success came from looking beyond the numbers to understand what problems lie below the surface. I learned that income is the product of consistent and focused action, and expenses grow out of control despite the best implemented policies. I refocused business leaders toward long-term profits by avoiding short-term pitfalls. I advised over 100 companies how to better manage their people, processes, and money, but I had not been as successful with my own personal finances.

Despite earning a six-figure salary, I never felt like I had enough money. I don’t have lavish tastes, nor do I spend mindlessly. Nevertheless, each month I saw numbers on my bank statement for purchases I knew I had made but for which I couldn’t remember making. For years, I deposited a few hundred dollars a month into my 401k account, watched it grow, but still had the uneasy feeling that my efforts weren’t enough to sustain me for the long term.

I needed a new way to address my financial worries because the old ways clearly weren’t working. My lifestyle was ready to crumble, and I did not have a foundation for a desirable future. It wasn’t quite rock bottom, but it was close. On a cold winter afternoon, I realized I had only two months of cash left for my expenses after entirely depleting my 401k retirement account. I faced the fact that I am the only one who can rescue my finances and I had to act immediately to correct a critical situation.

I looked down at the scratch paper I had used to quickly calculate my cash needs. Those few moments of clarity were appalling, startling, and yet motivating. I was in too much fear to look at every penny I spent. The minutiae were overwhelming. But in those few minutes, I made a profound decision that would change my life. I picked up the phone and contacted a real estate agent to sell my house and reduce my largest cost—my housing—by 40%. To generate cash, I sold household goods I no longer needed. I put money in a jar each week, creating a tangible budget for groceries, dog food, gas, and other essentials. I didn’t consult a professional, read the latest blog post, or write down every cent I spent. My money represented my life, and I was committed to having a life I enjoy without overwhelming myself with detail and complexity. And that commitment made me my own best money manager. The cash I needed for the essentials in my life became exceptionally clear, and I managed them more easily and effectively.

I came to the realization that money is math. The smartest executives I know make important decisions using a few basic numbers, and I knew I could do the same. I didn’t have to be precise, just accurate enough to make a sound decision. When I discovered I was almost out of money, it didn’t matter if I had precisely 59.5 days or 63 days of cash remaining; I had two months left before I would be homeless. In the same vein, I didn’t need complicated investment algorithms or revenue projections. I just needed to know what I spend today, and what I plan to spend in the future. Simple math can show me the way.

I realized that my expensive and complex life had led to great financial uncertainty. I spent more than I earned. I had to face my fears and commit to changing my behavior, and that started by using a simple formula that showed me the grand total of my expenses. I took it a step further and made a few assumptions that showed me how much income I needed now and for the next few decades. Twenty minutes later, I had a simplified, fairly accurate estimate of how much I needed for retirement.

And now I want to share my epiphany with you: take responsibility for your money now and simplify your life. Adopt a financial system that uses simple, accurate information that helps you take decisive steps to secure your future. When you feel secure about your financial future, your health, relationships, and life tend to improve as well. With this DIY Retirement Planning system, you have the power to change your plan as often as you like, at little or no cost, as your life circumstances change.

I am not an accountant, lawyer, or financial advisor. I don’t sell stocks, mutual funds, or insurance. I respect financial experts’ opinions, and their professional wisdom is invaluable to avoid life’s major pitfalls. I am not going to tell you what to invest in or give you tax advice. I will leave that to the thousands of books and experts who know how to fund your retirement goals.

My advice isn’t conventional wisdom, and I will challenge you to think differently. My advice comes from the heart, and also from experience and practicality. I believe you should both enjoy and afford what you purchase. I don’t care if you have a latte every day because it may be the only luxury you can fit into your hectic life. I would rather you have your latte, but live in a small home, because your housing may be your largest expense. I would rather you use your $100-per-month gym membership and eat the best diet you can afford because your healthy habits may prevent you from contracting an expensive terminal illness. I would love to tell you to follow your bliss, retire early, and relax, but it may not fund your financial future. You may have to keep on working and find other things that bring you enjoyment in the meantime. Simplifying your life, reducing your costs, and creating income in a way that you enjoy will support you in your later years and help you live a successful retirement.

The Gap: Why Traditional Retirement Planning May Not Work for You

I received some interesting insights by informally surveying my fellow Baby Boomers about retirement planning and why they avoid it. Their comments included:

• I am too busy to think about today, let alone consider the future.
• I don’t have any money to invest.
• I was confused by the detailed retirement plan I got and can’t follow it.
• I am too overwhelmed by the millions of dollars I need for retirement.
• I am embarrassed to share my financial data.
• I am fed up with financial professionals who only want to earn a commission.
• I was rejected by a financial advisor because I’m not a “high net worth” individual and the advisor cannot make commissions from me.

Personally, I encountered a spectrum of financial advice. First, there was free advice. “Just compare your fixed expenses to your future income.” Not only was that advice vague, but highly inaccurate because it mentioned nothing about what taxes I might owe. The other end of the spectrum was specific and complex, requiring three years of tax returns, six months of checking, savings, credit card, and loan statements as well as ongoing access to my bank accounts. I once went through such a financial planning process with a certified financial planner from a robo-advisor who deemed my life too complex and hard to estimate. Really? It’s just me and my dog. How hard can it be to create a feasible plan for me? And that program would not adjust my plan if my life should change. The plan I received was accurate, I followed it for a year, and I paid a monthly subscription fee for continued access to their services. But when my life changed I discovered that it would cost several hundred dollars to update my financial plan so I didn’t pursue it.

The price you pay for retirement planning can vary greatly. Free advice is worth every penny you pay for it and probably will not give you the answers you need. You can consult with a financial advisor who will ultimately sell you investments or insurance policies for which you pay a commission. If you need a detailed and complex plan, you can pay up to $2,000 for a Certified Financial Planner (CFP), with additional costs to update your plan as your life changes. There are also online...